While there are dozens of dedicated seed-stage funds and a handful of late-stage investors, mid-stage has not seen dedicated pools of capital. VC investors, such as A91 Partners, Mirae Global Asset Management and Iron Pillar, have now targeted the mid-stage exclusively.
“If you have dedicated investors in seed and Series D, there should be space for dedicated investors in B-C as well. That’s how the pipeline gets created," said a partner at a new $300-million fund targeting only Series B and C deals of $10-30 million.
“Focusing on Series B and C was natural as our experience matched with the market gap," the person added, on the condition of anonymity.
Similarly, Iron Pillar, a $90-million mid-stage fund and South Korea’s Mirae Asset Global Investments is also bullish on capital for mid-stage startups.
In an interview in October, Iron Pillar managing partner Anand Prasanna, talking about the firm’s focus on mid-stage investments, said: “The thought was that many of these companies would get funded in early stage, but when it comes to the next level, there are not enough people who are funding them or bringing the right kind of mid-stage capabilities to the table."
According to Ashish Dave, who heads venture capital investments for Mirae in India, the increasing number of mature startups in the Indian venture ecosystem has created the space for dedicated mid-stage investors.
“As the ecosystem was evolving, the market was not deep enough to have dedicated growth-stage investors earlier. But now the venture ecosystem is more vibrant and we have greater number of mature startups and, hence, we are seeing the rise of dedicated growth-stage investors," he said.
Unlike seed capital, growth stage also needs bigger fund sizes, generally difficult to raise if your limited partners, or investors, are not convinced of a deep market opportunity.
“Far fewer funds here (Series B and C) because raising $250 million, which is the minimum requirement to pursue this strategy, has been difficult. Of course, the number of startups that need to raise $10-30 million round today is far higher. We didn’t have a meaningful market for B-C deals seven years back," the VC firm partner cited above said.
According to data from Tracxn, the last four quarters saw $3.1 billion poured across 157 Series B and C funding rounds combined, with deployments only expected to increase.
Even Norwest Venture Partners, known for its early bets on Swiggy and Quikr, is planning to increase investments in mid and late stages.
“Within VC investing, Norwest India continues to see outsized potential in late-stage venture investing and will be increasing its investment allocation to Series B, C and D rounds," said Niren Shah, managing director, Norwest Venture Partners India.
Further, traditional growth stage investors, such as Sequoia Capital and Accel Partners, are now favouring early-stage deals, including Sequoia’s Surge, a dedicated fund for the seed stage.
Other growth stage investors include Belgian firm Sofina, US-based Steadview Capital and Sands Capital, and Singapore’s Hillhouse Capital—all foreign investors who fly in to cut cheques when necessary.
Investors say the vacant space is currently filled by overseas investors and over time will get supplemented and replaced by local funds. For India-based funds, the proposition would be that we are local and more focused and have greater ability to add value.
“While more funds are looking to enter this space, we continue to see paucity of long term VC funds which are focused in the Series B, C and D space especially when this is compared to the exponential growth in demand of funding dollars for late stage venture companies," Shah said.