In a move aimed at bailing out some of India’s top venture capital-fueled startups, marquee VC firms in the country are reportedly coming together to create a larger pool of funds. According to a report from MoneyControl, top Indian VCs such as Sequoia India, Accel, Lightspeed Venture Partners and Matrix Partners India are creating a platform to support, co-invest and bail out portfolio startups.
With the coronavirus outbreak resulting in a complete nation wide lockdown in India, it has become increasingly difficult for India’s cash-fueled startup economy to sustain. Like the rest of the world, some of India’s top startups are largely loss making entities, going forward on an accelerated pace to reach scale, hoping that the scale could eventually make them sustainable businesses.
But with an unprecendented nation wide lockdown in place and operations almost shut, most startups are looking at a complete shutdown within months. Government restrictions have made functioning of even essential services startups, difficult. A more worried lot however, are some of the marquee VC firms in the country, for whom, massive amounts of money is at stake.
Sequoia India, Accel, Lightspeed Venture Partners and Matrix Partners India together have over $8 billion worth of assets under management in India. The amount at stake is huge, hence a bailout is necessary.
According to the MoneyControl report, these firms are still preparing a blueprint of sorts, with plans to bring a third-party to act as a neutral decider of sorts, on which way should the money go. In either case, what is clear though, is that while some startups will get additional capital to sustain, the rest of them might eventually have to look for other means to carry forward.
“The plan and fund size are still being decided, but the objective is to create a support system for the companies worst hit by the virus- currently in distress, and consolidation can be considered,” said a person involved in negotiations. “This is a huge event and this platform is meant to be investor agnostic, so that all companies which need capital and support get it without biases,” he added.
Travel, tourism, hospitality, food delivery are among the worst hit services, with the government putting a blanket ban on all of these sectors. And all of the VC firms mentioned have made some of their biggest bets in these sectors. While it is unclear as to what will be the parameters on which startups will be chose, what makes sense, is to invest in companies that are more of mid-stage and were on the verge of accelerating their growth before the pandemic out a break to their plans.
The report further states, that more Indian VC firms could join the platform. The said platform could be out as early as next week, with an announcement due soon.
It is still unclear as to what will be the process of selection of startups, whether there will be a new investment vehicle created for this, and more importantly the quantum of investment.
We have asked for comments and additional details from all of the above mentioned firms, and will update our story as and when we receive a response.
While there hasn’t been much news on similar actions being taken by VCs globally, there have been media reports around investors raising money to back their existing portfolio companies. There were reports earlier of Softbank, looking to raise additional capital (despite exhausting much of its existing credit facilities) to support existing portfolio.
Then recently, Sequoia sent a ‘Coronavirus is the black swan of 2020’ note to its portfolio startups, asking them to re-asses their cash runways to see if they could survive a few poor quarters. And even though the note mentions that raising additional capital may not be an option, it did not completely eliminate the possibility of funding, mentioning that the fund has made choice investments in the past. A few days back, Sequoia also published something called ‘The Matrix for COVID-19’ to help startups and prepare their runways in case things go further south.