Bangalore: The India Innovation Fund (IIF), an early-stage venture investor that’s halfway through raising a corpus for its first fund, is finalizing investments in two start-ups and aims to tie up at least three more deals this year.
The fund, backed by Nasscom and IKP Knowledge Park, expects to have completed securing investor commitments for its Rs 100 crore fund by then.
“We started investing as some of our limited partners (LPs) wanted to see the kind of companies we want to back,” said Ashwin Raguraman, vice-president, IIF.
LPs are the main investors in venture capital (VC) and private equity firms.
IIF, which seeks to back companies that build and own intellectual property (IP) in emerging technologies, will invest in two start-ups in a couple of weeks, Raguraman said.
One of these companies has an innovative business model and the other is a communications firms that has developed technology to help reduce prices for end customers, he said, without revealing more.
“We are looking at making at least five deals this year,” he said. “We have to fund companies; we can’t sit on LPs’ money.”
Investors in IIF include the government’s department of science and technology, Tata Consultancy Services Ltd, Bharti Airtel Ltd and Small Industries Development Bank of India, a government body.
IIF, which may consider raising another fund next year with a different mandate, will address the funding gap arising from a shortage of traditional VC firms focused on early-stage investments in technology start-ups, Raguraman said. “A lot of start-ups are there with technology innovation, but they are not able to commercialize them to make a viable business.”
Globally, at least 90% of start-ups are estimated to die within the first two years of inception due to a lack of funding, according to industry estimates.
“Most funds back technologies where product or offerings are available in the market,” said Mallikarjun Sundaram, chief executive, Mitra Biotech Pvt. Ltd. “Once technology is proven and has customers, there is a lot of capital available, but not much help is available for businesses in the phase before it.”
Mitra Biotech, which has patented technology for characterizing cancerous tumours, is IIF’s first investment. The fund put in Rs 2.5 crore in the oncology firm in November.
IIF will on an average invest up to $1 million in a firm that meets its criteria and is open to co-investments.
Co-investors in Mitra Biotech include Karnataka Information Technology Venture Capital Fund (Kitven) and Bangalore-based Accel Partners.
IIF’s next two deals will involve global backers.
Experts say the emphasis for investors is often on backing start-ups that have gained customers and revenue.
There are companies that can survive long even without funding as their business models are not capital intensive, but others have to close shop and move on if they can’t get capital, said Rajesh Srivathsa, managing partner, Ojas Venture Partners.
“This is not a problem only in India, but across the globe. Unless you fund early-stage firms, you will not get midstage or VC-stage firms,” he said. Ojas is an early-stage, technology-focused VC firm.