Kerala Technology
Kerala startup funding dry up, but all is not lost

Investors will be back with their funds, but will open their purses only after doing thorough due diligence, say experts. Image: Scott Graham/Unsplash

Kerala startup funding dry up, but all is not lost

Hari Kumar By Hari Kumar, on July 24, 2023
Hari Kumar By Hari Kumar, on July 24, 2023

Funding for Kerala startups has come in trickles in the first six months of this year, but some experts feel the dark clouds may yet have a silver lining. Investor war chests are filling up, and it is only a matter of time before the fund flow should restart, they say.

As the funding winter extends into the second half of 2023, the startups in Kerala have attracted only 27 million US dollars worth of funding in the first six months, according to Robin Panicker, Venture Partner at Unicorn India Ventures.

The Trivandrum-based investor has been keeping track of the fund flow into Kerala for almost a decade now and says, as per the deals he has been tracking, there has been a 79 percent fall in the amount raised by Kerala startups so far. 'Unless there are a couple of mega deals in the range of 100 million US dollars in the next few months, achieving last year's level is going to be almost impossible," he says.

In the year 2022, Kerala startups had raised 249.33 million US dollars, with average deals marked at 8.31 million US dollars.

“This trend is not unusual and is a general reflection of what is happening in India. When a funding crunch comes, it is the second-tier areas like Kerala that will bear the brunt,” says Panicker. “Major hubs like Bengaluru have seen a dip of about 50 percent, and it is natural that in second-tier areas like Kerala, it is more pronounced.”

The Indian startup sector has been feeling the effect of a funding winter, with investors tightening their purse strings after a two-year gold rush. However, Inc42 reports a V-shaped recovery in the first three weeks of July, with Indian startups raising 111 million US dollars over 17 deals.

The magazine says a 40 million US dollar deal was secured by RenewBuy, pushing the total investment this month so far over the magical figure of 100 million US dollars. RenewBuy is a Mumbai-based firm that aims to offer insurance to millions in India, providing multiple options for customers to buy health, life, and motor insurance products.

However, this figure does not align with YourStory's calculations. According to them, till the third week of July, there have been only 13 deals worth about 64 million US dollars in total.

Despite the fall in funding, it is not dampening the mood for some investors. They point out that less flow into startups means there is a substantial amount available for new innovators who can come up with convincing business models.

According to YourStory data, investors who back early-stage startups have recently raised around 3 billion US dollars. They include 3one4 Capital, Iron Pillar, and Chiratae Ventures. This brings the total funds now earmarked for Indian startups to a staggering 10 billion US dollars, says the report.

Reinforcing such arguments, Peak XV Partners managing director, Rajan Anandan, told a financial conclave organized recently by Inc42 that there is enough dry powder ready to go back into the system. Anandan said his platform is ready with 20,000 crore rupees, and their focus would be on the founding team and market opportunity rather than valuations.

Vinod Jose, co-founder of Konglo Ventures, which has made several investments in Kerala-linked startups, says it is not that funds are not available. “It's just that investors are being a lot more cautious and applying more scrutiny, taking more time for decision making and due diligence. There's a lot of dry powder out there. Good founders and businesses will get funded regardless of whether it's winter or summer.”

“Currently, AI startups are receiving a lot of funding; I think it's becoming table stakes to incorporate AI in your offering,” said Jose, who is also heading Callapina Capital, a 4 million US dollars fund.

A similar sentiment was expressed by Jai Thampi, founder, and CEO of Singapore-based Artha Strategies, which helps with the strategy and digital transformation of corporates. Speaking in Trivandrum recently, Thampi said there are investors out there who are still looking for good, sustainable business models.

Thampi mentioned that international investors are agnostic, and some of them do not even know from which country the pitch is coming. “I have seen investors in Singapore who are very eager to talk to Indian companies because they see the market potential. For them, it is all about making the best investment.”

He also parried away questions about whether controversies over the financial position of Byju’s will take away the shine from Indian startups. According to Thampi, major scandals like the FTS debacle have not stopped investors from funding fintech enterprises globally.

The funding crunch has also had an effect on successful startups, slowing down employee stock ownership plans (ESOPs) and holding back cash for future growth. Still, one can argue it is a half-glass-full-glass issue as since 2020, almost 80 startups have bought back ESOPs, giving 1.45 billion US dollars to the shareholders.

The latest Indian giant joining the ESOP list is Paytm. It has granted 17,06,829 stock options, which should hand some of the employees a neat pile. Paytm is offering the stock option price at nine rupees, and given the current market price is hovering around 850 rupees, the total value of the new stock option grant comes out to be around Rs 144 crore, reports YourStory.

Employees of Flipkart are in for a cash bonanza after the company announced a payout of 43.67 US dollars to make up for the drop in the value of Flipkart’s stock after the company’s decision to split from PhonePe. In what is considered to be the single-largest such compensation in the Indian startup ecosystem, the company will give away 700 million US dollars and 25,000 people who are or were working for Flipkart, Myntra, and PhonePe will benefit.



Sun shines on Anert’s solar city plans

Anert’s push to make Trivandrum the largest solar-powered city in India is progressing well, according to its CEO, Narendra Nath Veluri. Almost 150 government buildings of the targeted 600 have been fitted with solar power, and assessments of another 400 have been completed with tenders issued," says Veluri. "Alongside, 30,000 to 40,000 private homes have also signed up for the panels, which is equivalent to about 100 megawatts of power. Anert has identified and listed around 45 solar panel developers under the scheme, and details of them can be accessed at Anert’s website."

He says plans are also afoot to set up units in different areas to take up maintenance of the solar panels, including regular cleaning. This is crucial in an ageing society like Kerala, as it will help houses where elders live alone. They can also choose to install solar panels as they need not worry about going up to the roof to check on the solar panels. Veluri also says that a World Bank team is currently assessing the possibility of installing floating solar panels in different dams in Kerala.



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