Indian app-makers woo VC funding as smartphone sales soar

By Staff Writer

Feb 25, 2016 01:26 AM EST

The robust sales growth in Indian smartphone market is attracting foreign venture capitalists (VCs). The increased demand for home-grown apps is creating more demand for venture capital. Currently, smartphones contribute half of the mobile phone sales volume in India.

Reflecting a similar prevailing trend in China, the world's largest mobile phone market, Indian home-grown apps are gaining momentum. Indian startups mobilized $4 billion funds in 2015. Most of the venture capital raised last year has gone into established e-tailers such as Flipkart, which alone raised $700 million funding.

Reuters reports that several overseas venture capitalists are entering the Indian mobile market to extend funding support to app developers. For instance, San Francisco-based incubator and venture capital firm 500 Startups has launched a $25-million fund titled '500 Kulfi' to extend funding support to Indian mobile app-makers.  

A recently organized start-up industry conference in Bengaluru highlighted the increasing potential in app-makers. Dave McClure, founding partner at 500 Startups, said "How many places in the world do you know where there are half a billion people online, up from 100 million people just five years ago."

Smartphones account for over 50 percent of the total sales in Indian mobile market. It has over one billion mobile phone accounts making it the second largest mobile market in the world. The mobile phone market is growing at an encouraging rate. New smart phone sales rose over 100 million for the first time in 2015. This is really creating a greater demand for apps developers and venture capitalists as well.

Mobile internet is expected to lead a next wave of growth in internet penetration in India. The fastest growth rate of smartphone is adding to the mobile internet penetration. India has huge potential for localized apps and this is luring foreign venture capitalists. The country has recorded an app revolution in 2015 as described b Deloitte. The content in local languages will add further 39 percent growth in strengthening internet user base, according to Apps India2016.

Alex Yao, who looks after strategy, innovation and investments at China-based app-maker Cheetah Mobile, said "India will become very likely the only growth engine for mobile internet in the entire world, when you think about it in reality China's smartphone sales significantly tapered off in 2015."

New York-based mobile apps developer Cheetah has also entered Indian market. Cheetah has over 600 million monthly active users for its suite of mobile apps. The app-maker is open to invest or buy out Indian app-makers.

Yao further added that "The market in India is three to four years behind China. Given the similarity in population density, (economic development), so very likely what happened in China will also happen here in the next few years."

Several apps-makers are receiving venture capital of late. For instance, Bengaluru-based has mobilized undisclosed funding from TracnSyndicate; India's industrial major Tata Sons has invested in an e-Commerce firm Moglix; Delhi-based biopharmaceutical firm Invictus Oncology has received funding from Ratan Tata; a Gurgaon-based Green House Ventures has invested in apps-makers IStyleYou and AdUrCup, according to Gadgets360

Unlike other countries, computer penetration in India is not much encouraging, but smartphone sales volume is growing fast unlike China. India has also a good market for movies, shopping and other consumer activity. This is making India more attractive for venture capitalists. 

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