Kae Capital, an early-stage fund floated by Sasha Mirchandani (former India head of the US-based VC firm BlueRun Ventures), is aiming to rope in tier-I VC firms like Sequoia Capital for its maiden early-stage fund, sources close to the development told VCCircle.

The new early stage investment firm is looking to raise up to $25 million by the end of this month to invest in start-ups. A fund of funds (FOF) is also expected to come on board as an anchor investor, sources briefed with the matter said.

Getting VC funds as LPs on board will also help Kae Capital in deal sourcing, as these larger investors can always pass on a deal of a smaller ticket size that does not fit into their investment strategy. When contacted, Mirchandani said, “Fundraising is on track,” without divulging further details.

Kae Capital is targeting an average ticket size of investment of up to $500,000 or Rs 2.3 crore. While the fund will be sector-agnostic in nature, it will have a bias towards technology start-ups.

Early-stage investing is not new for Mirchandani who has invested in young companies during his tenure at BlueRun Ventures. He is also a part of Mumbai Angels, a Mumbai-based organisation that brings together investors – chiefly high networth individuals – to invest and mentor start-ups.

Mirchandani sits on the board of Akasaka Electronics Ltd, Fractal Analytics, Algorhythm Tech, Gulita Securities, Dhama Innovations, BlueRun Ventures India, Hathway Cable and Datacom Ltd.

Early Stage Funding Ecosystem

The early-stage funding activity in India is poised to increase with a host of funds raising capital to invest in start-ups. For instance, Blume Ventures, an angel investment firm founded by Mumbai Angels members Sanjay Nath and Karthik Reddy, is looking to raise a $20 million fund and is targeting the first close at about $6 million by December this year.

The Morpheus (formerly Morpheus Venture Partners), a start-up accelerator that focuses on working with early-stage tech ventures, has also announced its new fund called The Morpheus Tritiya. The fund is currently at Rs 3.5 crore, but can go up to Rs 4 crore-Rs 5 crore, depending on more confirmations.

Venture investing is coming back, riding on the back of some successful exits in the recent past. For instance, SAIF Partners’ early-stage investment of $24 million across various rounds in online travel portal MakeMyTrip generated a return of over 15 times on its original investment. The travel portal raised its first round of major funding from SAIF Partners in late 2005, getting $10 million.

SAIF took part in both series B (2006) and series C (2007) round of MakeMyTrip, which cumulatively raised $28 million.

Recently, Axel Springer AG, one of the largest multimedia companies in Europe, along with the home-grown media company the India Today Group, picked up 70.4 per cent stake in Automotive Exchange Pvt Ltd, the owner of automotive classified ads portal In 2006, Carwale raised funding from Seedfund, diluting about 30 per cent stake. It raised another $7 million from Sierra Ventures in 2008. The early-stage investors are understood to have made several multiple returns on the deal.

There is clearly an upward trend in terms of the dollars, deals and overall excitement about early-stage investing in India. Investment in MakeMyTrip was clearly seen as a progression and a meaningful milestone for India, and the overall Indian tech-centric venture ecosystem.

“One has to look at India, both from a relative and an absolute angle. From a relative angle, clearly, there is progression and excitement that continue to build. However, from an absolute angle, it still pales in comparison with the USA or China,” said Mohanjit Jolly, managing director of DFJ India, a VC fund. “On the technology side, it’s still more a funnel than actual exits,” he says.

Early-stage investment in India is constrained due to the lack of healthy exit situations. With the public markets as an option for some, the key is to have a healthy M&A environment (either domestic or international buyers) and that is yet to be proven.

But with the likes of JustDial, One97 and others lining up over the coming months, there will clearly be more data points a year from now.

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