The high-risk high-reward game at the seed stage level, which yielded handsome returns for early investors of Flipkart, Ola, OYO, Zomato, Swiggy, and others, has helped blossom the micro or seed venture capital ecosystem in India in the past few years. Angel, seed or micro funds, clubbed in the category of micro VCs, which usually have a sweet spot of $500k-2 million per deal, have grown from 29 in 2014 to 88 in 2020. The rise in micro VCs in India has been driven by the growing number of startups across sectors, the market gap between angel investments and mid-large size institutional investors. Domestic limited partners (LPs) have also joined the party for better return potential, small cheque size requirement, deep operational expertise, flexible deal terms, and co-investment opportunities, according to a report by Indian Private Equity & Venture Capital Association (IVCA), Amazon Web Services and Praxis Global Alliance. Some of the prominent micro VCs in India currently are 100X VC, Pravega Ventures, 9 Unicorns, Artha Venture Fund, and more.
These micro VCs and others have invested $341 million in 730 deals across 566 startups between 2018-20. From $86 million in 183 deals across 131 startups in 2018, the ecosystem has expanded to $139 million in 310 deals across 256 startups. The top sectors attracting maximum capital were software as a service followed by consumer-focused apps and platforms, e-commerce and listing platforms, FMCG, BFSI, and others in 2020. Niramai, Open, Dukaan, Airmeet, Milkbasket, Truly Madly, Niki.ai, ECom Express, MPL have been a few of the notable portfolio companies of Indian micro VCs in the past.
“The Micro VC stage of investments with a smaller fund size is the highest risk capital asset class that is supporting India’s next-gen innovation driven entrepreneurs. Several smaller funds that started a decade ago have not only enabled an established Startup-VC ecosystem that we witness today, but have also outgrown themselves, supporting their early bets in later rounds as well,” said Rajat Tandon, President, IVCA.
Investors such as Helion Venture Partners, which had put $800k in Flipkart back in 2008, earned 16.7x returns on its exit from the Walmart-owned company. Others including Orios secured around a whopping 375x returns on its 2011 angel investment of $156k in Ola while DSG Consumer Partners witnessed around 6x returns on its $1.25 million investment in OYO back in 2014, according to the report titled Micro VC Funds in India: Emerging Players in Indian Startup Funding Landscape.