SAIF Partners catches them young, makes big bucks with seed stage bets

Towards the end of 2014, multi-stage investment firm SAIF Partners got an opportunity to evaluate a food tech firm for an investment. It was not an easy decision. The food tech firm, only a few months old, was delivering just a handful of orders in the Koramangala area of Bengaluru at that time, even as it was scouting for its first institutional cheque.

The investment firm did its due diligence. Later, convinced by the feedback from customers and the startup founders’ conviction to handle the logistical issue associated with delivering of food orders using technology, SAIF Partners wrote a sub-$1 million cheque to the firm in January 2015.

Today, that startup, called Swiggy, is India’s most valued food tech firm with a valuation of over $3 billion. SAIF Partners continued investing more in Swiggy as it grew and backed it at least five times more. Today, the investor is sitting on over 10x, or 10 times, returns on the capital invested on this investment alone.

For SAIF Partners, which invests across a range of forms—seed stage to listed—entities through its $350 million fund, the thesis of investing in firms at seed stage seems to be paying off well.

Seed stage refers to when a company has just launched and is working on its proof of concept. Three of SAIF Partners’ other noticeable seed investments—social media platform ShareChat, social commerce platform Meesho, and home services platform UrbanClap—are also sitting on returns of 7-13x, with the investment firm’s stake in each one of them valued above $100 million.

“We tend to be very ownership centric when it comes to the early stage. Our approach is to back single teams and single spaces. We don’t take multiple bets by backing several companies in one space. We invest for a longer period and partner with founders with larger cheque size as they grow across stages,” said Mridul Arora, managing director, SAIF Partners, in an interview with Mint conducted on 8 July.

By ownership, Arora is referring to the firm’s strategy of taking a substantial minority stake in seed stage firms (as much as 25% stake), give them the first institutional cheque and back them for a longer period of time has panned out well. For instance, SAIF Partners has backed digital wallet and e-commerce payment system Paytm, online travel company MakeMyTrip and local search engine Just Dial for over 10 years.

Overall, the fund expects to offer returns of as much as 4x to 5x (four to five times the capital invested) to its limited partners (LP) (who back venture capital, or VC and private equity, or PE investment funds), majorly on the back of these early stage investments. The benchmark for most LPs (who back VC and PE investment funds) and funds is to earn a multiple of 3x on an investment.

The firm now wants to double its seed stage investing plans and intends pumping in as much as $2 million each in 8-10 seed companies over the next 12 months.

In the last one year alone, SAIF Partners has invested in 10 companies at the seed stage, including the likes of education finance company Finwego and drone data analysis platform Sensehawk.

“Our seed strategy is an integral part of the entire fund. We don’t want to have a separate seed fund and back several companies in the same space. We want to be with a founder for the entire journey, which can take 10 years or more,” said Alok Goel, managing director, SAIF Partners.

Experts say SAIF Partners tends to take investment decisions independent of the market sentiments on the segment.

“They have successfully created a network which acts as a feeder for the seed stage investment opportunities they are getting in a competitive environment,” said Sumir Verma, founder and managing director, Merisis Advisors.