Among the various financing options entrepreneurs can turn to when starting a new company is venture capital. Venture capital is money that is given to help build new startup firms that often are considered to have both high-growth and high-risk potential. These companies generally center on health care or new technology, including things such as software, the Internet and networking. In addition, a new breed of venture capital firms has recently formed to focus solely on investing in socially responsible companies.
Theoretically, venture capital funds give individual investors the ability to get in early at a company’s startup stage or in special situations in which there is opportunity for explosive growth.
Entrepreneurs often turn to venture capitalists for money because their company is so new, unproven and risky that more traditional forms of financing, such as through banks, aren’t readily available. Unlike other forms of financing where entrepreneurs are only required to pay back the loan amount plus interest, venture capital investments most commonly come in exchange for ownership shares in the company to ensure they have a say in its future direction.
Not all venture capital investments take place when a company is first being founded. Venture capitalists can provide funding throughout the various stages of a company’s progression. Research from the National Venture Capital Association revealed that in 2010,venture capitalists invested approximately $22 billion into nearly 2,749 companies, including 1,000 of which received funding for the first time. Among the more famous companies to receive venture capital during their startup periods are Apple, Compaq, Microsoft and Google.
The India story does not look too promising as a spate of consolidations and shutdowns took place – mostly due to lack of funds. In fact, an estimated 70-80% of e-commerce companies are in dire need of funds, as per the KPMG-IAMAI report.
Here is a quick look at the 6 top-funded digital businesses of the year.
1. Flipkart – tops the funding list: Six-year-old Flipkart, often touted as India’s Amazon, has topped the funding list till date and amassed around $550 million. In 2013, the Bangalore-based company raised $360 million in Series E, spread over two tranches, from a slew of investors including Accel Partners, Tiger Global, Naspers of South Africa, Iconiq Capital, Belgium’s Sofina, US-based Morgan Stanley Investment Management, Dragoneer Investment Group and Vulcan Capital.
The second tranche of $160 million valued Flipkart at over $1.6 billion, according to anEconomic Times report. This is similar to its valuation in July when it raised the first tranche of $200 million. Interestingly, Flipkart is worth more than the total market cap of all 15 listed retail companies, including Future Retail, Shoppers Stop, etc. Among brand-led firms, Flipkart’s valuation is comparable with heavyweights such as P&G India and Tata Global Beverages. The company may opt for an IPO in a year,according to media reports.
2. Snapdeal – a growth story growing stronger: The Snapdeal story is almost similar. The online marketplace raised about $50 million in April this year from eBay, Japan’s Recruit Co, Intel Capital, Saama Capital, ru-Net Ventures, Bessemer Venture Partners, Nexus Venture Partners and Indo-US Venture Partners (now Kalaari Capital). It is the first investment in India by Recruit, a $10 billion classifieds and human resources company. Venky Harinarayan and Anand Rajaraman, who co-founded the US-based Internet company Junglee that was bought over by Amazon in 1998, are also investors in the latest round, according to ET. The Delhi-based firm raised the money in two tranches, taking its total fundraising to $103 million. Snapdeal has been valued at $600 million and is reportedly looking at a US listing in 1-2 years.
3. HomeShop18 – on a roll: HomeShop18, the multimedia retail arm of Network 18 Media and Investments Ltd, got a follow-on round of $14 million in October this year from Korean firm GS Home Shopping Inc., as well as Network 18 and hedge fund manager OCP Asia. The latest transaction values HomeShop18 at $360 million. Earlier in April, the company raised a $30 million round from OCP Asia and Network18. SAIF Partners is also an existing investor into the company. HomeShop18 has reportedly filed for an IPO on NASDAQ, hoping to raise around $100 million.
4. Zomato – no speed limit here: This online & mobile platform for restaurant listing, search and review secured a Series D round of $37 million in November 2013 from Sequoia Capital and existing investor Info Edge, making it one of the largest investments in the consumer Internet space till date. BSE-listed Info Edge, which owns the portal Naukri.com and other Internet businesses, is the biggest shareholder in Zomato and owns 50.1% stake on a fully converted and diluted basis. Gurgaon-based Zomato Media was set up in 2008 and raised a total of $53 million till date. The latest funding gave it an approximate valuation of $160 million. Zomato is now present in 40 cities across 11 countries and provides in-depth information about 197,000-plus restaurants.
5. Komli Media – eyeing expansion: Mumbai-headquartered digital advertising firm Komli Media recently raised $30 million in a fifth round of funding, again from a clutch of investors including the private equity fund Peepul Capital and existing investors Norwest Venture Partners, Nexus Venture Partners, Helion Venture Partners and Draper Fisher Jurvetson. With this round, Komli has now secured over $90 million in private equity investment. The company will use the funds to strengthen its position in the Asia-Pacific and invest further in technology, especially in data analytics, among other things. Since 2011, Komli has bought six companies. It now employs over 400 people and has 18 offices in India, Australia, New Zealand, South-east Asia, the Middle East, Hong Kong and North America.
6. Druva Software – getting big: Data protection software provider Druva raised a third round funding of $25 million from Silicon Valley investment firm Tenaya Capital and existing investors Sequoia Capital and Nexus Venture Partners. With this round, the company has received a total of $42 million in venture funding. Druva had secured $5 million from Sequoia back in 2010 and another $12 million from Nexus in 2011. The new funding will support continued R&D, expanded global sales and marketing with focus on Belgium, Luxembourg, Australia and Singapore, and expansion of its cloud infrastructure to support new deployments by large enterprises. The latest deal values the five-year-old firm at around $120 million.