“India to see another group of IPO companies in niche sectors of second-tier markets”

Bengaluru: India, home to the world’s third-largest startup ecosystem, is set to witness more companies heading for an initial public offering (IPO) from the second-tier and higher end of the market, said venture capitalist (VC) Apoorva Ranjan Sharma. Mint.

To capture growing opportunities in pre-IPO and late-stage companies, Sharma is also considering a secondary fund. “While it is too early to comment, we are definitely looking at these options as there is a lot of demand for secondary assets right now,” he said.

Sharma, who has co-founded VC funds like Venture Catalysts and 100Unicorns, believes that many startups from smaller towns like Ambala and Silvassa often go unnoticed due to lack of awareness and resources to scale. Through his fund, he aims to mentor these startups until they reach a valuation of $100 million.

Since most of the big-name startups or unicorns—companies with billion-dollar valuations—come from more than 15 cities, he highlighted the addressable opportunity outside of those geographies, where founders need more help to grow. He expects the next batch of unicorns to come from different subsectors, which will help fuel India’s goal of becoming a $7 trillion economy by 2030.

In pursuit of this goal, Sharma said this could pave the way for specialist funds in the market to accelerate this growth. “Some sectors like fintech, SaaS (software as a service) and real estate technology could be bigger growth engines and require additional capital to disrupt the ecosystem.”

Sharma oversees sector funds such as Spyre, a prop-tech fund, and Beams Fintech. He has also backed sector-agnostic funds such as Elev8 Venture Partners, which focus on growth-stage technology companies.

Some of his portfolio companies, such as DrinkPrime, a water purification startup, and internet company Wiom, which he says has more focus than major providers like Jio and Airtel, are examples of those that have challenged the incumbents in this space, Sharma said. For example, Wiom is used by labourers and villagers who only go online for a day to, say, watch a cricket match. He said that in these geographies, Wiom has more users than Jio or Airtel. “These are the kinds of companies that are going to be the future of this country. They are going to be responsible for the next wave of innovation that is going to come from semi-urban and rural areas.”

In May, 100Unicorns, which is part of the multi-stage investment platform Venture Catalysts, launched its second accelerator fund with a target of $200 million to invest in early-stage startups. With check amounts ranging from $250,000 to $1 million, the fund plans to invest in about 200 startups in the country in sectors such as SaaS, fintech, electric vehicles and energy, defense, health, education, travel, direct-to-consumer (D2C) and agritech.

“These are our main focus areas. We are also expanding into the Middle East, North America and South Asia and expect our global investment to grow to 20% from the current 12%,” Sharma said.

Having worked with startups at all stages from seed to growth, he believes that the next few years will be a profoundly transformative phase for India as several startups that were founded in the last decade have matured and become eligible for listing on the stock exchanges. These new listed companies have renewed faith in the Indian markets and the ability to exit investments.

Despite investors’ concerns about liquidity, Sharma believes that “there is a huge opportunity for good investments and returns” and in today’s market, there are several exit options such as IPOs and acquisitions.

Sectors like consumer tech and D2C, which are challenging traditional fast-moving consumer goods (FMCG) players, are seeing a lot of acquisition interest, making them even more attractive to investors. “India is one of the largest consumer markets with a lot of listed companies that are keen to acquire smaller players” to stay competitive, Sharma said.

Other industry experts have also alluded to this trend, with incumbents often struggling to navigate the complexities of entering a new market, meeting the growing aspirations of young consumers or implementing newer distribution channels such as quick trade.

This can be seen in large consumer companies like Marico, which has acquired four startups in the past few years. These include men’s grooming company Beardo, health food startup True Elements, beauty brand Just Herbs and plant-based products company Plix.

Exit opportunities in India have further improved, as evidenced by the country’s growing capacity for secondary deals and the fact that several new companies are planning to list on the stock exchange in the next two to three years.

Some examples of large secondary deals include the $200 million investment by Temasek and Fidelity Management & ResearchCo. in eyewear retailer Lenskart, Mint reported in June. Omnichannel beauty retailer Purple also raised ₹1,000 crore through a combination of primary and secondary transactions led by a branch of the Abu Dhabi Investment Authority, Mint announced earlier this month.

The Bain India Venture Capital report also highlighted that the value of secondary and strategic sales increased, led by mega exits in consumer technology companies such as Flipkart and Lenskart. As investors seek to provide liquidity to their limited partners in a high interest rate environment, exits rose by almost 1.7x to $6.6 billion in 2023, the report said.