LV Insights

Decoding the ‘Great Deal’

- Paras Malhotra, Director, LetsVenture

For me the defining trend in 2019 was the increased participation of angels in larger rounds (Series A) as well as co-investments with VCs in early stage deals. India’s angels came into their own – confident & raring to go – as they saw large upsides in their portfolio startups. For instance, on LV itself we saw angels hits deal of up to 22x on their 2019 investments and up to 73x on earlier vintages. This re-emphasised that for angel investments to grow, the biggest movers will always be capital and value.

deal size

There is also an expectation change in the ecosystem; we moved from one that chased growth at all costs to one that’s putting a premium on sensible growth. Thus valuations at seed have stayed almost the same but at Series A valuations have increased. Series A rounds have also become larger given that a lot of marquee VCs are now focusing on seed/angel deal, Sequoia’s Surge programme is one notable example.

There was also no dearth of early stage capital for ‘repeat founders’ as they took on large market opportunities fortified by their experience and network of talent. Similarly, at the later stages massive pools of capital are being mobilised for the top-2 winners in a ‘winner- takes-all market’.

But there are a couple of risks that might hit sentiment in 2020. One, deep corrections in the stock prices of tech companies post their IPOs in the US. Since most of the capital getting invested in India still comes from the US, that correction might trickle down to India.

The other risk is our domestic market slowing down leading to low paying capacities in mass markets; this will in turn not justify the relatively high customer acquisition costs. The continued cashbacks and discounting to keep customers engaged might finally become too expensive to fund.

Having said this, the biggest mover in the angel space will always be getting an allocation into seemingly great deals. What are ‘great deals’? We’ve seen that angels are categorising ‘great deals’ into two buckets:

  • New untested concepts. For example, a 3D printed satellite carrier! This almost million dollar deal closed in 36 hours on our platform
  • Businesses with a high rate of growth backed by a good team that can execute

We are seeing this play out in both the fintech and edtech space where the assumption is that India has crossed the internet adoption threshold and hereon companies in these sectors will grow very fast.

  • With the credit crunch in India, fintech, especially neo banks with community plays are finding favour
  • In education as there are a lot of massive target segments, various product delivery channels and monetisation models can be tried

And finally, B2B startups are starting to have their moment in the sun; perhaps on positive cues from the US IPO market where unicorn B2B startups have had a much better showing than their consumer counterparts. Indian SaaS startups targeting US markets (especially SMBs) are being seen as great investments primarily because of the cost-advantage in early stages. In India we are seeing large Indian businesses starting to pay for digitisation & verticalized SaaS startups are seeing a large domestic market opening up too.

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