New Delhi: Anand Lunia has been counting down to 1 June for nearly three months. India Quotient (IQ), his new venture capital firm, goes live today with its first fund and a committed corpus of about $5 million. Adopting a somewhat unique fundraising model, the firm has raised about 10% of the corpus from a group of established entrepreneurs. The group includes Vishal Mehta and Kashyap Dalal, founders of ecommerce companies Infibeam and Inkfruit respectively, Jaydeep Barman, founder of fast food chain Faasos, elearning company Brainvisa Technologies founder Vikas Kumar and auto classifieds site Carwale founder Mohit Dubey.
Apart from being investors, this group will also be active mentors to IQ’s portfolio companies. The strategy is designed to support IQ’s investment thesis of backing pre-revenue startups that need funds between the angel and Series A stages. It’s a space that is practically wide open in India at present. Startups at this stage – referred to as the super angel or seed stage in venture capital lingo – usually have a clear business model but require a lot of handholding. Less than a handful of investors, such as Indian Angel Network, Mumbai Angels, Blume Ventures and Seedfund currently invest at this stage.
Image Courtesy: India Quotient
“We’re open to pre-revenue companies but, we’d like entrepreneurs with some skin in the game. They should have formed a team and evolved a clear business model,” says Lunia, who quit Mumbai-based early stage investor Seedfund last month. The skin in the game will not be a one-sided affair. About 10% of IQ’s corpus comes from Lunia’s personal resources (the industry norm is between 1% and 3%). “Entrepreneurs create great companies and venture capitalists, like bankers, are service providers. Venture capitalists add value but the equation should not be lost. Much of the attitude (in the venture capital community) is unfounded. We want to bring in a different culture to this space,” he says.
Some of that culture will come from Lunia’s combined experiences as an entrepreneur, angel investor and venture capitalist. An alumnus of IIM Lucknow, he was one the four co-founders of Pune-based Brainvisa, which was acquired by US-based Indecomm Global Services in 2006. He then signed up with Seedfund, which debuted the same year with a $15 million fund aimed at pre-revenue startups. It was around this time that he also started making angel investments, going on to back a series of startups including Faasos and Inkfruit, which are now backed by Sequoia Capital and SAIF Partners respectively.
Apart from Lunia, the IQ team consists of Madhukar Sinha, who earlier led healthcare, education and bottom-of-the-pyramid investments for Mumbai-based venture capital firm Aavishkaar, and Lizzie Chapman, country head at British online short-term loans provider Wonga. Chapman will be associated with the firm on a part-time basis.
IQ will deploy its first fund over a period of 18-24 months and will invest between $50,000 and $500,000 per company, picking up stakes of up to 20%. Incidentally, it enters the market with a portfolio of five companies. Lunia had invested in these companies from his portion of the fund corpus ahead of raising the fund. The portfolio includes IIM Jobs, a jobs portal for business school graduates, personalized gifting startup Engrave, at-home beauty and personal care services company Belita and, mystery shopping network RedQuanta. Two more deals are currently under negotiation, which will take the total capital committed in investments to about $500,000.
In terms of sectors, the fund will focus on areas such as Internet and mobile, technology-oriented businesses in the healthcare and education segments, financial services, food and travel. It will typically look to exit its investments through trade sales, which means selling its stake to larger investors. “We would be opportunistically open to exiting investments at the Series B or Series C stages,” said Lunia.
IQ enters the Indian venture capital market at a time when investments are at an all time high. In calendar year 2011, investments touched nearly $1 billion across 170 deals, according to StartupCentral’s research. The seed stage accounted for 30-odd deals and investments worth less than $20 million. The most active investor was Seedfund, which closed a total of seven deals during the year. However, while the niche that Lunia and team have picked is fairly uncontested, investors such as Blume Ventures and the handful of formal angel networks have also started becoming more active. Relative newcomer Blume, for instance, has already done six seed stage deals since last January. Further, even larger investors such as Sequoia Capital and SAIF Partners occasionally dip into the seed pool.
Fortunately for Lunia and team, there are more high-quality startups that need to be seeded than there are available investors.
From our partners StartupCentral