Innovative product solutions from start-ups, India as a venture skill hub and friendly policies have played a key role in increasing foreign investments in Indian start-ups.

Padmaja Ruparel, President, Indian Angel Network, said foreign venture capital (VC) and private equity (PE) funds are on the rise in India, especially from Japan, Europe and West Asia. This is on the back of start-up friendly policies and tax relief measures from the government and increasing quality of start-ups, she added.

According to data from Venture Intelligence, foreign PE and VC firms investing out of their global/Asia funds in Indian start-ups have increased 96 per cent to $16,728 million in 2017 compared to $8,497 million in 2016. Interestingly, the number of deals came down by 16 per cent from 175 in 2016 to 148 in 2017. In terms of foreign LP contribution, investment stood at $1889 million in 2017, down 16 per cent, compared to $2250 million in 2016. For the quarter ended March 2018, global VC and PE investments were led by North America, followed by Asia and Europe.

Ruparel explained that decrease in the number of deals but increase in ticket size per start-up indicates that investors are focusing more on quality of entrepreneurs and start-ups.

Sunil K Goyal, Founder & Chief Executive Officer, YourNest Venture Capital, said few years ago most of the start-ups ideas were either rehash of existing solution in the West or B2C focussing on convenience. But currently many IP-led start-ups in the B2B space that are looking to solve the needs of society using technology have increased.

“So there is a transition to creating innovative hardware and software products,” Goyal said and added that this has caught the interest of global VC and PE players. Additionally exits had always been an issue. With the recent Flipkart-Walmart deal, Goyal said it will instil confidence in future investors and encourage foreign investments, he added.

Attractive market

Alok Goyal of Stellaris Venture Partners, a Bengaluru-based VC firm, said another reason why India is of huge interest for foreign investors is the attractiveness of India itself is a market where you can test the innovations given its diverse geography and population. This is unlike emerging start-up hub like Israel that looks to the US for testing the solution’s scalability.

For instance, healthcare start-up Visit, which was recently funded by Twitter co-founder Biz Stone, uses Artificial Intelligence-powered chatbot to diagnose patients by asking relevant questions. After the success in India, the start-up is in talks to launch the solution in the US. Foreign investors find such companies attractive.

Christophe de Courson, Co-founder ahd CEO, Olymp Capital, who is looking for Indian partners for investing in blockchain and digital assets, agrees with the notion that India as a market is appealing. He explained that his firm is particularly interested in partnering with Indian firms for investing in blockchain and cryptocurrencies, which are gaining momentum.