Seed stage venture capital fund India Quotient, which has backed startups including ShareChat, Lendingkart, FabAlley, is looking to extend its holding period in portfolio companies by co-investing in their-mid stage funding rounds including Series B and C. India Quotient, which had raised $5 million in its first fund in 2013 followed by $16 million in the second fund in 2015, has now raised its third fund worth $100 million out of which $60 million will be invested in seed-stage startups while the remaining $40 million will be invested in its portfolio companies that graduates for the mid-stage of funding rounds.
"The primary fund was $60 million only. Once we completed that we raised $40 million to invest in our mature companies. We will be able to invest in $3-4 million per company in their Series B and C rounds," Anand Lunia, Managing Partner, India Quotient told Financial Express Online. The new fund will look to invest in 30-35 companies out of which around 10 companies will be backed from the $40 million pool of capital. The idea here is to stay with the company for a longer period of time instead of investing in new companies at the mature stage and spending time on due diligence.
"I start investing in a company at the seed stage and it takes 4 years for me to decide whether to invest in Series B of that company. So while gut-feel investing is good for seed-stage but at Series B there is a lot of thinking and analysis. We know companies like Sugar Cosmetics, FabAlley, ShareChat, Lendingkart etc. from a long time and they are still growing. Investing at the mature stage will ensure that we don't have to reduce our equity stake," said Lunia.
Currently, more than two-thirds of India Quotient's portfolio companies are able to graduate to Series A level while one-third are able to move up to Series B stage. The Indian startup ecosystem has accelerated from the era of funding slowdown post-2015 and around mid-2018 when investors pulled back to back startups without real differentiation in business models and scalability aspects. While the number of startup count went up from around 8,000 to 9,000 in 2018 and 2019 respectively, the early-stage funding also increased from $1.1 billion to $1.6 billion in the respective years, according to Nasscom's annual report on the Indian startup ecosystem. Importantly, the number of 'unique' venture capital firms also increased from over 210 in 2018 to more than 250 in 2019.
India Quotient has 10 startups that are Series B funded out of a total 60 startups backed so far while around 25 have been shut. With the mature stage fund, the exit timeline for India Quotient will also come down to four-five years. "Because it is a less risky and short duration fund, the exit timeline is likely to be shorter since I am entering a company at its fourth-fifth year of business. Hence, I am expecting to stay in that company for only four-five years while the staying period from my primary fund will be eight-nine years," said Lunia.
The limited partners (LP — investors who invest in venture funds) for the new fund are a mix of old and new investors. Among the LPs, India Quotient has Pawan Kumar Munjal and angel investor Ashish Goenka for $40-million fund. Among the exits, India Quotient made its biggest return so far with 30x from ShareChat apart from five times from doctor networking portal Curofy (acquired by investor Roundglass), 11 times from job hunt portal iimjobs.com (which was sold to Naukri.com).
India Quotient has also made a slight shift in its strategy of backing only consumer internet brands to B2B businesses as well. The fund has already five SaaS startups including Vyapar, Shephertz etc. "We have started it this year and initial results from a few companies have been very good as small businesses (served by these companies) have pressure to change themselves and become more efficient. Today broadband is very cheap while power availability is also reliable. UPI, on the other hand, has solved the payments while GST has removed the ambiguities in tax filing," said Lunia.