IFC has, of late, started investing in companies as early as their series A rounds, and will increase its focus on India by investing in early-stage VC funds, said Ruchira Shukla, regional lead, South Asia for IFC’s venture capital practice.
Known to invest in relatively mature start-ups, IFC has backed four start-ups and three VC funds in the 12-month period ended 30 June.
“We want to have a bigger and broader impact on the market in a small space of time, and investing in funds gives a multiplier effect to our work. Our investee funds also become pipeline generators for IFC’s direct business," Shukla said.
IFC Venture Capital is part of the larger IFC which supports the private sector in emerging markets though equity and debt investments across a range of sectors.
As of 30 June 2016, IFC’s exposure in India was $5 billion, largely in sectors such as infrastructure, financial services, logistics and healthcare.
In India, IFC Venture Capital made its first major start-up investment in dialysis labs chain NephroPlus in 2014. It wrote two of its biggest cheques in early 2016—$25.7 million to Lenskart and $19.3 million to BigBasket—before diverting allocations to VC funds.
All in all, in the year ended June 2017, it invested $40 million across start-ups (Power2SME, Bjyu’s, Blackbuck and Moglix) and $33 million in VC funds (IDG Ventures, Stellaris Ventures Partners and Pi Ventures).
IFC said it will continue to scout for bets in consumer internet, education-tech, health-tech, clean-tech, B2B (business-to-business) e-commerce, and e-logistics. “New areas will emerge within these sectors," Shukla said, adding that the firm was reviewing proposals from start-ups engaged in healthcare devices, genomics and deep data science areas. It can deploy anywhere from $5 million and $20 million as its first investment in a new company.
Since IFC Venture Capital deploys funds from IFC’s balance sheet (IFC raises money through bonds and internal accruals), it can wait longer than typical VCs for exits.
“When we come in, we spend a lot of time and energy to align objectives with other investors," Shukla said. VC funds typically have an exit horizon when they are supposed to return the money to their investors known as limited partners.
“We don’t have a compulsion to sell like other funds do; what matters to us is what the right decision for the company is. If the right decision is to hold the investment for eight years, we will do that; if the right decision is that we should sell in three years because it’s a great opportunity for the founders and co-investors, we will do that," Shukla said.
According to Bain and Co.’s India Private Equity Report 2017, released in March (bit.ly/2udvGWK), total private equity (PE) and venture capital (VC) exits in 2016 were up 2% at $9.6 billion—owing to large ticket-size deals such as KKR’s exit from Alliance Tire Group in a $1.2 billion strategic sale and Temasek’s $700 million exit from Bharti Telecom—however, exits in the consumer internet category, where most of the VC money is deployed, was down 38% to $500 million.
Meanwhile, India-registered alternate investment funds (AIFs)—funds that typically invest in start-ups—doubled to 270 in 2016, the report said.
“I think a lot needs to be done in India...yes, a lot of VC funds are coming up but look at the magnitude of problems the country is facing and how much innovation is needed. Relative to that I don’t think we are making a big dent," Shukla said.
IFC Venture Capital—globally an investor in Coursera, Yandex and VC funds including Rocket Internet and TPG Capital—is led by Nikunj Jinsi in Washington, D.C.