500 Startups reconsidering its decision to create India fund

BENGALURU/NEW DELHI: Silicon Valley-based venture capital firm 500 Startups may yet again have put on hold plans for an India fund, according to three people aware of the developments, posing an early dampener to startups hoping for another bumper year.

Aerin Lim, director of investor relations at 500 Startups, had in March said the investment firm and startup accelerator was raising $10-20 million (Rs 60-120 crore then) to create a separate vehicle focused on Indian startups—under the moniker ‘ Startupwallah’—that would be launched in the middle of 2015.

That never happened.
Now, the prolific early-stage investor is reconsidering its decision to create the India fund, the sources said, all of them requesting anonymity as the company’s discussions are private.

“Their overall strategy is changing given that they have struggled to raise money for their latest global fund,” one of them said. “So the conversations around an India fund has slowed down considerably—practically negligible over the past 6-12 months.”

500 Startups did not reply to an email questionnaire from ET. Pankaj Jain, who oversees its investment strategy in the country, declined to comment. three people aware of the development declined to be identified.

The development comes at a time when early-stage investing in India continues to scale new highs, even as companies struggle to raise the larger Series B and C follow-on funding rounds.

Individual or angel investors and venture capital funds backed about 1,100 deals in 2015, 68% more than in the previous year, data collated by VCCEdge show. Of those, 632 involved angel and seed, or early-stage, investors. Also, in 2015 angel funding crossed $300 million (about Rs 2,000 crore now) in value, increasing from $196 million in 2014. Venture capital funding increased to $5.18 billion from $2.28 billion.

“There continues to be a lot of interest in India and now is a good time for (limited partners, or investors in venture capital funds) to double down,” said Niren Shah, managing director, Norwest Venture Partners India.

This is the second time 500 Startups’ India plans are being put on hold. In 2012, Dave McClure, founding partner at 500 Startups, had tried to raise a $5-million India-focused fund but things did not work out.

“We started the process two years ago but had to put it on hold because the market was not mature back then,” Lim had told ET in March when he was on a trip to India to meet prospective investors for the fund. He said then that the investment firm, which manages assets of about $200 million, would look to offer $50,000-100,000 (Rs 30-60 lakh) per startup for an equity stake of 7% in the ventures.

500 Startups has invested in and helped accelerate growth for at least 1,000 startups across 50 countries since 2010. In India, it has backed a number of ventures including TradeBriefs, Instamojo, PriceBaba, Sheroes.in, OnlineTyari, gazeMetrix and ZipDial, and will continue to invest in the country through its global fund.

In other parts of Asia, it has launched micro-funds, including a $15-million South Korea fund called 500 Kimchis and a Southeast Asia fund called 500 Durians.