In what seems like a validation of the early stage investment model in India, Seedfund--whose portfolio reads like Redbus, Vaatsalya, AFAQs, Printo, Thinklabs and Edusports—has closed its second fund with a total investment corpus of $54 million. The second fund is also 3.5 times larger than the first fund, reflecting investor interest in seed stage investments. In an interview with VCCircle, Mahesh Murthy, Partner, Seedfund (in picture; from VCCircle E-commerce Forum in Bangalore last year), says, “a larger fund will allow them to invest into companies over a longer period of time.” The fund, fresh with capital, is looking to hire more people and expand across different cities. Murthy says, they would like to do what Kleiner Perkins did in the 70s supporting early stage ventures in the US. Excerpts:
What does the successful second fund-raise mean for Seedfund?
I think that with Seedfund raising its second fund, it is a clear validation of early stage funding in India. Our first fund really worked well for our limited partners and our investees, with four of our portfolio companies raising second rounds, a few being acquired and others moving towards good and meaningful exits. We have raised $54 million in total commitments in the second fund for Seedfund .The current fund is 3.5 times more than the first fund. This fund size will allow us to invest bigger sums of money into early-stage startups and gives us the ability to stay in the company for a longer time period.
How different was it raising the second fund compared to the first?
During our first fund, we went to a lot of strategic investors like Google, Motorola, Reliance ADA and Silicon Valley Bank since we wanted limited partners who could add significant value to our startups.
We have now proved the concept that early stage makes sense in India. We now need more of long-term financial investors who can support the long term 20-year vision of Seedfund - to create a solid base of funding and mentoring for the nation-wide support of startups.
So for the second fund, we retained many of our earlier investors but in addition went to a lot of financial investors like endowment funds, pension funds, foundations, fund of funds and the like. In addition we do have a couple of marquee names from Indian industry who are investors in Seedfund in their personal capacity.
How was the fund-raising experience? What do LPs think of early stage investing as an asset class in India?
Fundraising is never easy and it has not been an easy market. In hindsight I believe LP’s have invested in us because they like to diversify their asset allocation portfolio and probably chose us to represent the early-stage asset class in India. It is a new asset class for them (early stage in an emerging market) and I believe our past performance and track record pushed them to make a role for a new sort of creature in their portfolio.
How is your portfolio coming along? Any exits on the cards?
Recently, one of our portfolio companies, Carwale, was acquired by India Today and the Axel Springler Group.
Redbus, Vaatsalya, AFAQs, Printo, Thinklabs, Edusports and Vaatsalya are coming along very well. We are in no hurry to exit these. We are not fixated on any one exit route: M&A, IPO, MBO - all exit options are open. The recent successful listing of travel site MakeMyTrip spurred the interest of many investors in online travel as they saw a clear potential of a liquidation event. I truly believe that Indian internet companies can even go for an IPO with revenues of $10-$15 million, and need not be a $50 million company as is commonly believed.
Is there any shift in your investment strategy? What is your view on the growth potential of internet companies?
No shift - we are very much an early stage investor - only we have more money to deploy than before. Our strategy is very simple: we want to partner with companies who can become big leaders in a small sector - rather than backing a small presence in a big sector. The overall vision is to build the new India; and we want to support strong teams who can create new spaces and own them.
We are fairly sector agnostic. We like to be in the sectors which we understand the best. We do believe that the internet in India has hit a tipping point. There are a lot of macro factors supporting this: the overall desktop internet user base has dramatically increased in India; smartphone penetration is very high; there has been a huge increase in white collar jobs in India in last decade, giving information workers access to PC and highly quality Internet connections. This has increased overall wealth among the younger demographic, and the consumption of goods such as flat panel TVs, digital camera, camcorders, music downloads and such has gone up. These are all irreversible positive indicators.
The Indian digital market has hit its tipping point and in next 3-5 years we should see dozens of Internet models emerging and hopefully seeing a very nice growth trajectory.
Could you outline Seedfund's expansion plans?
We understand that early-stage funding requires a lot of hand holding and we believe that we add a lot of value to our portfolio companies through our advice and experience. Like we tell our investees, it's critical to have a great team and we think we've put together a good one ourselves: between our general partners Pravin Gandhi, Bharati Jacob and myself, we have over 85 years' of hands-on experience in technology, operations, marketing and managing startups.
In addition, Anand Lunia and Paula Mariwala have stepped into more senior positions in the new fund and we are also fortunate in having Sanjay Anandram (ex-Jumpstart) join us to help our startups. We will also have another announcement on this front soon.
We already have a strong presence in Bombay and Bangalore and we're looking at expanding our geographical reach - as it's hard to do early-stage investing from a distance. Do await an announcement on this front soon!
Where do you go from here?
This has never been about doing just another fund - if that was so, we'd probably be managing ten times the amount of money already. We truly believed when we started out in 2006 that entrepreneurs in India needed an Indian fund with Indian experience in building successful startups. That is what we have worked hard to create. We eventually would like to leave a legacy in Seedfund for entrepreneurs to come. It would be nice to be seen as an institution that helped build out the early stage ecosystem in India. Perhaps Kleiner Perkins played this role in the 1970s in the US.
What would be really nice in retrospect is that some five or ten or twenty years from now, people should pick out the top ten or twenty startups from India - and perhaps at least five should have come from Seedfund.