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Deals are back in Indian Internet start-up space as SoftBank leads funding spree

Hotel room aggregator Oyo Rooms latest to win funds

MUMBAI (NewsRise) -- Indian start-ups are buzzing with deal activity as investors led by SoftBank revive funding the south Asian nation's Internet companies after almost two years of a lull.

SoftBank's Vision Fund has led a bunch of existing investors such as Sequoia India, Lightspeed Venture Partners and Greenoaks Capital to put in $250 million into Indian hotel aggregator Oyo Rooms. Hero Enterprise, led by Sunil Munjal, a member of the family that controls one of India's largest automotive groups Hero, has also joined as a new investor, Oyo said in a statement on Thursday.

Venture capital funds are making a comeback to India's startup market that had been stricken by valuation cuts, consolidation, and shrinking sizes amid a shift in investor focus to clear business models and path to profitability. SoftBank, one of the earliest backers of China's Alibaba Group Holding, has been at the forefront of the recent bout of investments in India, where the Japanese company is consolidating its leadership in a bid to repeat its success in China.

Last month, Flipkart Group won an investment from billionaire Masayoshi Son's technology fund, which has now become one of the biggest shareholders in India's largest e-commerce company. According Reuters, SoftBank invested $2.5 billion in the Indian company.

The investment in Flipkart came barely three months after the fund invested $1.4 billion in One97 Communications that runs the Paytm mobile wallet, India's largest e-wallet company. In April, Flipkart raised $1.4 billion from China's Tencent, U.S. online marketplace eBay, and software giant Microsoft.

Experts say such large-scale funding act as a catalyst to draw more investments, giving investors the confidence to plow more money.

"The buzz has come back," said Sreedhar Prasad, partner for Internet business and start-ups at KPMG. "There was an overall sentiment change among investors."

According to a report by KPMG-CB Insights, India saw a major turnaround in venture capital activity during the quarter ended in June.

"In the initial days, investors used to back the combination of founder plus the idea, because the sector was still very nascent," Prasad said. "Today, the money is coming into clearer business models."

Sectors such as healthcare, food technology, e-commerce, logistics and financial technology are far more attractive to investors, he added.

According to an Economic Times report, restaurant search and food delivery service Zomato is in advanced stage of discussions with China's Alibaba Group and its financial unit Alipay to raise $200 million.

The boom in India's Internet economy has been driven by the rising disposable incomes, a relatively younger population, and a fast pace of roll-out of high-speed Internet services that allowed more people to shop online.

Prasad expects the upcoming discount sale campaign, popularly known as the Big Billion Sale, ahead of India's festival season, to draw a lot of investor attention.

The annual sales ahead of Diwali, the Hindu festival of lights that falls next month, is one of the most important events for online retailers in the country as consumers spend on everything from clothes and electronics to jewelry and cars.

"The way the Big Billion Sale is going, it is likely to be a good season. Again that will trigger a buzz among investors."

To be sure, some experts say the investments barely cover the spectrum of India's Internet market, where funding in early-stage startups are far and few between.

"There is only one active company which is writing these big checks and that is SoftBank," said Satish Meena, an analyst at Forrester Research. "It's more of a recalibration of SoftBank's portfolio in India."

--Dhanya Ann Thoppil

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