65 acquisitions this year signal a maturing startup ecosystem in India

A mushrooming smartphone market bringing hundreds of millions of people online, thousands of cool startups with top notch tech talent, and an improving environment for doing business – these are the main reasons for a rush of venture capital into India over the last two years. Now there’s another pull factor growing stronger: exits.

Exits, mergers, and acquisitions are important for investors. They keep the pot boiling with tangible returns which VCs can reinvest into new startups. Their risk appetite goes up too as exits mitigate worries over getting caught up in a valuation bubble. And it’s not just the number of exits that matter, but their size too.

So here’s the best news from the latest report on the Indian startup ecosystem released yesterday by software industry body Nasscom. There have been over 65 M&A (mergers and acquisitions) deals already this year, worth close to US$800 million (which excludes several deals with undisclosed value). More importantly, some of these have been big ticket exits instilling confidence in investors.

Big deals

Rohit Bansal, Kunal Shah, Kunal Bahl and Sandeep Tandon – the co-founders of Snapdeal and FreeCharge

The most high profile of them were the US$400 million acquisition of Freecharge by Snapdeal, US$200 million acquisition of TaxiForSure by Ola, and Twitter’s acquisition of ZipDial for an undisclosed amount. Big exits are covering new ground too, such as the recent US$40 million acquisition of Qikwell by healthcare startup Practo.

Another sign of a maturing ecosystem is that most of the M&A activity is happening within the country, shows the Nasscom report prepared in association with consulting firm Zinnov. Indian companies were the acquirers in 90 percent of the deals, led by heavily funded startups such as Snapdeal, Ola, and Housing looking to rapidly scale up their customer base and market share. Older companies like MakeMyTrip and BookMyShow, on the other hand, sought to consolidate their position with acquisitions.

Investors are drawn to a young ecosystem like India by fast-growing startups and their rising valuations. But now the growing size of exits completes the circle.

More liquidity

This is a far cry from the scene until a couple of years back. There were 141 M&A deals worth US$1.26 billion involving Indian tech startups in four years from 2010 to the end of 2013. The number of deals compared favorably with the 88 deals in Israel in the same period, but the Israeli exits were worth seven times more, showed a study released last year by think tank iSPIRT.

The new exit data therefore raises hopes that the average deal size is increasing in India as startups scale up faster. This will warm the hearts of all the stakeholders in the ecosystem, as well as the next generation of tech startups because better liquidity will make it easier to raise funds.

See: India overtakes China in tech exits