Despite a macroeconomic slowdown, across sectors such as automobiles, consumer goods and metals, startup funding has been at an all time high, with companies scaling 4-5x using the same amount of capital compared to a few years ago, said Ritesh Banglani, co-founder and managing partner at Stellaris Venture Partners, a $90 million early stage venture capital fund, in an interview with Mint.
“Investor sentiment aside, I think the more material fact is that we’re not seeing a growth slowdown in tech startups. In fact, I have never seen this velocity of growth with relatively modest amounts of capital in my entire venture career," Banglani said.
Despite this, the fund aims to keep its dealmaking pace constant, to about 6 deals a year, the same pace it had even in 2016 and 2017, post a funding slowdown.
“We do have a bit of a problem of plenty and certainly a temptation to dramatically increase our pace of investing. However, we have decided to raise our bar in this environment and maintain our regular investment pace. That discipline helps us achieve a certain cost-averaging in our portfolio and allows us to diversify across different points in the economic cycle," Banglani said.
Stellaris, set up by Banglani, Alok Goyal and Rahul Chowdhuri, former partners at Helion Venture Partners, has a portfolio which includes scooter rental startup Vogo and personal care brand Mamaearth.
Helion’s investments include online grocer Big Basket, online retailer Shopclues and Livspace. From Helion, the partners have also scored exits including MakeMyTrip, which went public, Letsbuy, which was acquired by Flipkart and Redbus, which was acquired by South Africa’s Naspers.
Stellaris is also bullish on lending, a sector where virtually all venture capital funds have multiple bets. However, the recent liquidity crisis has hit lending startups, with disbursements falling, and those without a differentiated approach fighting for survival.
“Lending is a unique beast in the overall venture landscape, in the sense that the classic “move fast and break things" approach to growth will almost certainly lead to disaster," Banglani said, adding that lending startups that thought distribution will drive growth, or which use “alternative data" to underwrite risk, have not been able to succeed because the data is available to any app willing to snoop on your phone.
So in a promising, but crowded market, it is looking to invest more in vertical lending firms, which have a deep understanding of their borrower base, can collect unique proprietary data for underwriting and collection channels not available to other lenders. It has already made one similar investment in Propelld, which underwrites loans for vocational education based on their future employment prospects.
Stellaris’ strategy also stems from 3 technology themes it has identified, when it started in 2016. “First, a huge number of new users would come online with consumption patterns that were very different from the first 50 million. Second, Indian small business owners will adopt technology in large numbers to run their businesses using their smartphones. Third, Indian software companies will figure out how to sell remotely to global markets through a combination of online marketing and call-center based sales," Banglani said.
Venture capital funds are also riding the country’s growth story and future potential, with a number of large funds including Accel, Lightspeed and Kalaari Capital hitting the market to raise fresh funds, totalling to nearly a billion dollars, according to media reports. Marquee fund Sequoia Capital has also asked for a $200 million extension on its sixth India fund of $695 million, indicating higher interest from overseas limited partners (who invest in VCs).