Mumbai: Homegrown early-stage venture capital investor, India Quotient, has launched its fourth fund with a target to raise at least $80 million. This will make it the firm’s largest fund so far, Anand Lunia and Gagan Goyal, partners at India Quotient, said in an interview.
The launch of the fund comes at a time when disruptions caused by the pandemic especially on mobility has accelerated digital adoption and boosted the scalability of tech startups.
“Overall, it is a much better market for fundraising because of the amount of money flowing from the US, the corona disruption factor and the quality of entrepreneurs. People who started and exited companies are coming back, people who have worked at large companies and become successful are starting up and people who have worked at unicorns are also starting up, so they have seen large scale executions,” said Lunia, adding that the ecosystem is also seeing more exits, encouraging more investors to seek access to this asset class.
The early-stage investor, which has backed companies such ShareChat, LendingKart, Sugar and LoanTap, is looking to back companies providing tech services to small and medium businesses in India, direct to consumer brands, content startups, agritech as well as fintech firms from its latest fund.
“Digitization of SMEs is a big opportunity in India. While in the US, we pay attention to companies such as Uber and AirBnB, bulk of the money is being made in companies selling software. That industry will have to be replicated in India and in that replication, it will not only be the global companies who will win,” said Lunia.
Direct-to-consumer brands is another area of interest for India Quotient as well as content where it has backed ShareChat.
“We started investing in brands when no one else was investing in this space. Similarly, we started investing in companies making software for India, while most investors have focused on SaaS startups serving the US market. Similarly, we have been investing since many years in content companies focused on India. We have been making contrarian bets with a belief in Indian market,” said Goyal.
For its latest fund, IndiaQuotient plans to raise at least half of the capital from domestic investors comprising family offices and the remainder from global investors.
“The interest that we are getting from domestic family offices is quite high. Today, they understand venture capital much better. They understand this is a risky business,” said Lunia. He added that working with family offices has also helped shape the firm’s investment thesis.
“One thing I learned after trying to raise money from family businesses is that if you want to build a large institution, you can’t create a company to sell and you can’t dilute too much. So, I am not investing in companies to sell. The objective we have is that we should invest in institutions. Creating long-lasting institutions is important, as the power of compounding is much more; it is in the second decade that you become big,” he said.
While Lunia did not disclose timelines for the fund’s first close, he said that he is confident of achieving the first close within his existing set of limited partners (investors in a VC fund), given the firm’s track record.
“We are one of the top funds in India from our vintage, in terms of returning capital back to investors,” said Goyal.
The firm has returned the entire initial capital raised for its first fund of $6 million, raised in 2013, and expects the latest fund to deliver returns of around 4-5 times by the time it exits its remaining investments.
The second fund, which raised $20 million, has so far returned 60% of the initial capital raised and Lunia claimed that it has unrealized gains of almost 5 times.