A New Generation Of Indian Startups Is Here — And These Specialist VCs Are Driving It

India is witnessing a surge in deep technology investments, as specialist VCs are seeking out high-quality product and enterprise tech startups to bankroll and mentor. (Photo by Joe Raedle/Getty Images)

The startup story in India has, in the past, been defined by consumer-driven ventures like Flipkart and Snapdeal, which eventually became e-commerce giants, drawing billions in funding. Lately, however, there has been a gradual shift in that ecosystem as India’s startups begin to focus on technology and product innovation, moving away from the consumer.

Specialist VCs On The Rise

This has led to the creation of specialist early stage funds, focused on grooming product innovation startups and headed by venture capitalists with domain expertise as well as entrepreneurial and operational experience. These specialist funds are playing a key role in co-creating scalable businesses, while bridging the funding gap between angel and series A investments in the venture capital spectrum of India.

And this strategy has paid off–a slew of product innovation and deep technology startups are now beginning to generate serious cash and bag bigger investments. Medical diagnostics startup Sigtuple Labs, which uses AI to analyze visual medical data, raised $19 million in series B funding led by Accel Partners and IDG Ventures. Sigtuple Labs is among the many deep tech-driven startups supported by specialist funds like Endiya Partners and pi Ventures.

“The venture investing ecosystem in India is undergoing a massive shift. Every venture capital company is looking for companies with IP, deep technology applications and a strong product. This is the next wave in India’s startup story,” said Manish Singhal, cofounder of pi Ventures, an AI, ML and IoT-focused early stage venture fund.

From left: Revanth Dodla, Sateesh Andra, Dr Ramesh Byrapaneni, Abhishek Srivastava, Abhiram Katta of Endiya Partners. (Image: Endiya Partners)

From left: Revanth Dodla, Sateesh Andra, Dr Ramesh Byrapaneni, Abhishek Srivastava, Abhiram Katta A of Endiya Partners. (Image: Endiya Partners)

For the founders of Hyderabad-based Endiya Partners, the endeavor was to invest in globally relevant, IP-led product startups, especially since Indian startups are filing more patents now than ever. Endiya’s $29 million portfolio consists of 11 disruptive and category-defining companies across technology, healthcare and tech-enabled consumer sectors that have cumulatively raised the value of their initial investment 10 times.

“Healthcare, fintech, semiconductors, mobile and enterprise SaaS (software as a service) are witnessing the application of advanced technologies like AI/ML (artificial intelligence/machine learning), Big Data, IoT (internet of things) and AR/VR (augmented reality/virtual reality). Investor interest in these startups is on the rise,” said Endiya’s managing director Sateesh Andra. “Being flooded with innovative ideas and support from the ecosystem, India holds the promise of leading the global deep tech startup story.”

Ideaspring Capital

From left: Mohandas Pai, Naganand Doraswamy, Prashant Deshpande and Arihant Patni.

Investors That Offer More Than Just Money

Andra believes the seed and early stage ecosystem in India presents compelling investment opportunities in the deep tech space. Moreover, focused investment strategies and a hands-on approach allows funds like Endiya Partners to not only groom disruptive technology startups, but also cue them up, while participating in follow-on rounds of funding.

For instance, both early stage investors pi Ventures and Endiya Partners brought a lot more to the table than just funds. pi Ventures assisted the team with designing the device and ironing out manufacturing processes, while Endiya Partners helped the team forge key strategic and data partnership agreements in the industry. pi Ventures and Endiya also participated in follow-on rounds of funding for Sigtuple in 2017 and 2018, among other major investors.

“These VCs understand and appreciate the need of innovative product companies in India. They take risks, and understand that some companies require longer gestation periods,” Pandey said.

Founders like Pandey have a mindset to solve problems using technology, and seek investors who understand this. California-based serial entrepreneur and angel investor BV Jagadeesh, who has led several successful investments in companies like Nutanix and Cohesity, believes that now is a critical time for India to develop its own identity as a tech hub, by creating its own products, IP and eventually a budding industry of homegrown talent.

“Currently, there are only a handful of investors in India interested in product startups. These investors are either standalone or run small-size seed funds, but also have operational and domain experience. Early adapters of product companies are needed to develop an ecosystem.”

“The quality of innovation is quite high today compared to five years ago,” said Deepak Agrawal, associate vice-president of Ideaspring Capital, a Bangalore-based early stage venture fund that specializes in deep technology-focused companies. “The advantage of being an early stage investor in product startups is that they aren’t capital intensive–a $600,000 investment can keep a small product team going for about 10 to 12 months as early stage funding is all about product development.”

Data by Venture Intelligence revealed that enterprise deep tech was the only major theme to witness an increase in investment activity last year in India, nearly doubling from 12 in 2016 to 23.

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