Accel keeps its India fund size steady at $650 million for its eighth initiative, despite other venture companies in the area competing to gather larger amounts of capital.

The firm had numerous opportunities to collect “multi-billion dollars,” mentioned Shekhar Kirani, Accel’s partner, during a discussion with TechCrunch. Unlike others increasing their fund sizes, Accel’s decision is informed by a detailed evaluation of India’s venture potential.

Peak XV has compiled $2.5 billion in its recent fund series for the area, whereas Lightspeed has almost doubled its India fund to $500 million lately. Stellaris, which debuted in 2017 with a $90 million fund, recently disclosed its third fund at $300 million.

“In-depth studies in the U.S. and China show that as funds exceed $600-$650 million, it generally becomes challenging to achieve high-quality returns even in mature markets,” stated Kirani.

The strategy is akin to that of U.S.-based Benchmark, which has operated with relatively smaller fund sizes over decades yet produced substantial returns. As per industry projections, Accel regularly achieves unmatched returns among Indian venture funds, often significantly so. A key triumph is Swiggy, a food delivery service, where Anand Daniel managed the initial institutional investment at a $2 million valuation. In November, Swiggy went public in the largest tech IPO of 2024 globally, valued at $11.3 billion.

This disciplined approach originates from their assessment of India’s entrepreneurial potential. Accel estimates around 300 quality firms emerge yearly from pre-seed to Series A phases. They plan to support about 40 out of 60 to 70 total funding allocations per cycle.

“Our goal is to develop appropriately sized early-stage funds to generate solid returns,” noted Daniel, emphasizing that collecting funds beyond a certain threshold complicates meeting return targets.

This perspective arises as other Silicon Valley investment firms reevaluate their approaches in India. Firms like Sequoia and Matrix have lately split from their India divisions. However, Accel has intensified its hybrid approach. “The choice is between building a fully independent fund, merely sharing the brand name, or centralized decision making,” expressed Kirani. “Accel has struck the perfect balance.”

This strategy’s impact is evident when Accel India draws on the global fund for more substantial contributions to Indian startups, explained Daniel.

Accel’s engagement with India spans across 15 years, experiencing the market through both entry and exit phases by global venture entities. As India progresses as a major growth market for tech companies, firms like Battery Ventures and Omidyar have redirected their interest elsewhere.

For the sector, capital returns have been a constant worry. “Traditionally, returns on capital in India have been poor,” stated Tiger Global partner Scott Shleifer in 2023. The landscape is evolving. A record count of 13 Indian startups went public last year, and 25 are gearing up for listing, previously noted in TechCrunch. This year, up to 10 Accel-supported startups could potentially list.

As India’s tech foundation advances, inquiries about future prospects are arising. Historically, Indian firms haven’t excelled in specialties such as cybersecurity, but both partners acknowledge the maturing entrepreneurship and market landscape. Concerns also loom over whether India’s ability to offer services affordably will endure as global AI advancements enhance software development efficiency.

Accel’s latest fund aligns with these shifting opportunities. The company, which has invested in Flipkart, Myntra, and Freshworks, focuses on wealth management startups in urban areas and software companies specializing in AI platform innovations.

There’s a strengthened emphasis on “Bharat” — smaller towns and villages — predicted to produce future unicorns. “Rural areas aren’t synonymous with poverty. Top 20%-30% spending in these areas is significant, exceeding $250 billion,” mentioned Daniel, observing that the upper echelon in these locales often outspends half of the urban populace.

It’s noted that startups succeeding in urban India might not echo their success in Bharat. The incumbents may thrive if consumer behavior in rural India stays constant, stated Kirani. “However, if values differ, a tailored approach might be necessary.”