Unlike Silicon Valley, there is a dearth of late-stage venture investing for technology companies in India, believes Suvir Sujan, co-founder of Nexus Venture Partners, a home-grown early stage venture capital firm with $600 million in assets under management (AUM). While late-stage capital is available and there are enough private equity funds who could sign larger cheques, their business model is largely centred around investing in revenue generating companies with each of them delivering some returns or IRRs in the portfolio. "There is no concept in these private equity funds to invest in portfolio companies where there is a lot of alpha where some companies can make 20-30 times or some companies can go bust," he says in an exclusive video interview with VCCircle. "We call this business model of investing in such late-stage companies where there is a lot of alpha, late-stage VC, which does not exist in this country," he adds.
Sujan goes on to argue that had late-stage VC investing been prevalent in the country, a lot of the companies would not have resorted to raising money from abroad. "One of our portfolio companies PubMatic had to raise money from an investor in the US. For instance, InMobi raised money from SoftBank. I would bet that had there been enough late-stage VCs in the country, they would have invested in InMobi," he argues. Last year, PubMatic, a digital ad platform for publishers and a Nexus Venture Capital portfolio company, raised a mega round of $45 million through mezzanine finance, led by US-based August Capital.
So, would Nexus be foraying into the late-stage venture space, having identified a gap here? “No, not really,” he says. "We actually are not sure if we are the best people to do that. It’s still a private equity type skill set with risks associated with it," he reasons.
In terms of technology trends and white spaces that will drive growth, Sujan believes that, “a lot of legacy software is being replaced globally" which opens floodgates of opportunities for tech companies. He is also a firm believer that a dozen of billion dollar technology companies will come out of India going forward. Watch the video for the full interview.