Accel to sharpen focus on startups serving tier-2 areas after $650 mn fundraise

The new fund will back native Indian startups that cater to consumers beyond the metros, and aspirational brands that seek to capitalizing on the rising discretionary spending by Gen Z.

Accel will also bet on artificial intelligence, fintech and manufacturing focused on domestic and global demand.

“Every two years, the underlying themes undergo changes. Today, we have started to think more about these kinds of brands that service consumers in the tier 2 and 3 markets. We are seeing a lot of opportunities emerge in these areas,” Accel partner Prayank Swaroop told Mint in an interview.

Some of the prominent consumer-facing companies in Accel’s portfolio include Bluestone, Curefoods, Captain Fresh, BookMyShow, Cult.Fit, Swiggy, Urban Company and Wrogn.

Abhinav Chaturvedi, who is also a partner at Accel, explained that the gap between tier 1 and tier 2 consumers has narrowed in recent years and the venture capital firm aims to find more opportunities to serve these under-penetrated areas. Recently, Accel led a $2 million round in Bengaluru-based rapid food delivery startup Swish, alongside other angel investors.

As consumer expectations evolve in India, newer distribution models like quick commerce have picked up and are finding widespread use cases including food delivery, Chaturvedi explained, adding that the real challenge lies in what can be delivered by the larger startups like Swiggy and Zepto.

“Eventually, it will become a hodgepodge of 6-7 companies going after the same consumer demand with different sorts of categories. There are things which can be done by the large horizontal companies and then there is capability, which is required to be built out in certain categories and may require change in the incumbent’s process, internal workflows and so on.”

Broadly, Accel has a prominent footprint across other sectors including SaaS, media, hardware, healthcare, cybersecurity, and services. It is also making headway into newer sub-segments such as defence and deeptech. With more startups collaborating with research centres, we can expect to see more investments within deeptech, Swaroop said.

More specific to software-as-a-service or SaaS, Accel’s executives expect valuations to undergo correction in the coming months, based on the company’s ability to disrupt the space. “SaaS startups need to shift their business knowledge to AI and move towards an outcome-first approach,” Swaroop said.

Accel’s new fund comes nearly three years after it launched its seventh fund with the same size to invest in India and Southeast Asia. Several venture capital firms are increasingly preferring to raise leaner funds that reflect the addressable opportunity in the market and better manage exits amid a broader liquidity crunch. For instance, Blume Ventures said it plans to retain its corpus size for its next two funds while Stellaris, which raised $300 million in November, believes this is the right size to deploy over the next 4 years in India’s seed to series A startups ecosystem.

“The current fund size gives us enough flexibility to participate in seed and series A as well as do a couple of gold stage investments which include follow-on rounds in series B stages and pre-IPO rounds,” Swaroop said.

To be sure, Accel does 15-20 investments every year, with nearly 80% of the fund that is allocated towards seed and series A.

Plan for pre-IPO

The investment firm also plans to ramp up activity in the pre-IPO rounds that have picked up over the last year. “As these opportunities open, we will continue to evaluate our own companies, as well as other companies going public. And I think you will see us participate in more of these,” Swaroop said.

Last year, Accel participated in Bluestone’s pre-IPO round. “With several tech companies going public, pre-IPOs have now become a more nuanced route to clock exits. Earlier it was not the case, as there were only a handful of companies, so it was not possible to make a strategy around it,” he said.

Swaroop added that pre-IPO rounds can be a useful tool to improve the internal rate of returns (IRR) as you can get quicker returns at the time of the public issue. The IRR is used to measure the expected return or profitability of a fund or an investment.

Historically, Accel India has clocked more than a billion dollars in exits since its inception in 2008. In 2024, the venture capital firm made handsome profits from its part exits in Swiggy and Blackbuck’s public offerings, clocking 35x and 4x in returns respectively.

It also generated nearly a 30x return on its total investment of $60-80 million over the years after it completely exited Flipkart by selling its stake to Walmart in 2023, according to a Moneycontrol report. It scored bumper returns from its investment in Freshworks, which floated its IPO on Nasdaq in 2021.

Meanwhile, late-stage funding has seen recovery over the past year, driven by an uptick in pre-IPO and secondary transactions, in a sharp contrast from the earlier stages that continued to struggle. As per market intelligence provider Tracxn, $5.4 billion was raised from 85 rounds in 2024 compared to $5.1 billion from 75 rounds a year ago.

“There has been a lot of interest in Indian companies, especially in the later stages because of the robust IPO market as well as in the pre-IPO stages. A lot of new investors have entered the Indian market, and this momentum will continue in the coming year,” Swaroop concluded.