Early-stage venture capital firm August Capital Partners is raising $25 million for its maiden fund, which will look to invest in start-ups tapping India’s consumption story. The firm is expected to make a first close after garnering commitments worth $10-12 million, which it expects to reach by March 2012.
August Capital has been who also started Indigo Design & Engineering Associates Pvt. Ltd. six years ago after moving back to India. Before that, Narula worked with Accenture, focusing on M&A and strategy projects in the TMT space. He had also worked at Japan’s MCI WorldCom where he was part of the senior team responsible for the post-merger integration of the UUNet business. Narula also worked at PRTM (now PwC) and did his engineering from the University of Virginia and attended HEC Paris and Columbia Business School for MBA.
August Capital has already made its first investment in Bangalore-based Etable, a stealth-mode start-up. It is a social network-based data analytics platform that allows restaurants, service providers and advertisers to capture insight into their customers’ preferences and usage patterns.
Narula feels that there is a lot of money left to be deployed in later-stage venture capital and private equity investments which, according to Bain & Co estimates, stands at $20 billion. “For angel deals, there are family offices and now even corporate houses which are actively investing. August Capital is trying to fill the gap between angel investment and traditional venture capital deals, which are typically $5-6 million,” details Narula. “It will be a post-angel investment fund with focus on India’s consumption story,” he adds. August Capital will look to invest between $500,000 and $2 million in each company.
Before starting the fund, Narula has met over 40 companies in tier II cities like Mysore, Nasik and Jaipur, besides the metros like Delhi and Bangalore. This has also given August Capital a good deal pipeline. Also, around 30 per cent of its deal flow comes from angels and other venture capital firms.
August Capital will invest in firms which have already started seeing significant uptake in terms of revenues and product traction. And it will not invest in companies which are dependent on subsidies, have a high real estate element or infrastructure exposure.
Although the firm is sector agnostic, some of the current focus areas include education, healthcare, recreation, travel and communication.
Besides Narula, August Capital also has Kapil Chadha as a venture partner. The firm is also planning to hire a senior team member soon. August Capital has set up a venture mentor board which will have professionals with functional and industry expertise. It has already roped in six members. It also has a common pool of service providers like accountants and company secretaries for its portfolio companies.
The Delhi and Bangalore-based venture firm that has already roped in an undisclosed anchor investor, is raising money from both domestic and overseas investors. Limited Partners (LPs) in the fund will include an Indian institutional investor, HNIs from the USA and some commitments from the Middle East. August Capital will look at a portfolio of 12-15 companies, with first three years of the fund for investments and five years for harvesting.
“There has been a positive change among the LPs (towards early-stage funds) and they are now looking for Indian VCs who are nimble, entrepreneurial and have a clear exit strategy,” elaborates Narula. He adds that during the current economic uncertainty, LPs are looking to play the India story with a small commitment which can be scaled up with direct investments in follow-on rounds of portfolio companies.
Also, with increasing issues in corporate governance, early-stage companies are considered a much more “clean bet.”
There are other firms like Kae Capital and Blume Ventures, which are also raising early-stage funds.