New Delhi: Venture Capital firm Ventureast is close to raising $150-200 million for its technology-focused fund Ventureast Proactive as it seeks to invest more in technology start-ups, according to a top executive at the firm.
The fund will be bullish on firms leveraging cloud technologies, operating in digital health space, social media and the Internet of Things.
“We are also looking to invest in companies that are working on ‘consumerization of enterprise software’—in other words, are making business software simpler and more interactive,” said Sateesh Andra, managing partner, Ventureast Tenet Fund, one of the funds promoted by the company.
Ventureast, which manages a $300 million fund and largely focuses on technology, life sciences and clean environment, expects to close the round in the next three months.
Sarath Naru, managing partner at Ventureast, expects this fund to close faster than the previous ones given the sentiment revival among the large institutional investors.
“We believe we will close it faster. We entered the market late last year and we have already reached out to our existing investors who have started doing their due diligence and have officially started making their commitments.”
Foreign limited partners, hedge funds and pension funds are showing interest in the Indian start-up space mainly due to the rapid growth in consumer Internet sector. The massive growth and high valuations of firms such as Flipkart, Zomato, Snapdeal are making investors expect large exits prompting the investor rush in the country.
This growth story, coupled with expectations of large global Internet firms emerging from India has helped some early stage investors and VCs such as Nexus Ventures, IDG Ventures and Helion Venture Partners to scout for large funds.
“India is no more a negative story in anybody’s mind…economic policy situation is not the show-stopper any more. Also, the tremendous amount of news as well as investments that have come into the e-commerce companies from either hedge funds, or large family offices has helped,” said Naru.
Andra says 12-18 months ago people only spoke of the Naukri and Makemytrip public offers. “But things have changed since then and we have seen some good IPOs like Justdial and Indian companies like Zomato going global. Change of government at the centre has helped the sentiment revival.”
The new fund is expected to be raised from overseas investors and Indian institutions, which could include institutional investors from the US and large family offices in the Middle East, UK and pension funds. Its last fund was raised 80% from outside India while 20% came from Indian institutions.
While there may not be a dearth of funds pouring into the country, 2014 was a tough year for some venture capital firms and early stage investors who struggled to raise their next rounds as many large hedge funds and limited partners were seen investing in India on their own.
“Good times hedge funds become angel investors and in lean periods even angel investors become hedge funds, but people like us are always there,” said Andra.
Exit track records remain poor in India making it difficult for some VCs to raise funds.
In June 2014, Mint reported that Canaan Partners had stopped investing more money in India and was likely to avoid allocating money to local start-ups from its next global fund.
“Whether in India or globally, the VC universe is shrinking. Only the good will survive and many mediocre ones will die. LPs will put money only in winners and entrepreneurs, too, want to work with the right set of VCs. We have seen that happening in the US and that will be the case here in the Indian context as well,” he added. But Andra expects new, sector-focused funds to continue to emerge.
Ventureast, which invests in at least three firms in a quarter, expects to go slow on picking investments during the first half of 2015.
“The first half will be slow because we are spending a lot of time fund-raising. We have reserved the money in the first half for follow-on investments and new investments will only happen from the second half,” Naru said.
In 2014, it invested close to $30-$35 million in about 7-10 new firms including Polygenta Technologies, a manufacturer of polyester filament yarn; online medical advice firm MediAngels and optical retail chain Ben Franklin.
In January 2014, Ventureast’s portfolio company Little Eye Labs was sold to Facebook for an undisclosed amount. Little Eye is a tool that helps Android app developers to measure, analyse and optimize their apps.
The firm is expecting two more exits this year, Naru said without disclosing the names of the firms. Apart from technology, the firm also looks to invest in healthcare and agriculture space. But technology remains the flavour of the season.
The company is likely to buy stake in early stage companies in the Internet of Things space.
“Application of Internet of Things is an exciting space, for instance, it could be used for tracking. Logistics is a huge opportunity as people peddle more stuff through e-commerce. Internet of Things might be able to deliver what RFID could not do,” added Andra.