Mumbai: Early-stage investor Kae Capital aims to invest in up to 25 companies during the entire lifecycle of its second $30 million fund, raised in February last year, and will fund between six and eight companies in the current year, said founder and managing director Sasha Mirchandani.
Kae Capital will invest the proceeds of the fund in the next two years and plans to double the size of its investments in early-stage start-ups from the current $500,000 to $1 million. The follow-on investment size in Series A and B rounds also will increase from $2.5 million to $4 million.
The second fund has already invested in 10 start-ups in which Kae Capital came in as the first institutional investor.
Investors have become more cautious about putting money in start-ups, resulting in a funding slowdown.
Venture capital firms made 405 investments in India worth $1.4 billion in 2016, compared to 512 deals worth $2 billion in 2015. That marked a 21% decrease in volume terms and a 28% reduction in value terms from the all-time highs of 2015, according to data from deal tracker Venture Intelligence.
“As we enter 2017, I feel that start-up founders are now more focussed on unit economics. Also, most entrepreneurs have become more frugal than before because they realise that raising additional capital will not be easy," Mirchandani said in an interview.
He added: “The best investments we have made have generally happened when markets have slowed down, for example post the dot com era or post-the Lehman crisis in 2008. Also, in times such as these, investors like us get more time to spend on due diligence and end up getting reasonably fair valuations. Also, a lot of people migrate out of potential entrepreneurial careers and only the serious and determined folks choose to remain entrepreneurs."
From the maiden fund, Kae has invested in around 25 start-ups, which include HealthKart, an online vendor of health products; educational app Hello English; logistics start-up Porter; and data security firm SysCloud.
The firm exhausted the fund by mid-2015 and has since been warehousing its investments. Warehousing is a process that allows venture capital firms to invest in start-ups even when they have exhausted their funds or are yet to raise a new fund.
Earlier, Mirchandani had invested in his personal capacity in companies such as Myntra, the fashion portal sold to Flipkart in 2014, ad-tech company InMobi and data analytics firm Fractal Analytics, which raised $100 million in its last funding round in May 2016 from Malaysian sovereign wealth fund Khazanah.
While technology remains the mainstay of all investments by Kae Capital, Mirchandani says the investment firm will remain sector-agnostic; it will keep 20% of the fund for B2C (business-to-consumer) non-tech companies.
With 304 investments worth about $1 billion, the information technology (IT) and IT-enabled services (IT & ITES) industry retained its status as the favourite among venture capital investors during 2016, accounting for 75% of the investments (69% by value). Investment in IT companies was down 17% compared to 2015. Series A rounds saw a 45% fall in 2016 to 125 transactions compared to the 229 deals in 2015.