Venture capital ecosystem on the rise in Hyd

Venture capital ecosystem on the rise in Hyd
Highlights

More and more investors are now ready to invest in startups based out of Hyderabad, which was an unlikely scenario a few years ago

The five-year-old State of Telangana is the best example of change and growth. The rich State has a strong history, culture and tradition.

What really Telangana needed in the times of economic competition was to shed its image of being the hub for real estate and to strengthen its presence in the service sector by giving a push to the new emerging business models such as startups.

Startup investors observe that in 2014-15, the traction around startups was centered in Bengaluru, Delhi-NCR and Mumbai. In those days, Hyderabad had no role in startups.

Speaking with The Hans India, Sanjay Enishetty, Founder, 50K Ventures, says, "only in late 2015, startups started gaining traction in the City of Pearls.

By middle of 2017, there was more maturity in the startup ecosystem. The high acceptance level for the product and service provided by startups, and the birth of various incubators fast-tracked the startups growth."

Business incubation centres, public-private partnership along with the state government's intervention transformed Hyderabad in a city for startups. However, the onus is to shed the image of Hyderabad as the city that generates early stage startups.

"Though ideas came from Hyderabad, we did not see investors from other metros investing in startups over here, due to which these early stage startups were compelled to move to cities like Bengaluru or Mumbai," the Founder of Start-Up Hyderabad, Ravi Korukonda says.

He goes on to inform that with Hyderabad-based startups like Toppr raising $35 million in 2018, investors started looking at Hyderabad as an option for their investments into startups.

Going forward, with startups expanding and upscaling business, the city will witness increase in venture capital investments, Korukonda adds.

2017 saw several startups raising funds. Among them is Darwinbox, a human resources software-as-a-service startup, which raised $4 million. Such an activity increased in 2018.

Timla Foods brand PopiCorn raised $2 million, followed by Nowfloats Technologies, a software-as-a-service startup, which has raised $3.6 million in multiple tranches from 2018.

Cygni Energy Pvt Ltd raised $6.4 million in 2018, Innovapptive received a Series A funding of $16.3 million in 2019 while FlatPebble hasraised nearly $1 million (including seed funding of $6 lakh in 2015).

But the sad part of the story is that there is no accurate data on startups in the city. T-Hub, an incubation centre launched in the end of 2015, also has a shallow data from its recent 'Success Metrics of Lab32 Programme Batch 2018,' whereas Telangana State Innovation Cell, preferred not to respond to queries from The Hans India.

Competition between the cities to rank higher in the startup ecosystem cannot be shunned. What really the city and investors here are looking forward for is a Unicorn, not only in terms of valuation but also as a brand name.

"We have seen startups coming from Bengaluru, Mumbai to set up business here in order to get funded. The interest in this city's HNI(high net worth individual) and investor groups has gone up.

Hyderabad maybe a late start to enter the startup ecosystem, but it has got the potential to support the startups," says Prabir Mishra the founder of Saatra Capital.

Indian Angel Network, a network of angel investors, has so far invested in about eight Hyderabad-based startups like Vitas Pharma, FlatPebble, Transcell, 6Degree etc. The total amount invested in these companies is around Rs 30 crore.

Digvijay Singh, COO, Indian Angel Network, says, "Thanks to its lower costs of operations, Hyderabad is rapidly establishing itself as the city of choice for tech entrepreneurs looking to set up their ventures.

The strong support from the entire ecosystem, including the government and investors, has also played a key role in Hyderabad's emergence in startup space."

50K Ventures, a Hyderabad-based early-stage investment firm, till date has invested $2 million in 20 companies of which nine startups are based in the city.

The firm has done three exits. The firm believes to invest in early stage startups as they expect the investment to grow manifold post the startups service or product matures to capture the market.

Enishetty states that earlier investors were hesitant to invest in startups as they face zero assurance of returns whereas investments in real estate, gold or stocks at the least permitted to book losses.

"When your gaining, you stand a chance to lose too, its either zero or ten, that is the risk of investing in startups. High risk and high return. Moreover, the investors have to wait long to record wealth creation," he adds.

According to him, investors are not looking for returns but instead believe in the idea, the people, the model and the market, expecting the startup to upscale into a Unicorn in the coming years. His appeal to the Centre is to relax the tax slab on short term investments made by angel investors.

"An angel investor invests crores of rupees without any condition. They should come with benefits on short term investments.

We need some privileges from the government as a token of recognition for the risk taken," concludes 50K Ventures founder Enishetty.

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