Nandan Nilekani, Sanjeev Aggarwal launch $100 million start-up fund

Bengaluru: Former Unique Identification Authority of India chairman and Infosys Ltd co-founder Nandan Nilekani has teamed up with venture capital investor Sanjeev Aggarwal to launch a new $100 million fund called The Fundamentum Partnership for mid-stage consumer technology and software start-ups that could be the next big thing.

Nilekani said the size of the fund could be increased to $200 million if it finds enough lucrative bets.

In an interview, Nilekani said the new venture capital fund had already raised about $50 million of the total corpus, with the remaining half expected to be closed over the next few months. Nilekani and Aggarwal together are contributing roughly a third of the fund, or about $30-35 million.

Nilekani and Helion Ventures founder Aggarwal have already identified a team to manage the fund; they have hired Indian Institute of Technology (IIT)-Kanpur graduate and entrepreneur Ashish Kumar and IIT-Kharagpur graduate Pratik Guha as partners.

“The management team that we are putting in place for the fund are all young people, so we are going to make sure that they make some money,” said Nilekani. He and Aggarwal will not be charging any fund management fee or “carried interest”, despite being the founders of the new fund. Fundamentum will look to make two to three investments every year.

The new fund will help fill the gap in funding for relatively mature start-ups. While new tech ventures have found plenty of takers, funding has dried up for these ventures at later stages since the end of 2015.

“(The availability of late-stage funding) is an issue. The problem lies in the fact that there haven’t been enough exits in the Indian start-up ecosystem in the past few years,” said Rutvik Doshi, director at the India arm of Inventus Capital Partners. “Most early-stage investments happen with the hope that those ventures will scale up and become big—and very few start-ups have managed to do that so far. So, for investors looking to make late-stage bets, there’s not enough data available to help make those bets.”

Nilekani said the decision to launch the new fund was triggered by the need to create more long-term and sustainable businesses such as Infosys, Wipro Ltd, Bharti Airtel Ltd and Kotak Mahindra Bank Ltd.

“While I was at Infosys and in the government, I never did any start-up investments. In the last three years I’ve experienced working with start-ups and I’ve made investments—one thing that struck me was that while there was a lot of start-up activity, what we really need is scale-up where people are focused on building companies for the long term. And that’s something that I enjoy doing—working with companies and thinking long-term, marathon running in some sense,” said Nilekani, who will not make any further individual start-up investments and will route future investments through the fund.

Over the life cycle of the fund, Fundamentum will look to back about 10-15 start-ups. The fund will typically back start-ups at the series B and series C stages and lead rounds ranging from $10 million to $25 million. Nilekani said the fund will have co-investors, given the interest from a number of venture capital firms and large investors.

Nilekani said Fundamentum, which is being styled as a so-called “scale-up platform”, will not back any start-ups in sectors such as education and payments and ventures that are using Aadhaar as core infrastructure, given his philanthropic and advisory commitments in these areas.

“There is no conflict (of interest) because I don’t have a job (in these areas), but I think it’s better that I stay away just as a healthy practice,” said Nilekani.

Fundamentum will look to back mostly tech-based start-ups and focus on areas such as consumer Internet. The fund will also invest in enterprise technology and outsourcing ventures serving global firms.

Over the past three years, Nilekani has been a prolific investor in the Indian start-up ecosystem and has backed over a dozen early-stage ventures such as Sedemac Mechatronics, publishing start-up Juggernaut, media venture The Print and e-commerce start-up 10i Commerce Services. Nilekani said he would continue to work with the start-ups in which he has already invested.

Aggarwal and his other co-founders at Helion will continue to manage the venture capital firm’s existing portfolio of start-ups.