A few months back, Prosus, one of the world’s largest technology investors, faced a debilitating condition in India. It wrote off its entire $500 million investment in Byju’s, six years after it first backed the edtech company once valued at $22 billion. Last year, the Prosus representative on the board of Think & Learn, the parent company of Byju’s, had resigned citing poor governance standards.
Ups and downs are commonplace among startups. It’s true for their backers, too. Where edtech failed, foodtech thrived. On 13 November, the Netherlands-headquartered investor took home more than $500 million when it sold a fifth of its 31% stake in Swiggy, during the food delivery and quick commerce company’s initial public offering (IPO). Prosus’ balance stake is now down to 25%, which still means it is sitting on over $2.5 billion of gains, considering Swiggy’s current market capitalization of about $11 billion.
From the lows induced by Byju’s a while ago, the management team of Prosus in India now feels an adrenaline rush.
“We invested around $1.3 billion in Swiggy across rounds,” Ashutosh Sharma, head of growth investments, India and Asia, Prosus, said, calling it the investor’s largest cheque in the country till date. “Swiggy will return more than all of our capital that is deployed,” he added, visibly pumped up.
Prosus has invested $8.2 billion in India till-date across 24 big and small deals and is now getting ready to deploy more. “We have currently offered two term sheets of more than $100 million each to a marketplace company and a fintech firm. We are waiting to close the deal,” Sharma said.
Which sectors will Prosus now prioritize? It primarily invests in technology-led companies that are looking to disrupt a sector. Nonetheless, its venture thesis has certainly evolved and it has chosen to rally behind themes that could see exponential growth, going forward. More on this later.
Prosus is the international investing arm of South Africa’s Naspers Group. Prosus is listed on the Euronext Amsterdam and is the largest consumer internet company in Europe by asset value. Post 2019, all of Naspers’ international investments have been housed underProsus.
One of Naspers’ earliest bets was backing a former Google executive with a $5 million cheque back in 2006 to set up Ibibo in Gurugram. This would spawn the online travel and hospitality Ibibo Group (which went on to acquire travel aggregator Redbus) as well as seed the origins of its payments business PayU in 2011, which has now emerged as Prosus’ mainstay in fintech. Despite some hiccups over the last few years, PayU is large enough to consider a public listing over the next two years.
Back in 2011-2012, however, Prosus was conspicuously absent from the crowded foodtech startups ecosystem in India–most of whom were destined to fail because they never got their unit economics right.
In 2017, Sharma—who had joined Naspers a year earlier as the head of its venture arm in India—landed on Swiggy as the firm’s foodtech choice. The venture firm also started exploring investments in market places that serve global customers.
“Our beginning thesis around India, specifically, was to invest behind the growth of the country. And what better way to invest than in the consumption story?” Sharma asked. “Overtime, we figured that India does not create only for India; India also creates for the world,” he added.
This led the firm to back companies such as Captain Fresh, a seafood global marketplace, Fashinza, an apparel global marketplace as well as several software companies exporting to the world. Many of these investments came after the pandemic.
So, what makes Prosus different from other venture funds?
Prosus has an edge as it invests out of its own balance sheet and does not raise external capital. Other private equity investors have funds with a defined life, said Neeraj Shrimali, managing director and co-head of digital and technology investment banking at Avendus Capital, an investment bank.
A balance sheet investor has proprietary capital. Since capital is not raised from third-party investors (called limited partners or LPs), there is less pressure to generate exits. Such investors can take a multi-decadal view on a sector or a company. This approach helps both the founders as well as the investment professionals—they don’t have to worry about short-term liquidity.
“They have the patience to stand with you in good times and back you in bad times. It’s a rarity,” said Siddarth Shah, cofounder and CEO, API Holdings, the parent company of omnichannel pharmacy Pharmeasy.
The company was the first among unicorns to bite the bullet and take a hit on its valuations when it ran into rough weather in 2022, at the onset of the startup world’s funding winter. Pharmeasy was once valued at nearly $5 billion. It had to launch a rights issue at a reset value of $500 million. Today, the business has turned around with the company having drastically cut down on its burn.
The other advantage Prosus has is its global footprint—its portfolio consists of more than 80 investments across more than 100 markets. “We try to see what we can bring to the table beyond capital,” Sharma said. In the food delivery space, for instance, it has global experience of having backed companies such as DoorDash, Mituan and Delivery Hero among others. These learnings would have helped Prosus shape its Swiggy story.
When Prosus wasn’t around, its parent Naspers made some cool investments with successes in India including Flipkart and MakeMyTrip. Naspers invested $615 million in the ecommerce marketplace, pocketing a cool $2.1 billion cheque when retail giant Walmart bought Flipkart for $16 billion in 2018. For its investment of $711 million in MakeMyTrip, it got $1.6 billion, clocking around 10% internal rate of return (IRR).
Apart from Swiggy, Prosus has backed notable unicorns such as Meesho, Urban Company, Eruditus, BlueStone, Pharmeasy and Captain Fresh among others, collectively valued at more than $15 billion. Some of these companies are readying to go public—so, more exits are on the way.
On the other hand, like we mentioned earlier, Byju’s was the biggest dud. Another bet which went belly up was in ‘buy now pay later’ firm Zest Money, in which Prosus pumped in $38 million. Its investments in omnichannel beauty and personal care companies, Good Glamm and Fashinza, are also struggling.
Though some market watchers argue that it is the lack of operating experience of the Prosus team in India that led to poor judgment in some cases, others say that cross-stage funds also struggle to find its sweet spot, leading to a mixed bag of results. Cross-stage funds invest across many investing stages. Prosus, for instance, has invested $8.2 billion in India till-date across 24 deals. Of this, $1.1 billion has been invested in early-stage companies.
Calling such failure a feature of venture investing and not a bug, Sharma said there were lessons for every investor from such episodes. “The big lesson that we all learnt is how risky debt could be for loss generating companies,” he said.
Byju’s was coasting along just fine. Then, it decided to acquire many businesses. Rather than using its own equity, the company ended up raising a lot of debt—and thus began its downfall.
“It all looks very rosy when the economy and the markets are up,” the India head further said. Debt becomes a major problem when the economy tanks, like during the pandemic, and companies start to flounder.
Sharma goes back to his hometown, Bareilly, in India’s largest state Uttar Pradesh, at least twice a year. He has a twofold agenda during his visits—see his family and connect with a different set of Indian consumers—yes, Bareilly’s bazaars can teach a lot about investing.
The tier-II city, known for its zari zardozi embroidery work, represents aspirational India. India’s next set of unicorns could well emerge by serving consumers in these cities, sometimes referred to as ‘middle India’ by venture firms.
“I always think that coming from a tier-II city, I have a better pulse on India compared to an investor who is from a metro,” Sharma, who is 44, said.
With the proliferation of smartphones and rising aspirations, e-commerce has become more accessible to tier II-III consumers. Storied tech investors, such as Accel, Lightspeed, Peak XV Partners (earlier Sequoia Capital India) and Elevation Capital, have been testing the tier-II consumption story. Prosus could also be expanding its consumer investment thesis.
For the next decade of growth in India, it has chosen to rally behind themes that could see exponential growth–serving the next 300 million mobile users in India, generative artificial intelligence (AI), and enterprise SaaS.
“Slowly and steadily, as the GDP per capita of the country grows, the next 200-300 million mobile users will have discretionary income. They may want to buy differently compared to customers in tier-I. So, new business models, new products for Bharat is again something that’s very exciting,” Sharma said, hinting at what’s next for the investment company.
This year alone, Prosus has already pumped more than $240 million into the Indian market, in line with the thawing funding winter globally. The amount is significant considering that overall venture capital funding in India totalled just $1.1 billion last year, data from Venture Intelligence, a data platform that aggregates private equity and venture capital deals, showed.
The $240 million includes fresh investments as well as secondaries and follow-ons in its portfolio companies, said Sharma. A recent investment, worth $100 million, is in Vastu Housing Finance, a new-age home finance company that promises “fast and flexible lending”.
“The fact that Prosus has expanded its mandate from being predominantly an internet and mobile-focused investor to sectors such as SaaS and deeptech (example being its investment in Detect Technologies) and even non-tech (exemplified by Vastu Housing Finance) shows that the firm is taking advantage of a clear gap in the PE-VC funding ecosystem,” said Arun Natarajan, founder, Venture Intelligence.
Detect Technologies is an AI/machine learning driven SaaS company that helps industrial businesses automate their risk identification and reporting functions.
While Sharma is still savouring the Swiggy high, the global leadership appears to be excited at what’s ahead.
“Our early focus and investment in India is paying off,” Fabricio Bloisi, the CEO of Prosus and Naspers, wrote in a note to investors on 21 October. “I expect we will see more of our investments in India (going for) IPO in the coming 12-18 months.”
