If there wasn’t enough reason already to invest in Indian startups this year, here’s another one: tech exits have gathered momentum. So much so that India has established itself among the top five markets for exits globally, and is now the leading one from Asia – ahead of even China.
China had some of the largest tech exits in 2014, including IPOs for Alibaba and Jumei, as well as UCWeb’s acquisition by Alibaba. But in overall tech exit activity – that is, the number of M&As and IPOs – India overtook China last year.
An analysis of exits around the world, just released by tech M&A tracker CB Insights, confirms a few trends and also throws up some surprises.
Canada is the new El Dorado
Canada is the newest El Dorado, jumping to the number three spot in tech exits, behind the US and UK. Germany comes in at number four, and India completes the top five. China is down to sixth place. Among other Asian markets in the top 20, Singapore is number 13, and Japan is 18th. Indonesia is ranked 26, Malaysia 29, and South Korea 34, while Vietnam and the Philippines are tied for the 38th rank.
Ecommerce drives exits in India
In India, internet firms took the lion’s share of exits, reflecting the investment momentum in the ecommerce space last year. Flipkart had a billion dollar funding round, then Japan’s Softbank came in to bolster Snapdeal with two-thirds of a billion dollars. They were among the highest funded Indian tech startups of 2014
One out of five exits were in mobile sector
While internet companies dominated deals not just in India but globally too, the ascent of mobile was evident. This sector accounted for out of every five tech exits in 2014. Facebook, Intuit, and Microsoft were the most active with multiple mobile company acquisitions. Interestingly, mobile firms had the highest share of exits in Canada and Germany.
Tech exits rose more than 50 percent in 2014
Overall, there were 2,809 M&As and 79 IPOs globally, adding up to 2,886 tech exits in 2014 – 58 percent more than the 1,825 exits in 2013. The second quarter of 2014 was the most active with 762 exits, including the public offerings for Jingdong and Just-Eat.
Nearly three-quarters of exiting firms had raised no funding
And here’s the biggest surprise of all – nearly three-quarters of the tech companies that were either acquired or went public in 2014 did not raise institutional capital (VC, PE, or growth equity) prior to their exit. This was even more than the level in the previous year, indicating that bootstrapping one’s way to an exit is getting more popular.
Nearly half the VC-backed exits were in the early stage
Among the VC-backed companies, 44 percent exited early after a seed or series A investment. It just goes to show that even though media attention is centered on large exits, most of the action is in small exits. More than half of these acquisitions were of companies which raised less than US$10 million, again showing that exits often happen early in a VC-backed company’s life. For IPOs, obviously, it’s different: 2014 saw 42 firms raise upward of US$100 million prior to exit. While 32 firms exited with valuations above US$1 billion, the vast majority had valuations less than US$200 million when they exited.
The year of advertising and business intelligence
Adtech, analytics, and video startups saw the most exits in 2014, with CRM and edtech rounding out the top five. However, a number of other domains also saw exits in double digit numbers, suggesting that acquirers have diverse interests.
Accel and Intel were the investors with most exits
Accel Partners took the top spot among investors with the most tech exits from their portfolios. Among corporate investors, the three highest ranked ones were Intel Capital, Google Ventures, and Qualcomm Ventures.
Google, Yahoo, and j2 Global were the most active acquirers
Google and Yahoo were the most acquisitive companies in 2014. A surprising entry at number 3 on this list is j2 Global, a US-based cloud services company that went on an acquisition spree. Restaurant finder Zomato from India was among the top 20 acquirers, as its hunger for global expansion led to a series of acquisitions.
It’s good news for investors and startups alike that tech exit activity has picked up in India, as the analysis for 2014 shows. Exits are what give investors tangible returns and keep up their enthusiasm for taking risks, which in turn keeps the pot boiling for startups raising funds. But a caveat is in order here. Even though the number of exits has gone up sharply in India over the past couple of years, the average valuation of these exits remains quite lowcompared to more mature ecosystems like Silicon Valley or Israel – or even China. 2015 will be an important year to see a change on that yardstick.