Bengaluru: After pursuing a conservative investment strategy in its first few years, venture capital firm Lightspeed India Partners Advisors Llp is emerging as a prominent and influential investor in India’s booming startup world.
In the past three years, Lightspeed has picked up or increased its holding in some of the fastest-growing and most valuable startups such as hotel brand Oyo, education startup Byju’s, business-to-business marketplace Udaan and content platform ShareChat. The current valuation of the four startups put together is about $8.5 billion. “Our investment strategy hasn’t changed that much over the years. You need first principles thinking to solve Indian problems which has been our approach," said Dev Khare, partner at Lightspeed India.
“Since Jio launched, millions of new users were added in the addressable market for many businesses. The macro factors have never been better so now you have a wider variety of potential businesses that can be funded, not just e-commerce and on-demand services, as was the case until 2015. Most importantly, the quality of entrepreneurs has improved dramatically. A combination of these factors has led to portfolio companies scaling quickly," Khare said.
While Khare credits Lightspeed’s valuable portfolio mostly to external factors, it has made significant changes in the way it operates since 2015. Lightspeed began investing in India in 2006, with only a few investments every year till 2014-end.
Its most successful bet was education startup Tutorvista, which was sold to Pearson in 2011. But Lightspeed missed out on and chose to avoid sectors that later boomed, such as e-commerce and cab aggregation. As a result, the fund was low in the pecking order of VCs behind larger, more prominent funds.
Signalling a more serious and aggressive investment strategy for India, Lightspeed launched its first India-dedicated fund of roughly $135 million in 2015. It invested in about 20 firms, including three of the four firms mentioned above.
It significantly increased its team for the fund in 2015, adding three other partners, Akshay Bhushan, Harsha Kumar and Vaibhav Agarwal, to work with Khare and Bejul Somaia. Earlier this year, the firm added former Andreessen Horowitz executive Hemant Mohapatra as its sixth partner to bolster its staff for its second, bigger fund of $175 million that it announced in July.
Lightspeed, which was earlier only in Delhi, now also operates in Bengaluru—a move that gave it quicker and closer access to deals, particularly early-stage ones. “As a smaller fund, we’re able to give a lot more time and attention to our entrepreneurs and they appreciate that and it gives us an edge. We’ve expanded our team and opened a Bengaluru office, which has moved us closer to the action here. And we’ve also been doing a lot of community events such as our Knowledge Series and Extreme Entrepreneurs and are helpful to the ecosystem," said Bhushan.
The gains in the value of Lightspeed’s portfolio are currently notional, as it hasn’t realized actual returns on its investments, a point that Khare agreed on. As a fund that was launched only in 2015, Lightspeed can risk waiting a few more years before it needs to start seeking returns (VC firms are structured as eight- or 10-year entities). He said that while Lightspeed has options to sell shares in some of its most valuable portfolio companies, the firm will not sell for now.
“While many of our investments have grown in value, eventually, our deals are measured on actual cash returns. Unlike before, there are more liquidity options for investors like secondary transactions, and we’ve had some offers. But we believe there’s a lot more upside from here in most of our Fund 1 companies, so we’re unlikely to do secondary deals anytime soon," Khare said.