Recently, Truecaller announced that it has raised a $18.8 mn funding round. While the funding round and amount was by itself not unusual – it is the model du jour for fast-growing startups to raise mega-bucks from VCs looking for the next “unicorn” a la WhatsApp or Snapchat, what was intriguing was that the round was lead by Sequoia Capital India. Not Sequoia Capital US but Sequoia Capital India!truecaller

Why is this unusual?
This is unusual because Truecaller is far from being an Indian company – it a Swedish company based in Stockholm. While other fast-growing European companies such as 6Wunderkinder have raised money from Sequoia, they did so from Sequoia Capital, USA.

So why did Truecaller raise money from Sequoia Capital, India? While we obviously have no way to know this for sure, the answer could well be something as facile as the company was able to get better terms from the Indian entity (read : Interview with TrueCaller Cofounder).

More pertinently, why would a VC firm based in India invest in a Swedish company? If this was not a one-off exception, what does this portend for the Indian funding environment in general and for Indian startups specifically?

Let’s try to parse this to glean some take-aways:

Big funds are facing a deployment bottleneck

Several VCs in India invest out of dedicated funds with corpuses extending to hundreds of millions of dollars. Deploying such huge funds in technology firms is a big challenge – to move the needle and to avoid span-control problems, a single investment needs to be in the range of tens of millions of dollars.

There are very few break-out Indian tech startups that are “investible” at this point of the spectrum and even when a company does achieve enough traction to attract an investment like this, they often prefer to raise money from investors outside India – for instance, InMobi raising money from SoftBank. Foreign VCs arguably offer better terms and often provide strategic heft for tackling global markets.

This has resulted in Indian VCs diversifying out from their original brief of investing in pure technology firms and funding everything from gold loan companies to hospital chains. The Truecaller deal potentially represents the next stage of this bottleneck where the VC is ready to do away with even the “India” tag to deploy their funds.

What this means for Indian startups:

The competition for funds is going to be tougher

Until now, Indian startups might have had to contend with other Indian startups for raising funding in India but if our investors are now opening up their wallets to fund companies outside India, the rules of the game just got changed. We are now competing not just with the startup down the road but with the one half-way across the globe as well for the same investment rupee$.

If you can break out, the availability of capital far outstrips demand

While competition might now be global, if you can break out and demonstrate traction in terms of both scale (user base/revenue) and velocity (rapid growth – for instance, TrueCaller grew its base in India alone from 1 million to 25 million in less than a year), raising money in India, even a large round, should be relatively simple as the supply-demand curve is skewed sharply in your favor with capital availability far outstripping demand from eligible candidates.

The emergence of the foreign company-Indian market/investor dynamic

The one major “India connection” that Truecaller seems to have is that out of their 45 million users, 25 million are based in India. While some would argue that this is not a good-enough reason to raise funding from India – after all, the likes of WhatsApp, Facebook and Twitter, among a host of others, also see India as their next big growth engine but none of them raised money from Indian investors and are extremely unlikely to do so in the future too – it does gives Indian startups two points to ponder over.

“Californication” is a myth

If you are an Indian startup, you would have undoubtedly faced the “Californication” spectre – the common refrain/feedback from all and sundry that you need to shift to California, specifically Silicon Valley as that is where all the action is, otherwise you will be “fornicated”!

The growth of Truecaller in India cocks a snook to all the nay-sayers who goad startups to shift to Silicon Valley because “India is not a large-enough market/doesn’t have enough early adopters” – if a small, Swedish startup like Truecaller (only 35 employees, started in 2009) can get such traction in India, surely Indian startups can themselves find comparable user bases.

A largely Indian user base is a double-edged sword 

If you have a product that has a global audience in any sense but your user base is largely Indian, it is a double-edged sword when you seek to raise funds. While India’s growing smart phone user base is a large attractive vector, the flipside is that it might be difficult to elicit interest from investors outside India – one possible reason why Truecaller raised funding here in India rather than elsewhere (NB: Completely speculative for Truecaller but nevertheless, a putative consideration).

While this funding event might be a watershed event in many ways or instead might well be a one-off exception, there is no doubt that the Indian startup ecosystem is going through interesting times – to paraphrase Dickens,

“it is the best of times, it is the worst of times, it is the spring of hope, it is the winter of despair, we are all going direct to Heaven, we are all going direct the other way!”

What are your thoughts?

[Guest article contributed by Sumanth Raghavendra, founder and CEO of Deck App.]

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