Venture capital firm Accel, an investor in Flipkart, Swiggy and Freshworks among others has raised a $650 million fund, its seventh focusing on India after a record-breaking year for startup funding and at a time when murmurs of a funding slowdown have begun.
The new fund will also invest in Southeast Asian tech startups, a first for Accel, and follows rival VC firms Sequoia and Lightspeed India, which have both expanded to Singapore and Indonesia in recent years.
Accel’s new fund topped its $550 million fund raised in late 2019, and it now manages over $2 billion in assets in India.
“2021 was a landmark year for India’s startup ecosystem, with over $40 billion invested and Indian as well as global IPOs. There have been some corrections since, but macro trends continue to be favourable,” said Anand Daniel, partner at Accel in an interview with Moneycontrol.
Accel will double down on areas it has invested in so far, including ecommerce, fintech, software and healthcare, in addition to Web3- the catchall term which covers cryptocurrencies and the so-called metaverse.
“We try to identify themes before they become mainstream and want to double down on categories as they become deeper, in addition to new themes,” said Barath Shankar Subramanian, partner.
Accel will primarily invest in Seed and Series A startups from its new fund, compared to peers Sequoia India and Elevation Capital, which are investing in later stage companies as well from their funds. Sequoia India is also raising a $2.8 billion fund, while Elevation is raising $600-650 million, Moneycontrol earlier reported.
With most VC funds ramping up crypto deals and hiring specialist investors, Accel India is looking to go into individual blockchains and invest in the “picks and shovels” businesses which enable Web3, Daniel said. Accel is an investor in FalconX, a crypto brokerage valued at $3.75 billion whose founder was earlier an Associate with Accel.
Accel’s new fund also coincides with fintech BharatPe’s unraveling- its founder Ashneer Grover ousted and accused of fraud- an ugly saga that has left the entire startup ecosystem shocked and mulling over other governance issues at private companies.
“We tend to partner with founders from the seed stage. Setting culture and governance standards starts from those days for us. We have decided to stay away from investments when we did not have comfort with the founders' financial prudence. Governance starts from the beginning,” Daniel said.
“It can be harder to ask the tough questions during a funding boom but that doesn’t mean we shouldn’t. It is important to ask those hard questions,” he added.
Despite murmurs of a funding downtown, Subramanian said that the firm continues to see a healthy pipeline of opportunities.
“It is extremely tough to predict where markets will go. Public market corrections tend to have a trickle down effect. Our advice to founders is to be prepared, ready and well capitalised,” Daniel said.
Media reports indicated that Accel was in talks to raise $800 million to a billion dollars for its new fund. A relatively smaller fund (although its largest so far) may also indicate prudence from Accel, which so far has a healthier track record of returning money to investors than some other funds, primarily due to its early bet on online retailer Flipkart, which Walmart acquired for $16 billion.
“Capital needed at the Seed and Series A level has not changed as much in India compared to the Valley. The right size for a fund is where we can stick to our core strategy, get into Seed/A rounds and support them through their B and C rounds. Our last three funds have been in this range,” Daniel said.
Accel’s biggest challenges currently include a war for talent plaguing startups, where employees are leaving quickly and in droves because another company is willing to pay record amounts of money amid a talent shortage.
“As Accel we also establish a certain level of trust with the founder. How you keep on top of that and build the relationship with the founders, is never a straight line,” Subramanian said.“We have to be hungry to chase down founders, take those bets, even if some don’t work, because that’s what VC investing is at some level,” Daniel said.