Each month, some 350 million people open the Dailyhunt app and read the news in Bhojpuri, or Malayalam, or Urdu. “What we have been able to do is crack the code of engagement and monetization of this middle-of-Bharat,” said Virendra Gupta, founder of parent company VerSe Innovation, using a name for India in several of the 14 local languages in which the platform serves content.

Last month, the Canada Pension Plan Investment Board led a US$805-million Series J round  that valued VerSe at US$5 billion, the largest venture financing in India’s tech sector so far this year, according to PitchBook. Drawn by an increasingly online population with ever more money to spend, the institutional investor has built stakes in several of the subcontinent’s leading late-stage startups, and bought into the sector’s IPO boom. “If you look at long-term opportunities globally, India is a standout,” said Frank Su, who heads CPP Investments’s Asian private equity unit. 

The pension fund had $19.6 billion in assets in India as of December 2021, including significant real estate and infrastructure holdings; almost 70 staff work out of its Mumbai office, which it opened in October 2015. CPP Investments entered the local tech market indirectly in 2009 by backing country-focused venture funds, and began taking bigger stakes in later-stage startups a decade later. In December 2018, the fund made the first of those deals, paying US$153 million for five per cent of Byju’s, a Bengaluru-based edtech firm.

India has a “young population, many of them growing into the middle class,” said Su. Internet and mobile penetration have been growing, and spiked after the conglomerate Reliance launched its Jio network in September 2016. CPP Investments backs companies with innovative business models that build on that new infrastructure. “VerSe and Byju’s [are] using mobile technology to basically deliver a product—content—in an efficient way to [their] target consumers,” said Su, who noted India’s entrepreneur pool is maturing, with increasingly sophisticated founders capable of executing their visions with the capital they’re given. 

CPP Investments also looks for companies that compare to successful investments it’s made in other parts of the world. Its experience with the Chinese service-booking and food-delivery platform Meituan, for example, helped inform its consumer-internet thesis in India. The fund’s international track record is also a selling point for potential portfolio firms on the subcontinent. CPP Investments “tasted a good amount of success in China,” VerSe co-founder Umang Bedi said in an interview with The Logic. “They kept bringing learnings and benchmarks, and we found that extremely useful.” 

VerSe and Byju’s aren’t the only bets CPP Investments has made on India’s innovation economy. The fund has backed at least eight private tech firms since 2018, including consumer-internet startups and IT services companies. (See sidebar.) “For us as an investor, scalability is a key consideration,” Su said, so the pension fund’s direct investments tend to be in late-stage firms, for which it has written cheques in the hundreds of millions. CPP Investments’s fund investments like Multiples and Sequoia India spinout A91 allow it to see promising startups as they scale.

It is far from the only international financier pledging large sums to the stars of Indian tech. Companies in the sector raised US$38.5 billion in venture capital in 2021, up from US$3.1 billion in 2012, according to Bain & Company, with the average deal size nearly quadrupling. “The amount of capital in the growth or late stage which comes from foreign institutional investors is very significant,” said Neeraj Shrimali, executive director for digital and technology at Avendus, a Mumbai-based investment bank. 

Menlo Park, Calif.-headquartered Sequoia and New York’s Tiger Global Management, a hedge fund that’s aggressively expanded into the private tech market, were among the early movers in India. Gupta said the U.S. financiers were followed by Chinese investors in the post-Jio period. That included tech giants like VerSe backer ByteDance, as well as Tencent and Alibaba. But in April 2020, New Delhi tightened restrictions on Chinese investment. 

Among Canadian institutional investors, the Ontario Teachers’ Pension Plan (OTPP) made the first late-stage splash, leading a US$200-million round in the e-commerce marketplace Snapdeal in February 2016. “A lot of people respect Canadian capital because it’s large and it’s also very long term,” said Shrimali, who advised VerSe on its Series J, in which OTPP also participated. “There are many hedgies or pre-IPO investors who also invest large [sums of] capital, but they have limited horizons in terms of timeline.” 

VerSe’s cap table includes strategic backers like Google and Microsoft, the Qatari sovereign wealth fund, and global asset-management giants like Carlyle and Baillie Gifford. CPP Investments has put US$425 million into the firm in its last two rounds. VerSe chose the fund to lead the latest in part because of “how their pools of capital support a company through various life cycles,” Bedi said, noting that the fund can offer growth equity financing when a firm is scaling, debt when it’s worried about dilution, and to anchor its IPO. The latest deal came together quickly, but the fund did extensive due diligence, according to Bedi. “It wasn’t a FOMO game that, ‘You’ve attracted so much capital, I’ll just come and give you some more,’” he said. 

 In private Indian tech markets, Canadian pension funds “have put their money largely in scaled companies that are market leaders in the space in which they’re operating,” said Sachin Dixit, lead internet analyst at JM Financial, a Mumbai-based financial-services firm.

CPP Investments is also increasingly active in the public markets. In July 2021, Zomato, a food-delivery service, became India’s first unicorn to go public, leading a rush of listings. CPP Investments reportedly bought into the offerings of beauty e-commerce platform Nykaa, fintech giant Paytm, and insurance-tech firm Policybazaar.  

India’s first internet IPOs were initially received very favourably, according to Dixit. “Most public-market investors in India did not really get the chance to participate in the tech growth that has happened [there] over the last decade,” he said.  

But the market began to turn in November 2021, after Paytm’s stock fell 27 per cent on its first trading day following a record US$2.5-billion IPO. Since then, “people have been more evaluative of profitability,” said Dixit. “They worry a lot more about when these companies [will] actually start making money.” The stock performance of startups that listed in India last year has been mixed, he said. Many of Canada’s new public tech companies have similarly been welcomed to the market before watching their share prices plummet. Listing activity is down significantly this year.

Some of the CPP Investments’s Indian tech portfolio companies have plans to list. VerSe wants to have “an IPO-scale business in the next 24 months,” Bedi said. The firm’s Dailyhunt business is “breaking EBITDA-positive,” and it plans to apply the same model to its other apps like the short-video platform Josh to increase revenue and profitability. It will spend the new funding to grow its AI capabilities and launch new monetization strategies such as live shopping and tipping for influencers. 

Other startups backed by CPP Investments, like the logistics firm Delhivery, have delayed plans to list. But Su said the fund didn’t go into the Indian tech sector to make quick returns by buying into firms just before they go public. A company’s IPO timeline is “of less concern to us,” he said. “We’re more focused on the long-term intrinsic value of the business driven by [its] growth, rather than [on] the public-market volatility and how we can capture [that] short term.”