Venture Capital Major Accel’s Big Plans for India

Long before he joined Accel as its first Associate in India, Abhishek Goyal was working as a software developer at Amazon Development Centre (India). Working for an online retailer that has become one of the biggest globally, Goyal understood the concept of e-commerce long before it was a thing in India. The experience of working with Amazon came in handy when, two months after joining venture capital (VC) major Accel, Goyal met Sachin and Binny Bansal in March 2008 at an Open Coffee Club event in Bengaluru, which is an informal gathering of start-up founders, wannabe entrepreneurs, angel investors and VCs to meet and talk shop on weekends.

Goyal’s interaction with the two Bansals (not related) informed him that they were building an online bookstore, which immediately reminded him of Amazon that had started out similarly. The short but in-depth conversation with the Bansals was enough to convince Goyal of the potential of what they were creating, and where it could go.

Although early days for Accel in India, Goyal brought the Co-founders and their then obscure company, Flipkart, to the notice of Subrata Mitra, Prashanth Prakash, Mahendran Balachandran and Gagan Kumar. The quartet became Partners at the rebranded entity in 2008 when their $10-million early-stage fund called Erasmic Venture Fund came under the aegis of the global VC giant, that was looking to have a presence in India’s nascent start-up ecosystem.

Following a string of meetings at Accel’s office in Bengaluru, and the Bansals’ two-bedroom apartment-turned-office-space, Accel wrote an $800,000 seed cheque for the company in October 2009. And the rest, as they say, is history.

“Flipkart was already live. Having worked at Amazon earlier, I realised they were building the Amazon of India. I knew how big it could become. If Amazon is so big in the US, an Indian version of it could become meaningfully larger, because offline retail is so much more broken in India. We don’t have large retail chains like they have in the US, and therefore, e-commerce could have deeper penetration. That was my thesis,” says Goyal about Flipkart. Later, Goyal founded data analytics firm Tracxn, where Accel is an investor.

Seeing Flipkart’s strong growth rates, e-commerce became an investment thesis at Accel. The VC major went after the category, vertical by vertical, after its investment in the e-commerce major fructified beautifully. In the subsequent months and years, it identified and invested in a slew of online ventures such as babycare products retailer BabyOye; online electronic goods retailer Letsbuy, medical consultation and referral portal HealthcareMagic, and online entertainment community Chakpak in keeping with its investment thesis of investing early in e-commerce start-ups that show potential.

“Our goal is to be the first partner of choice for founders, and we want to be with the best technology companies globally. We are conservative in the sense that, given our early-stage DNA, we are rooted to the ground, and understand what the founder needs. In most cases, when we first meet a founder, the business typically doesn’t exist. We are very real about where the business starts from, and we are equally aware that these businesses can become very large. That’s the balance in our approach,” says Abhinav Chaturvedi, a Partner at Accel who focusses on early-stage start-ups in the consumer, fintech and software-as-a-service (SaaS) segments.

With its early identification thesis, Accel has become the first institutional investor in over 85 per cent of its investments in India and Southeast Asia, with 95 per cent of its investments made during a start-up’s seed or series A round.

But e-commerce is not the only space where the fund has created a winning thesis. Similar to how the company built a thesis around its Flipkart investment, Accel has also created a view on the SaaS segment following its investments in Freshworks, a cloud-based helpdesk and automation solutions provider. But, creating a robust thesis around a segment took a lot of doing.

For instance, Shekhar Kirani—who led the investment for Accel—first met the Co-founders, Girish Mathrubootham and Shan Krishnasamy of what was then called Freshdesk, in a small home-turned-office in a nondescript Chennai suburb. Following a number of such meetings, the fund led a $1-million seed round in 2001 as the first investor in the company, and participated in or led every subsequent round since then until its listing on the Nasdaq a decade later in September 2021. But the journey from seed round to a successful IPO was an arduous one for Accel, and especially for the partner leading the investment.

Since their first meeting, Kirani used to frequently take an early morning flight from Bengaluru to Chennai to catch up with Mathrubootham, and his team during their early days. His day would start with an 8:30 am breakfast meeting with a start-up founder that Accel was considering investing in, and then Kirani would head off to Freshworks. There he would spend a long day brainstorming and evaluating ideas with Mathrubootham and his team.

For a long time during those early-morning working breakfasts, Krish Subramanian and Rajaraman Santhanam, Co-founders of a SaaS platform—that automated operations such as billing, invoicing and payments for subscription-based businesses—called Chargebee were on the other end of his breakfast table to discuss how their nascent product was developing. During one of these meetings, Santhanam told Kirani that one day he would come to Chennai just to meet them, and they’d have vacated the breakfast slot for some other budding entrepreneur. After many such breakfast meetings and several cups of filter coffee later, Accel invested seed capital of $800,000 in Chargebee in 2013. The company was valued at $3.5 billion in its latest round concluded in February 2022.

Since Accel’s investments in Freshworks and Chargebee, SaaS and the larger enterprise software segment has become a leading thesis at the fund where it has found much success. Partners at the VC fund say that their mantra of investing in interesting and novel ideas has been crucial to their success.

“At Accel, the way it works is that each partner picks up areas that they think are interesting, works on it, builds a thesis around it over a period of time, and invests in areas where a lot of interesting companies are emerging. I think about 50-60 per cent of our companies get invested in this manner. The remaining are areas that we have not even thought about, but a founder comes in with an interesting idea,” says Prayank Swaroop, another Partner at Accel who focusses on consumer, B2B and the Cloud/SaaS segments.

A purely sector agnostic fund, Accel has invested across a wide range of sectors including e-commerce, travel tech, insure tech, SaaS, B2B marketplaces, logistics, crypto, Web 3.0, foodtech, health tech, edtech, D2C, and e-commerce, among others. While the fund’s partners develop a thesis around a sector following discovery of a promising company, they approach some segments with an established thesis even before their first investment. One such segment is logistics, where the fund has invested in trucking network BlackBuck, a company that leverages technology to bring offline trucking operations to its online platform to match a shipper with a trucker, and facilitate payments, insurance and other financial services. “Even before we pitched our idea, Accel had a very clear thesis on the kind of company they wanted to invest in in the trucking space, so we are really grateful that they picked us. Ever since, they’ve played a significant role in our journey, staying invested, and backing us across rounds,” says Rajesh Yabaji, Co-founder and CEO of BlackBuck. Accel had led a $5-million seed investment in the company in 2015, and made two more investments in subsequent rounds. Yabaji is an IIT Kharagpur graduate who was heading the supply chain division of ITC’s leaf tobacco business before striking out on his own in 2015 to start BlackBuck.

But securing funding is just the beginning for start-ups. Having a supportive investor that understands the ins and outs of a fledgeling venture is integral to its growth and sustainability. Yabaji says that Accel helped the company from day one across areas including hiring, product development, and operations, and its Partner—Anand Daniel, who led the investment for Accel—has been more like a co-founder for the company, than an investor.

“We share our ups and downs with Daniel, celebrate all our milestones, and really built BlackBuck together in the last seven years. We had to hire over a thousand people within our first six months, and we had to completely lean on Accel’s portfolio services team. They helped us set up several governance frameworks, functions, and processes in the organisation so that we could transition across stages of growth in a smooth manner,” Yabaji says.

From an investor’s perspective though, the ball just starts rolling with the first investment into an up and coming start-up. For them, getting the start-up’s product market fit and helping it raise follow-on rounds is just the beginning of a long journey, and an investor-partner has to don many hats on a daily basis, explains Barath Shankar Subramanian, a Partner with Accel who focusses on Cloud/SaaS, consumer and healthcare companies.

“The bulk of our portfolio is early-stage where lots of things need to be proven. With companies that are at scale, the relationship switches to where you get involved with more high-level things, and not the nitty-gritty. You [investors] are essentially their sounding board, there to come up with pointed solutions that might help. That is the most value add you can do. Founders know what’s best,” says Subramanian.

By focussing on growing its portfolio companies, the fund has also grown internally. From a 6-7 member team managing $69 million in capital in 2008-09, the company now has a team of 60 people operating a $650-million early-stage fund dedicated to India and the Southeast Asian markets. The market value of Accel’s India portfolio is worth over $100 billion today, and its total commitment to the region has crossed the $2-billion mark with the latest fund. Except for Sequoia India, no other India-focussed fund has committed as much investments in the country as Accel has.

“We have grown almost 10x in terms of the fund size, and our overall capital under management has probably grown about 30x. So, internally we have had to scale. Our investment team is fairly set for the amount of capital that we are managing. We have a large analyst team with a very structured analyst programme. We have finance and legal teams that support us. Vertical functions like marketing and corporate development support us not just internally, but also our portfolio companies,” says Subramanian.

Not only has the firm’s investments in start-ups grown in the region, it has also seen some breakout stars from each of its mature funds. For instance, the standout bet in Erasmic’s $10-million fund was data analytics firm Mu Sigma, which came to be known as the ‘Mu Sigma fund’. The 2008-vintage second fund of $69.2 million, or the ‘Flipkart fund’ raked in outsized gains on total investments of $124 million across rounds, as Accel netted $1.2 billion when the e-commerce platform was acquired by Walmart in 2018. The VC fund continues to own 1.1 per cent in Flipkart, whose current valuation stands at $37.6 billion.

Accel’s third fund of $173.1 million—also called the ‘Freshworks fund’—has given Accel the largest value of returns in India so far. Its stake, after investments of $142 million across rounds in Freshworks, was valued at nearly $3 billion when the Chennai-based company listed on the Nasdaq in 2021.

But the game of investments and increasing valuations is not as straightforward as it looks from the outside, says Chaturvedi of Accel. “In the first 6-7 years, we are in the build phase. A lot of capital goes into building out the companies, getting customers online, and establishing the infrastructure,” he explains. Then comes the phase of balance where some level of harvest starts to happen, similar to what is happening now, where Accel’s portfolio companies are going for IPOs, getting acquired, or have raised funds with larger valuations, says Chaturvedi, adding that now they are returning money to the investors. “It has become a real ecosystem where there is liquidity in the market, and returns are also taking place,” he adds.

Following the success of its initial funds, the investment house’s subsequent funds have produced many unicorns across sectors such as B2C, B2B and SaaS in companies including Swiggy, Urban Company, BrowserStack, Infra.Market and Zenoti, among others. In total, 22 unicorns have come out of Accel’s stable over the years, of which 17 were seed or series A-round investments.

Globally, too, the Palo Alto, California-headquartered VC firm boasts of a rich portfolio that includes Facebook, Slack, Dropbox, Atlassian, Spotify, Etsy, and Jet.com, among others. In June, it announced a $4-billion global, later-stage fund (Leaders Fund IV) that will help it to back companies in its portfolio, and make new investments. A year ago, it closed three funds totalling $3.05 billion that included its 15th early-stage US fund at $650 million, a $650-million seventh early-stage European and Israeli fund, and a $1.75-billion global fund for growth investments (Growth Fund).

The upshot of having a global fund is that when a more mature investment opportunity arises, the Indian partners usually tap into the global pools of capital. “While we have our own portfolio pipeline, we have the ability to get in at growth or late stages in companies that we miss out on in the early stage. And, we have done that multiple times,” says Subramanian. For instance, Accel’s investments in beauty and personal care firm The Good Glamm Group at Series C, media-tech start-up Amagi at Series D, and executive education firm Eruditus at Series F were late-stage bets.

Programmatically, there are two areas where Accel is doubling down in India with its latest early-stage fund, its seventh and the largest till date in the region. One, it wants to partner with companies even before the seed stage, and keep them within its portfolio for longer. At the same time, it wants to defend its ownership in the companies that are breaking out for longer periods of time. Two, it wants to commit more time and capital to the Southeast Asia market.

“In our early funds, we could do a seed cheque. After that, we will have to keep coming down. You can’t even defend pro-rata, given the [early-stage smaller] fund will only support that much. The larger fund makes it almost like a continuum, which helps us defend pro-rata, or our ownership to a certain point, after which it can be handed over to the Growth- or Leaders Fund. Not all companies go through that funnel, but for the ones that do, we have a disproportionate share of ownership in what we think might be the winners,” explains Subramanian.

The VC firm’s pre-seed initiative, Atoms—that has partnered with 14 very early-stage start-ups in the first cohort, and another 10 in the second cohort—provides entrepreneurs with an opportunity to work with a sponsored Accel Partner, and get personalised mentorship from a pool of 60-odd business leaders. The selected start-ups also receive $250,000 in non-dilutive funding. Swaroop, who leads the Atoms programme, says that Accel has led- or co-led investment rounds in every start-up from the programme that has secured follow-on funding.

Not only that, the fund also operates a programme called SeedToScale that nurtures seed-stage founders by enabling access to angels, micro-VCs, and executives, as well as the larger Accel community. The community also acts as early users and customers for the products developed under the programme.

On the other end, Accel also wants to cement its footprint in the Southeast Asian markets where it began investing a few years ago. It has set up a local team in Jakarta, Indonesia, and has backed over 10 companies in that market so far including fintech start-ups Pluang and Xendit, blockchain gaming platform Axie Infinity, blockchain data-analytics firm Nansen, and quick commerce platform Astro.

The fund’s early call that e-commerce was going to be a huge value driver, and raising enough funds to have a strong presence in the segment proved to be key for its early success. The fund continued with the momentum generated by its e-commerce bets to set strong sectoral theses around SaaS and B2B commerce, and found niche start-ups early on, such as Zenoti that provides SaaS-based software solutions for the spa and salon industry, or Moglix that operates a B2B marketplace. SaaS and B2B platforms now account for nine of the 22 unicorns in its 200-odd strong portfolio in India. Accel wants to expand the same playbook and replicate its India success in Southeast Asia.

It is said that a business’s worth can be measured by how its competitors rate its performance. In the case of Accel, Parag Dhol, General Partner at Athera Venture Partners, says that Accel has made some excellent investments over the years. “They are very supportive towards their entrepreneurs, and stick with them for a long time, much longer than most other VCs in India before deciding to cut the cord if they have to. It’s been a risk-taking fund, willing to back people very early on, and cultivated the right relationships in the ecosystem, their partnership with Tiger [Global] being an example,” adds Dhol, a long-time investor in India who has known partners at Accel from their Erasmic days, and has also co-invested with them.

But cultivating the right relationships doesn’t guarantee success as the VC has to identify potential growth segments, says Tracxn’s Goyal, adding he was hired by Accel for his understanding of the internet and tech space. “They were very bullish on tech and internet from early on, which was not a strong case for most other funds during the 2008-10 period. Accel had the foresight that internet and technology will become very large, and that they need to be there,” he adds.

As the pace of venture investing slows down, and entrepreneurs become comfortable with lower valuations for their companies, Accel’s principle of being the first partner of choice will carry a degree of authority in the start-up world.

@binu_t_paul