As the world’s cravings for everyday and exotic spices grew since antiquity and extended beyond the Middle Ages, Eurasian trade routes like the fabled Silk Road emerged and iconic explorers like Vasco da Gama put India on the global spice map. The country’s spice legacy has continued and it sells spice and spice-related products to nearly 180 countries. India’s exports in this sector amounted to 15.4 lakh tonnes and reached an all-time high of $4.5 Bn in FY24.

When Akash Agrawal, with an MBA in marketing, ran his family’s steel business in Raipur during 2010-2015, he was unaware how the global demand for healthy spices and seasonings would drive the Indian market’s upward trajectory. He was, however, exploring promising sectors to launch his startup.

“The steel industry is too structured, governed by too many regulations. But I wanted to do things differently and create a powerful brand. You cannot do that in a family business. There are norms and set patterns to follow,” he said.

His first startup was CheckedIn, a location-based social networking app designed to help people discover like-minded individuals nearby. But his first attempt at entrepreneurship did not go well and he lost INR 1 Cr within two years. After the initial debacle, he had two options: Rejoining the family business or zeroing in on the right business to fulfil his ambition and create a noteworthy brand.

Being the gutsy risk-taker he has always been, the choice was evident. After thorough research and careful deliberation, Akash and his sibling Ashish decided to disrupt India’s ‘spice story’ with a dash of new technology and launched in 2018 the direct-to-consumer (D2C) spice brand Zoff (Zone Of Fresh Food), specialising in ground, blended and whole spice categories, as well as dry fruits.

The Ingredients That Built Zoff’s Unique Spice Story

The ‘timeless’ appeal of Indian spices across cultures, cuisines and culinary arts and the subsequent growth of the genre irresistibly drew the Agrawal brothers. Given the widespread use of single-origin products, including fundamental assortments favoured by home cooks and exotic blends embraced by HoReCa chefs – the branded spices segment has emerged as the most attractive within the food space since the Covid-19 pandemic. In fact, out of the top 20 Indian food companies in 2021, five were spice companies, and their valuations are expected to be up six to seven times by 2030, per an Avendus Capital report.

As people love local/regional flavours, homegrown incumbents continue to dominate this space, making things tough for new entrants like Zoff. Nevertheless, the Agrawals managed to spot many critical areas that would help them wrest a competitive edge.

“Let us start with the whole spice market. If you think of 2047 (a landmark year of sorts as the Indian government claims the culmination of Viksit Bharat by that time), when most Indian consumers opt for ready-to-use packaged spices, where will this market go? The genesis of Zoff Foods lies in that clarity, that understanding of forward-thinking strategy needs and technology requirements,” said Akash.

To spearhead its products past storied players (think Tata Sampann, Patanjali and their ilk, and you know its competition), Zoff has adopted modern technology such as cold grinding to retain the flavour and ingredient quality (oils and vitamins) found in raw spices and well-layered Ziplock packaging to keep the moisture intact and the spices fresh for a long time (more on its spicetech later).

The startup runs a fully automated manufacturing unit and a 10K sq. ft temperature-controlled warehouse in Raipur and sources premium-quality spices directly from their regions of origin to ensure the best crop conditions. It strictly adheres to FSSAI standards for product quality and lab-tests the incoming stock in-house so that ingredients meeting the highest quality benchmarks are processed.

“Our state-of-the-art, automated plant minimises human intervention, underlining our dedication to delivering safe and superior spice products,” said Akash.

Zoff claimed a gross revenue of INR 93 Cr in FY24, nearly a 4x jump from INR 25.79 Cr in FY20, a year that marked its entry into the ecommerce space after its distribution pivot from general trade. It also posted a net profit of INR 1 Cr against the INR 11.86 Cr loss in FY21. By the end of the current fiscal, Zoff aims to clock INR 170 Cr+ in revenue, with a 60-70% rise in repeat business. It will also introduce new SKUs such as flavoured dry fruits and gifting options.

How Zoff’s Tech Stack Helped Break The ‘Legacy’ Barrier

When a D2C brand enters a market teeming with legacy players, it is bound to face the inevitable question: Do you think you can survive? As for the spice segment, where brand loyalty has been paramount over the years (think of Cookme, a brand which was launched in 1846 and is still doing a roaring business), this throws a spanner in the works of onboarding and retaining customers.

Akash remains undaunted, arguing that the dominance of established brands underscores a massive opportunity for new players keen to disrupt the existing market. A rise in the number of new entrants will help expand the market, get it more organised in terms of value and volume and usher in more innovative blends.

The Avendus study also supports this outlook. It is estimated that the organised branded spice market will reach INR 50K Cr by 2025 and blended spices will have a 35% market share by then.

When asked about breaking the ‘legacy’ barrier and creating a cult brand, Akash talked less about the exotic flavours that Zoff might be experimenting with and focussed more on the business plans and practicalities uppermost in his mind. For instance, the key to acquiring customers, he says, is all about finding the market gaps (it can be quality, convenience or something else), creating the right brand positioning and constantly improving one’s strategy.

“We realised that legacy brands are reluctant to change. They are somewhat convinced that the status quo will persist. That’s where we saw the opportunity and seized it. Nothing innovative was happening in the spice market and we decided to change that,” he said.

Since its inception, the D2C spice brand has pioneered innovative strategies to bring fresh, high-quality spices to the market. Unlike most brands, which still offer single-use sachets and large packs, requiring additional containers for storage after the packets are opened, Zoff provides Ziplock pouches to retain freshness and ensure convenience.

“Spices should be used, sealed and stored anywhere without hassles. That’s how we have developed our products,” said Akash.

During their initial research, the founders also tracked another critical issue plaguing traditional spice companies – the use of hammer mills for spice grinding. The heat generated during that process can damage the output quality, melt spices or spoil intricate designer blends. Therefore, Zoff introduced a cool grinding technology that uses air to break whole spices into small particles before grinding, thus minimising heat generation and preserving the original flavours. It further ensures fine-to-superfine grinding and high throughput for regrinds.

“Next comes another critical procedure, grading, to be precise. Our grading process for whole spices remains largely manual to ensure quality. For instance, whole cloves are graded and packed as a whole spice while the broken ones are used for grinding,” said Akash.

Of Target Markets & Marketplaces: Zoff Debunked Popular Myths To Stay Ahead    

In another significant shift from tradition, Zoff has redefined its target customer base and moved away from a woman-centric approach. Although most companies do it even now, Akash, playing a key role in Zoff’s strategy building, believes that the scenario has changed. The kitchen is no longer the exclusive domain of women. On the contrary, Gen Z and the millennials, aged between 20 and 40, are holding sway and emerging as active decision-makers in their households minus any gender bias.

“These are ground realities and we need to design our products for this new generation. Also, with our ecommerce presence, we can reach this younger demographic much faster,” he said.

Zoff was at another strategic crossroads and required to make a pivotal decision to push its growth drive. Should it bolster its presence by selling on third-party marketplaces or transact exclusively via its proprietary website? Most D2C brands do both to optimise sales, but the spice brand has opted for a differentiated strategy.

It currently offers more than 100 SKUs, but only some of its products are available on ecommerce and quick commerce platforms. While Zoff sells its entire product range via its website, marketplaces only stock frequently purchased items like cumin, amchoor (mango powder) and season specials like sesame seeds during the Makar Sankranti festival in January. This selective availability helps the brand balance the reach and convenience of marketplaces with the control and brand fidelity of direct sales.

“Spices are not the kind of products you can sell and scale from your website,” said Akash. “We need readily available items that people can add to the cart along with other goods. No one will visit a site again and again just to order spices. Hence, we need marketplaces. But when people know the brand and realise it has exclusive, value-added products worth buying, they will come more frequently.”

Ecommerce Helped When General Trade Failed To Deliver

Although ecommerce gained prominence around 2014-2015 and D2C brands emerged as niche players, online grocery was struggling at the time. Even a host of well-funded players like Grofers (now Blinkit), Shadowfax, Peppertap, LocalBanya, Townrush (acquired by Grofers), Paytm Zip, Ola Store and Flipkart’s Nearby were fighting to stay afloat, recalled Akash. That’s the reason why Zoff initially focused on general trade (GT) as a distribution model.

“For two years, we worked on cracking the GT market. We expanded to 20 states but eventually realised that GT was a costly affair. Finally, when Covid-19 struck in 2020, we had to let go of our entire sales team of 350,” he rued.

It was the worst of times. The startup was bootstrapped then. The founders had already invested INR 60 Cr to set up the plant. They also burnt INR 30 Cr while trying to master GT operations. And finally, they had no sales team to bring them business. There was no other way out but to opt for ecommerce.

“That’s when players like BigBasket, Zepto and Grofers revolutionised online grocery with fast, efficient deliveries and typical Q-commerce solutions. We knew it was the right time to enter, so we started selling on Flipkart. Zoff clocked a turnover of INR 2.5 Cr from that business,” said Akash.

In addition, the Agrawals started selling to police and army canteens, which saw an annual footfall of 2 Cr. Their efforts paid off and they closed FY22 with a turnover of INR 50 crore, breaking even with a team of four.

The following fiscal proved even better. Zoff registered on the CRED marketplace in August 2022 and conducted paid sampling, charging only shipping costs and giving away products for free. A similar campaign was done via the website for promotion and profit.

Meanwhile, Zoff founders appeared on Shark Tank in February 2023, where it raised INR 1 Cr from boAT founder Aman Gupta.

“By then, our monthly turnover reached INR 5-6 Cr. We also sold on quick commerce platforms like Blinkit, Swiggy and Zepto and gradually ventured into modern trade (MT) by the end of FY23,” said Akash.

ONDC (Open Network for Digital Commerce), too, is his favourite sales channel. “I am a believer in technology. Even when people wondered what ONDC was all about, we got registered and did business worth INR 1.5 Cr within three months,” he added.

How Zoff Founders View The Recent Spice Ban Row

When asked about the recent spice adulteration controversy, Akash emphasised that the ban on certain spice brands in Singapore, Hong Kong and other countries due to ethylene oxide contamination would have far-reaching implications for the spice industry in India. It may lead to a substantial decline in exports, potentially impacting farmers’ livelihoods and overall industry revenue. The current situation further highlights the critical need for robust quality control measures across the industry.

Essentially, government agencies, regulatory bodies and brands must collaborate to ensure stricter testing procedures throughout the supply chain, from farming practices to final processing and packaging. This effort may involve more stringent guidelines for pesticide use, investing in better storage and transportation to minimise contamination risks and conducting more rigorous testing at various production stages.

Akash also thinks this is an ideal opportunity to focus on organic spices that meet the required safety standards.

“These measures can help reassure consumers, rebuild trust among international buyers, and safeguard the reputation of Indian spices,” he added.

What’s Next For Zoff: More Focus On Whole Spices & HoReCa, A Relook At GT

For most people, flavours and aromas of different kinds regurgitate memories and associations. According to ‘spice masters’, these subtle psychological connections are revived through the taste and smell of spices. But for Akash Agrawal, the palate is more ‘macro’. Nothing inspires him better than the brands which have become synonymous with their categories – Saffola for oil, Kohinoor for rice, or Bisleri for water. However, to achieve that level of recognition, Zoff’s primary focus should be whole spices, he says.

“Whole spices are integral to great cooking and are recommended by dieticians for their health benefits. It is also the largest segment of the unorganised spice market. From black pepper to cumin, from fenugreek to cardamom, whole spices account for nearly 50% of a household’s total spice purchases. Hence, it makes sound business sense to expand there,” said Akash.

Currently, 45% of Zoff’s business comes from whole spices, and it aims to emerge as a leading player by 2030. This segment also provides significant opportunities for scaling up in GT and the HoReCa space. The only glitch is that chefs and purchase managers across HoReCa prefer to work with familiar brands. Until Zoff becomes a well-established name, its products may not be widely accepted or used.

“The scope for multi-level growth is all the more reason to go for general trade once again but on a smaller scale. GT is India’s largest market, accounting for 90% of the business. In fact, in the next four years, general trade and ecommerce will split evenly and grow at the same pace. Therefore, we should tap into GT aggressively,” the founder added.

Zoff is already working towards this goal. In the last financial year, about 15% of its business came from GT, and the startup aims to increase this share to 20-25% in the current fiscal.

But one thing is for sure. Zoff’s founders will not pursue any deal that results in a loss, even if it is the loss of a single rupee. Profitability is paramount and the focus on unit economics will not waver after the harsh lessons they have learnt. It is the mantra they have adopted for continuous success. And it is probably the most profound business strategy to adopt, whether one is running a bootstrapped and pre-revenue garage startup or sitting on a pile of cash and earning profits.

[Edited by Sanghamitra Mandal]

The post Inside Zoff’s Cookbook: How This Spice Brand Achieved 4X Revenue Growth appeared first on Inc42 Media.

Will the glory days of fintech be back with a bang post the valuation corrections and an excruciatingly long funding winter? Despite a reasonable thaw, the tailwinds have not been felt yet, and we tend to get mixed results. For instance, the fintech sector in India witnessed a 62.45% drop in funding in H1 2024, securing $809 Mn against $2.1 Bn raised in the first half of 2023 (according to Inc42 data).

But the silver lining was there, too. The country stayed among the top three funded fintech ecosystems, right after the US and the UK. More importantly, the Indian fintech opportunity has been pegged to reach $2.1 Tn by 2030, growing at an 18% CAGR.

The global fintech market also remained muted this year. According to a CB Insight report, Q2 2024 would have remained flat had it not been for two blockbuster deals. However, a decline in deal volume and average deal size indicates investors are still cautious. Although many venture capitalists think that 2024 will be the comeback year for fintech and may soon reach its pre-Covid status, the majority seems to be looking for startups that can deliver innovative and globally competitive solutions.

Sahil Anand is one of them and he claims to have struck gold by identifying the potential of a much-neglected sub-category – banktech, to be precise. Anand has launched Cedar-IBSi Capital, India’s first fintech-focussed VC fund, and aims to secure a corpus of $30 Mn. The fund reached its first close in March 2024, raising around 40% of the target amount.

While the entire corpus will be deployed in India, the fund may raise additional capital to expand its operations in the EU and the Middle East. Cedar-IBSi plans to invest INR 4-10 Cr in 15 early stage fintech startups and primarily targets pre-Series A businesses in B2B fintech and banktech space. Currently, it is building a deal pipeline and is about to make its debut investment.

Anand began his journey in 2013 with the Everstone Group, a leading private equity firm. As an investment analyst, he specialised in buyout transactions in consumer and IT services sectors and contributed significantly to Everstone’s venture capital arm.

“I was building a funnel for the work and meeting numerous founders every week as we focussed on early stage investments. This gave me significant exposure to early and late stage private equity during my time there,” he recalled.

After completing his MBA at London Business School in 2018, Anand joined his three-decade-old family business: IBS Intelligence, a financial technology research firm, and Cedar Management Consulting International, a financial technology consulting firm. But he wanted to achieve more.

In the wake of India’s demonetisation in November 2016, the fintech landscape was evolving rapidly. As the momentum continued after a temporary setback, Anand decided to make good of this trend and set up the Cedar-IBSi FinTech Lab in 2018.

The aim was to provide a ‘soft landing’ for local and global fintech companies entering the MENA and the Indian markets. More than 45 fintech companies, including Ebix, Intellect Design, Impactsure and Infosys Finacle, among others, have joined the lab and benefited.

By 2022, Anand realised that both family firms ran smoothly without his daily intervention. However, given his investment experience and his family firms’ combined expertise of 70 years, the decision to launch a VC firm was the natural next step.

“Our goal is to provide value beyond capital. Founders who raise funding from us will benefit from the extensive support bestowed by Cedar and IBSi, which will help drive sustainable growth. Although this is a maiden fund, many high-quality founders are eager to work with us, as they recognise its impact,” said Anand during a one-to-one interaction as part of Inc42’s ongoing Moneyball series.

During our conversation, we delved deep into the fund’s investment thesis, current trends within the fintech landscape and the critical importance of banktech as a fintech wave catching on rapidly. Here are the edited excerpts from the interview.

Inc42: Cedar-IBSi has positioned itself as a pure-play fintech VC fund with the focus on B2B fintech and banktech. What’s behind this niche investment thesis?

Sahil Anand: Before we discuss that, let us take a look at B2C fintech. This segment features platforms and applications that consumers can access via their devices for all sorts of transactions, be it trading, investment, loan or insurance. Therefore, companies in this space aim to acquire millions of users for their apps but primarily distribute financial services instead of developing core technologies.

Our focus is not B2C, as it is an overcrowded, intensely competitive market. The CAC [customer acquisition cost] is high, stringent regulations are in place and government agencies compete as well. For example, with the growing adoption of UPI, the government introduced BHIM to compete with private players like Paytm, PhonePe and Amazon Pay, among others. Similarly, while Visa and Mastercard dominate the market, the government-backed RuPay card has been promoted globally.

So, we prioritise B2B fintechs as they offer better economics and we have extensive experience in this space. These companies, often involved in banking technology [banktech] and related infrastructure [core systems and financial tools through which operations are managed], provide solutions, generate revenue and are profitable early on.

But things are more complex here. Even within the B2B space, you will find horizontal platforms like Razorpay and FlexiLoans. They call themselves fintech, but in reality, these are horizontal platforms helping embed financial services across industries. They are not necessarily focussing on the BFSI sector. The other category includes pure-play banktechs, startups that primarily offer software and services used by BFSI companies worldwide. This is our primary area of interest.

We are looking at banktech startups like Credgenics, Perfios and M2P so that we can leverage our deep expertise and networks to support businesses which develop innovative technologies for banks and FIs. This strategic focus allows us to identify and invest in startups with significant long-term growth potential and alignment with our vision.

Inc42: As a fintech subsect, what are the key opportunities banktech can offer Indian startups?

Sahil Anand: There will be plenty on the cards, as banktech has recently witnessed a significant shift in focus. Earlier, the spotlight was on B2C fintech, overshadowing the critical need for robust technology within the banks. But this has changed, and globally, banks are investing hundreds of millions of dollars in their systems and software every year. They also purchase 12-13 core systems annually and integrate them to support their operations.

I would say the B2C fintech disruption has run its course, with established players like Paytm, Upstox, Zerodha and others dominating all major segments. In contrast, banktech has remained relatively stagnant in the past 20 to 30 years. Traditional IT service companies are still selling their solutions across that domain. But the sector is ripe for a new wave of innovative banktech and B2B fintech offerings to drive further disruption.

Inc42: We have a limited number of banks and NBFCs in India and a growing number of startups catering to their technology needs. Will the surge in services surpass the demand anytime soon?

Sahil Anand: I don’t think so. Banktech is a versatile platform that offers software as a service to a wide range of financial institutions. These include consumer-centric and commercial banks, NBFCs and a growing number of co-operative and regional rural banks looking for technology upgrades. Insurance companies and other financial service institutions are also part of this fast-growing market.

Moreover, banktech startups need not be confined to the Indian market. The fundamental systems for core banking, treasury and payments are similar worldwide, which means these companies can easily target international markets.

Indian banktech companies typically start by partnering with the top five to seven banks in India and leverage these relationships to build credibility among Indian insurers. Once they have established a solid domestic base, they try to enter global markets such as the GCC, where banks invest heavily in technology. Additionally, markets in Malaysia, Vietnam, Singapore, Hong Kong, Sri Lanka and the EU [the region has more than 800 banks] offer significant growth potential. That’s how the whole game can be sold to 500 banks around the world.

This approach mirrors how Indian IT majors like Infosys grew by generating revenues from global banks and financial services customers. As a VC fund, we can help these banktech startups as our strength lies in our global footprint. We have offices and tech labs in many countries and a wealth of experience across international markets.

Inc42: India’s Financial Inclusion Index rose to 64.2 in March 2024, but we are well below the coveted 100%. Can B2B fintechs play a constructive role here?

Sahil Anand: To be honest, it is more like a hit-or-miss thing. Financial institutions must extend credit and services to a broader population segment to achieve better financial inclusion. Here, the core issue is not technology but the level of credit risk banks are willing to assume. If we say that a new banking technology/system, a new treasury system or a new payment solution will be more financially inclusive, it will be too much of a stretch.

The primary goal of the new banking technology, or banktech, is to enhance operational efficiency. It is not about financial inclusion but making banking more efficient. This new-age technology has the potential to improve efficiency, productivity and core operations, which may increase overall revenue. That’s an achievement from a technological standpoint.

Inc42: In that case, what horizontal and vertical SaaS solutions will be best for banktech success in the next five years?

Sahil Anand: Let us consider these one at a time for better understanding. Horizontal SaaS [industry-agnostic, general-purpose solutions] has limited scope in highly customised sectors like banktech.

Vertical SaaS is critical nowadays as banks are increasingly looking for vendors with expertise in specific use cases rather than generic, one-size-fits-all solutions. Every financial institution, whether a commercial bank, an NBFC, or an insurance platform, has a host of requirements that need to be addressed. So, they focus on service providers with deep domain knowledge and the capability of implementing solutions quickly and efficiently.

Banktech startups will do well to excel in specific use cases and master the most promising vertical SaaS solutions such as digital automation, customer lifecycle management, digital lending, wealth management, private banking and cash flow management.

Startups’ success will also hinge on nuanced execution and outstanding outcomes. For instance, five-year-old SaaS startup Credgenics now handles 11 Mn retail loan accounts and claims to have increased lenders’ resolution rates by 20% and improved debt collections by 25%.

Service providers should also ensure that they are not location-bound and may operate like implementation wizards, when needed. Earlier, sales cycles could stretch between 12 and 18 months and things were slow-paced by default. Now that new-age solutions can be implemented within 45-50 days, swift execution remains a critical mandate.

Contrary to the popular notion that banktech will saturate in the next decade, I would say the sector is still in its early stages. Addressing the pain points of decades-old technology will take at least another 20 years if the BFSI infrastructure/ecosystem has to evolve in tune with disruptive technologies.

Inc42: Talking about banktech startups, what will be the market size or revenue estimates by 2030? Can you give us an idea?

Sahil Anand: It is difficult to ascertain the market size of B2B fintech as there are no well-defined sub-sectors here. Different players offer different solutions and services tailored for FIs belonging to different categories and each solution addresses a specific issue. It is a bit chaotic. What we see here may boil down to 20 customer types with 11 different systems and businesses varying in scale from small to medium to large and located across many countries.

However, an average bank allocates 7-8% of its budget to banktech and this is steadily rising. Again, each bank typically requires around 20 different tech systems to enhance operational efficiency. The potential market becomes huge when you multiply the average banktech spending by the number of domestic and global FIs.

As we speak, a banktech startup could be selling its softwares to any bank in India and another bank located in the Maldives, thus ensuring better business growth. Unlike B2C, that is the beauty of B2B fintech or banktech.

Inc42: Overall, what will be the key trends and challenges for fintechs in India?

Sahil Anand: Even when a B2C startup identifies a niche – say, an insurer targeting women-specific schemes – large players can easily add this as a subset of their offerings or acquire the startup outright. Although B2C is primarily a no-entry zone for Cedar, we are still looking for B2C founders with a proven track record of building and scaling innovative solutions for the masses.

There are plenty of other challenges. Given the stringent government regulations, fintech companies must exercise great caution in all areas, including compliance, fundraising and navigating the competitive landscape. Banktechs should focus on developing robust software that can scale, achieve profitability and go global. Moreover, their tech products should be able to replace outdated technologies that have persisted for years.

Inc42: What will be the role of AI-GenAI in the B2B fintech space?

Sahil Anand: These are still the early days of AI adoption in the banking sector. Given their historically different data management practices, banks are gradually becoming comfortable with AI usage. They are just beginning to familiarise themselves with various external solutions for data processing and analytics [predictive, generative and what all may come up soon]. This gradual approach will ensure a smooth transition and allow necessary adjustments and adoptions.

Undoubtedly, AI will play a significant role here. However, the consensus is that the new tech cannot entirely replace the human workforce in the highly regulated financial services industry. Anything stated otherwise is an overstatement. AI remains a powerful tool that can boost productivity and enhance efficiency by 60-70%. It may even reduce headcounts by 30-50%. But human involvement will remain essential. That should provide a sense of security when people mull over the future of this industry.

Inc42: Will there be vibrant growth markets for Indian banktech startups? Please elaborate on the kind of dynamics and alignment they may find overseas. 

Sahil Anand: Well, the Middle East is a promising market right now, as it hosts around 100 banks across six or seven countries. These institutions are technologically advanced, well-capitalised and helmed by a new generation of young leaders. They have a favourable view of India and share a strong cultural affinity. Many of these banks had earlier worked with Indian vendors and Indian IT majors also serviced GCC banks. Overall, they are familiar with our operational style and actively seek disruptive solutions from us.

Apart from ME markets, Southeast Asia is another region brimming with opportunities, especially countries like Indonesia, Vietnam and Sri Lanka. Of course, Singapore and Hong Kong are fiercely competitive, but the broader region holds substantial growth potential.

Targeting these regions may yield as many as 200 B2B clients for a banktech venture, resulting in an annual recurring revenue [ARR] worth INR 150-250 Cr. Subsequent expansions across the EU, the US and other Western markets may follow, leading to further growth.

This strategic focus offers a promising avenue for banktech companies aiming to scale and achieve global success.

Inc42: What about new unicorns and public listings in the B2B fintech space? What developments will be there in the short term?

Sahil Anand: We have recently seen three unicorns – Pigment, QI Tech and Cyera – which are fintechs or servicing the fintech industry. Two of these are in the US, where the market is mature. At a jurisdictional level, the US attracted two-thirds of all fintech funding during 2023 ($73.5 Bn), according to a 2024 KPMG report.

The B2B fintech sector in India is on a similar growth trajectory. We have seen companies whose revenues are burgeoning to the tune of INR 600-700 Cr+. These are set to attract late stage investors in the long run. Additionally, there are fintech SaaS companies like Trust Fintech opting for the IPO route. However, this is just the beginning.

So far, everyone has been distracted by the B2C wave instead of deep-diving into B2B, but we are getting there now. That’s why the industry is also excited about our fund, as we are all set to capture the first 10 waves of B2B fintech/banktech in India.

[Edited by Sanghamitra Mandal]

The post Decoding Cedar-IBSi Capital’s $30 Mn Investment Playbook In Indian B2B Fintech, Banktech Startups appeared first on Inc42 Media.

Listing on public markets is a milestone all companies chase, as IPOs mark a crescendo in their journey. A handful of Indian tech unicorns such as Mamaearth, Zomato, Paytm, Delhivery, Nykaa, Digit and Policybazaar had been there and done that after years of hard work and patient strategising. But how would one position a financial business that started its journey from this pinnacle to service the perpetually cash-strapped Indian MSMEs?

Shachindra Nath’s non-banking financial company (NBFC) U GRO Capital has defied all typical growth norms. So has the founder, navigating an oft-contentious niche loan segment. However, NBFCs account for 30% of the total bank credit in India and play a critical role in credit intermediation and outreach.

Set up in 2018 through the acquisition, recapitalisation and rebranding of the listed entity Chokhani Securities, U GRO took an unconventional route.

“Traditional FIs have a long-term business model and those in alternative investments like private equity and venture capital [PE/VC] look for quick returns. For instance, VCs put their money in a company for three to five years. So, we decided to structure the NBFC as a listed company for investors [banks and PE/VCs] to come and go via the public market, while the entity is there in perpetuity,” explained Nath.

That he emerged as a successful finance entrepreneur was not a lucky coincidence. A thorough understanding of SME lending and capital markets was part of his professional expertise, spanning nearly a quarter of a century. He worked for Landmark Partners, a $27 Bn asset management business, and Northgate Capital, which manages approximately $4.3 Bn in PE/VC assets, before joining Religare for a 15-year span, where he climbed from COO in 2006 to group CEO in 2010.

But by 2011, Religare was bleeding INR 7K Cr, and Nath proposed a bold buyout at INR 8.4K Cr with PE backing. He aimed to rebuild it as a finance company for small businesses and bridge the huge MSME credit gap. For context, the credit deficit stood at $530 Bn, per a 2023 Avendus Capital report, with only 14% of the companies having access to formal credit compared to 30% in developed nations. This is despite the fact that MSME gross value added (GVA) was 29.1% of all-India GDP in FY22. And the sector’s manufacturing output stood at 36.2% of the country’s total in that year.

Nath was in for a shock. His out-of-the-box approach was considered too audacious and ruffled many feathers. “How could an employee, who started at a meagre salary of INR 16K, dare to take over the entire business? So, in December 2015, I was thrown out,” he still smarted. (Inc42 could not independently ascertain the details of the infighting that rocked Religare then.)

The years that followed were an acid test for Nath. Penniless and jobless, he pitched his vision to as many as 121 investors until four of them – TPG NewQuest, PAG, ADV Capital and Samena Capital – agreed to come on board. Chokhani Securities was acquired and re-emerged as U GRO Capital in April 2018, while Nath managed to raise INR 950 Cr within four months of its inception, drawing upon his outstanding work experience.

Today, U GRO is one of India’s most profitable, data-driven and impactful NBFCs. With a customer base of 80K+ and nearly INR 17K Cr deployed in loans, it boasts an average loan book of INR 8K Cr. Profitable from Day 1, it has designed and implemented a proprietary tech stack for loan underwriting (more on that later) and held its ground against formidable competitors like Lendingkart, Kinara Capital, Finova Capital, Kissht and Navi Finserv.

The NBFC’s profit after tax (PAT) soared to INR 119 Cr in FY24, a nearly 200% increase from INR 40 Cr in the previous financial year. Nath attributes the growth to U GRO’s proprietary data-centric underwriting model, expansion of distribution channels and a broadening lender base.

“I would say several factors triggered this success. For instance, the SBI lent INR 650 Cr as our partner bank. Also, we are driven purely by data and technology and spend INR 58 Cr+ annually on tech development. With INR 9K Cr+ AUM in FY24, we have emerged as an institutional company,” the founder added.

How U GRO Coped With Turbulence Soon After The Launch 

Although U GRO has a commendable mission – that of addressing the small business credit need – no business can achieve success overnight. The NBFC’s remarkable performance in FY24 can be traced back to the strategic vision of its founder, who focussed on building a robust foundation from the outset.

U GRO was off to a sound start after securing INR 950 Cr capital by August 2018. But the company had to battle tough challenges in the following years due to the IL&FS liquidity crisis in 2018 (the infrastructure-focussed shadow banker, sitting on a debt of INR 94K Cr, defaulted on many bank loans), the DHFL loan fraud that came to light in 2019 (the housing loan NBFC allegedly disbursed loans fake borrowers and shell companies) and, finally, the YES Bank crisis in 2020 (triggered by overwhelming NPAs due to the NBFC crises and excessive withdrawals, compelling the RBI to step in to resolve liquidity and governance issues).

The onset of the Covid-19 pandemic disrupted businesses further and deploying credit was in the doldrums during those years.

“Moreover, we are a listed entity, owning public money. We cannot burn cash like a VC-backed startup. So, we put about INR 861 Cr of our equity capital in the public market to earn money during those four to five years. Now, we are competing with the best [NBFCs] in the class,” said Nath.

The pandemic left a trail of business challenges in its wake, shuttering companies and killing jobs. But the NBFC seems to have bounced back with a vengeance. In the pre-Covid period, U GRO employed 120 people across nine locations. Post-Covid, it has 1,500 people at 105 locations. The NBFC’s data analytics team has been expanded from five to 275 and the number of lenders has surged from three to 60. It also works with several co-lending partners, including prominent names like the SBI, SIDBI and Bank of Baroda, among others.

U Gro raised around INR 2,013.66 Cr in the past two years from notable AIFs, HNIs, family offices and other domestic investors. It also acquired another NBFC called MyShubhLife to expand its embedded finance opportunity. The aim is to harness MSL’s potential to add 2 Lakh new customers in the next three years for an incremental AUM of INR 1.5K Cr.

As of June 18, 2024, the company had a market cap of INR 2.50K Cr and traded at a 52-week high of INR 319.85 on the Bombay Stock Exchange (BSE). Its AUM was worth INR 9,047 Cr in FY24, up by 49% from INR 6,081 Cr in the previous fiscal.

The Making Of U GRO Score, A Proprietary Tech Stack For Cornering Success 

If India has to emerge as a $10 Tn GDP economy, FIs must address the viable debt gaps of 6.3 Cr homegrown micro, small and medium enterprises, accounting for 44% of the country’s exports and 31% of the workforce. In fact, increased economic activity spurred the demand for commercial loans by 29% in the July-September quarter of FY24, compared to the same period of FY23. More importantly, MSME credit demand at NBFCs, earlier standing at 14%, grew fastest at 39% during that quarter. Delinquencies were down at 2.3%, clocking a -0.7% YoY change, and MSMEs are adopting digital technologies at a fast clip, thereby giving an edge to modern lending firms.

U GRO was aware of the upcoming opportunity from the beginning but also recognised the importance of a robust underwriting model. The reason? Even today, around 47% of the total debt demand of $1,544 Bn is not addressable, which means many of these enterprises are not financially viable or prefer informal sources to raise capital.

The scenario was not different before, and U GRO laid the groundwork to overcome these hurdles. The NBFC launched its patented underwriting model, GRO Score, right at inception, which employs advanced AI-ML algorithms to analyse more than 25K data points from an applicant’s credit bureau record and bank statements.

The model then consolidates banking and bureau scorecards to generate a unified score, further fine-tuned using GST data as an external input. These scores are then categorised under five heads, ranging from A to E, with E representing the lowest rating.

“GRO Score is India’s first small business credit scoring model using the data power of GST, banking and credit bureau. Several banks and NBFCs have already requested that we deploy this model. However, we have decided to use this proprietary model in-house only,” said Nath.

The NBFC’s data analytics team has helped it identify nine core sectors and 200+ ecosystems, featuring nearly 50% of the MSME lending market. These sectors include chemicals, education, auto components, healthcare, food processing, light engineering, hospitality, electrical equipment and micro-enterprises.

Additionally, its data analytics engine enables the NBFC to pinpoint states and locations for expansion, track portfolios and manage daily operations.

Its in-house business rule engine (BRE) also enables the swift rollout of new models, integrates various platforms and automates multiple processes. The system covers all operations of U GRO’s branch-led channel GRO-Plus, partnerships and alliances-driven GRO-Xstream, the supply chain financing-led Gro Chain and digital channel Gro-Direct, which allows MSMEs to apply for credit directly, with loans approved within 60 minutes.

Can U GRO Leverage The 7.5 Cr MSME Opportunity?

As per March 2024 data from the ministry of micro, small and medium enterprises, the number of MSMEs is projected to increase from 6.3 Cr to 7.5 Cr at a CAGR of 2.5%. However, only 2.5 Cr businesses have accessed credit from formal sources until now. A key reason for this gap is the need for a large financial institution exclusively servicing this segment.

Nath explained the persistent challenge fintechs and traditional lenders face in servicing MSMES. Primarily operating in unorganised markets, these businesses typically generate 90% of their revenue in cash, with only 10% coming from formal income streams. Their heavy reliance on cash-based incomes makes it difficult for formal lenders to assess their repayment capabilities accurately. Hence the credit squeeze.

He further added that as for fintechs, offering unsecured loans even at 30-40% interest rates leads to a substantial loss of 5-7%, whereas secured loans at an 11% interest rate (an advantage enjoyed by banks) result in a modest credit loss of 0.25%.

“Lending institutions must maintain a credit cost band of at least 2%. This balance can only be achieved through a diversified portfolio strategy, a method effectively employed by U GRO,” Nath added.

Despite many challenges, Nath believes that MSMEs require special hand-holding and there will be distinct improvements in the lending market. U GRO has set ambitious goals, aiming to double its return on equity (ROE) to 18% and increase return on assets (ROA) to 4% by FY26, up from 9.9% ROE and 2.3% ROA clocked at the close of FY24. The NBFC also targets an AUM worth INR 25K Cr by FY26.

As the country is rapidly transitioning from collateral-based to cash-flow lending, the likes of U GRO are pioneering this change. Nath is excited about the road ahead, as the strong credit demand, pushed by robust economic growth, will pave the path for NBFC growth and fuel the sector’s profitability. Like startup funding, the much-maligned ‘middle’ financing may soon play a pivotal role in shaping India’s fast-evolving growth story.

The post U GRO Capital’s Stellar FY24: Unboxing The NBFC’s Success Tools That Led To A 200% Net Profit Surge  appeared first on Inc42 Media.

India’s investment landscape was transformed for good when the SEBI (Foreign Venture Capital Investor) Regulations 2000 opened the floodgates for global VC giants. The optimism was palpable from Day I, and a host of US-based funds, such as Tiger Global, Sequoia Capital, Y Combinator, IDG Ventures and Norwest Venture Partners, made forays. They empowered India’s burgeoning startup ecosystem and catalysed innovation and growth across sectors.

SAIF Partners, then a JV with the iconic Japanese investor SoftBank, was an early entrant in 2001, and SoftBank established its India operations in 2013, demonstrating a long-term commitment to the Indian startup ecosystem.

Several VC firms from Japan, especially early stage investors, also started exploring India as a promising destination around that time. By 2014, Indian ecommerce giant Flipkart raised $1 Bn in a single funding round, while the total funding for Indian startups surpassed $5 Bn. In brief, the global funding scenario was looking up even in those early days.

One of the standout entities in those days was the Japan-based Incubate Fund. It was launched in 2010 by a team of four – Tohra Akaura, Yusuke Murata, Masahiko Homma and Keisuke Wada – and initially focussed solely on the Japanese market. Incubate quickly rose to become the top performer by 2015 and soon recognised the vast potential offered by international markets. Therefore, the general partners (GPs) made the strategic decision to expand globally.

The two major markets at the time were the fiercely competitive US and the highly localised China. However, India quickly emerged as the next significant frontier with its rapidly expanding startup ecosystem. Recognising an early opportunity, the Japanese VC firm started investing in Indian startups in 2015 through its $91 Mn Incubate Fund III.

Seeking a trusted partner to establish an India-focussed fund, the team from Incubate Fund got in touch with Nao Murakami, a former investment banker and entrepreneur running his startup in New Delhi.

“After my i-banking stint at New York-based Nomura Securities, I came to India in 2015 to start my venture, Gamma India. Unfortunately, it shut down within eight months. I met the Incubate team during that time, and together we set up Incubate Fund India,” Murakami shared in an exclusive interview with Inc42 as part of its ongoing Moneyball Series.

In February 2016, Murakami joined Incubate Fund India as founder and GP. Between 2015 and 2024, the VC firm invested in 29 startups through Funds I ($3 Mn) and II ($15 Mn). Among the portfolio companies are prominent startups like Captain Fresh, Yulu, ShopKirana, Plum and Includ, which have made significant strides in their respective industries.

The India entity was rebranded as Incubate Fund Asia in September 2023, with a renewed focus on Southeast Asian startups. At that time, it also announced the first close of Fund III, targeting a corpus of $50 Mn (around INR 416 Cr). However, it was closed at $30 Mn in June this year, as Murakami did not want to stretch the fundraising timeline beyond its schedule.

Nearly 80% of the new fund will be used for investments in India, and the remaining 20% will be deployed to Singapore, Indonesia and the Middle East.

“We may deploy the new investment budgets of this fund quickly, say within one year or one and a half years from now, and start raising the next fund (Fund IV) with a bigger corpus next year (2025),” shared Murakami.

A Leap From B2B To B2C: Incubate Fund Asia’s Shift In Investment Thesis 

Incubate Fund Asia has been active in India for nearly a decade and initially focussed on B2B commerce.

“In 2015-16, we saw the startup bubble build up in India for the first time, marked by a surge in investors fervently chasing B2C opportunities. But we concentrated solely on the B2B space due to our limited fund size,” said Murakami.

But unlike the cash-guzzling B2C space, which requires huge promotion to create brand awareness and acquire customers, B2B follows a more targeted model, without spending much on advertising or marketing. This enabled the fund to spot promising opportunities and back strong founders minus a significant financial outlay.

In 2023, Incubate Fund Asia launched Fund III with a $30 Mn corpus. Demonstrating strategic foresight, the VC firm recalibrated its investment strategy to target B2C and B2B2C ventures targeting Tier II and III regions or beyond. Although Fund III is sector-agnostic, it focusses on four key areas: Consumer brands, greentech, cross-border B2B e-commerce and fintech. The change in investment thesis also emphasises Incubate’s commitment to identifying and nurturing high-potential ventures across sectors and emerging markets.

“However, 70% of the decision-making depends on a company’s founders. The other two investment criteria are market size and potential profitability,” added Murakami.

Asked to clarify the sudden shift from B2B to B2C at a time when most VCs are focussing on enterprisetech to future-proof their earnings, Murakami said that the change was driven by the increased availability of capital for Fund III. It enables the fund to support portfolio companies through their Series A journeys and provide them with a competitive edge.

For instance, with Fund I, Incubate Fund Asia led a round with an average cheque size of $200-250K. But the fund can now invest $600-700K, which can go beyond $1 Mn in certain cases. Essentially, the change in investment thesis reflects the fund’s increased investment capacity and willingness to take bigger risks.

The team also recognised the potential of a fast-expanding B2C market, with middle-income groups emerging in Tier II and beyond. Given his experience in venture capital, Murakami was confident that the new fund could effectively support B2C and B2B2C companies in this changing scenario. Incubate Fund Asia has already invested in BuyEazzy, a beauty and cosmetics brand focussing on Tier III and IV markets. It recently raised a Series A round from Info Edge Ventures, a testament to its growth potential.

“The playbook for B2C and B2B2C companies succeeding in Tier II, III or IV markets differs significantly from those targeting Tier 1 clientele. Here, logistics and supply chain management are crucial to winning the game, rather than marketing and advertising,” said Murakami.

VCs Must Excel To Stay In The Race

Homegrown investors have significantly ramped up their deal-making activities in the past decade. Angels, PE/VC firms, family offices, pension funds and HNIs are now actively looking at the burgeoning Indian startup ecosystem, especially early stage businesses. According to Murakami, this surge in interest among Indian investors has created more co-investment opportunities for their overseas counterparts.

“However, a limited partner must always choose wisely, distinguishing between good and average VCs,” he said.

But given the challenges and changes faced by Silicon Valley VCs over the past few years – some deciding to call it quits and others refraining from investing or raising new funds – what are the parameters to identify excellent performers?

Murakami sticks to a simple parameter. Now that the business headwinds have considerably subsided, many VCs are raising their first or second funds. For instance, India-based VentureSoul Partners and Singapore’s ThinKuvate recently announced their maiden funds.

At this level, winning LPs’ trust based on credibility is relatively easy. But when it comes to a third fund, VCs must demonstrate strong performance, especially regarding actual cash returns to LPs who invested in Fund I. VCs cannot secure a third fund if they cannot return the capital invested earlier. Fund III serves as a critical test.

According to Inc42 data, 20+ India-focussed funds worth $1.2 Bn were announced in H1 2024 (January-June). While the rise in new funds and micro-funds is encouraging, Murakami believes a natural selection process will emerge in the coming years.

Some GPs will successfully raise their second and third funds, proving their competence, while others may struggle, leading to a performance assessment of sorts. This trend is observed in every market, including Japan and the US, among others, and it is expected to happen in India.

Startups Should Leverage The ‘India Advantage’

Post-pandemic, the world witnessed a significant supply chain shift away from China, triggered by the escalating US-China tensions. The Russia-Ukraine conflict also won India its diplomatic spurs, convincing global majors that the country would stick to the principles of peace and stability to emerge as a major economy. In essence, India has positioned itself as an attractive destination for global investors and MNCs.

Although this is an opportune moment for growth, Murakami also sees a challenge. The supply chains of the US and China are 10 years ahead of India, which lacks the robustness and sophistication needed to service global markets.

“However, the demand exists, opening a new playing field for Indian startups. Whether they specialise in B2B or B2C, companies can capitalise on this shift, as India is well-positioned to create highly valued supply chain companies,” he added.

As the world is now geopolitically split into blocks under the US, China, or Russia, businesses are looking for neutral powers and strong economies as business allies. With India’s real GDP estimated to grow by 8.2% in FY24 to reach INR 173.82 Lakh Cr ($xxxx Tn), the country fulfils both conditions and is well prepared to explore the rising global opportunities. xxxx

“India maintains friendly relations with most foreign nations [blocks] without strongly aligning with one side. This strategic positioning is crucial for economic growth, allowing India to explore these alliances effectively. Consequently, startups can leverage these business corridors across all fronts,” added Murakami.

IPO Should Be The First Choice Of Exit For VCs

After working across the Indian startup ecosystem for nearly eight years, Murakami has identified a critical gap: A simplified IPO framework.

“In Japan, 50 to 100 startups go public every year because a specific IPO market has been designed for them. Japanese VCs consider IPOs the primary exit option, even in the early stages. But we didn’t see much IPO activity among homegrown startups until 2021,” he noted.

India, too, was willing to embrace a similar investment culture. In August 2015, capital market regulator SEBI notified a new set of listing norms (along with significant relaxations in disclosures) so that Indian startups could easily enter the public market via the Institutional Trading Platform (ITP) of national stock exchanges. But the ITP framework could garner little interest.

SEBI tried to revive the platform in 2019 by introducing certain amendments and rebranding it as the Innovators Growth Platform (IGP). However, market interest in the platform continues to be tepid.

Murakami thinks this is gradually changing. So far, 23 Indian tech startups got listed on the BSE/NSE. The latest was Le Travenues Technology, the parent company of the online travel agency ixigo, which made a strong debut on June 18, 2024.

In fact, the Indian capital market will likely see many new-age tech IPOs this year, with ventures like Swiggy, Ola Electric, FirstCry, Unicommerce, Ola Cabs, PayU and MobiKwik gearing up to go public.

“Nevertheless, there is room for improvement. Indian stock exchanges can be more startup-friendly when it comes to IPOs. Also, the country’s startup ecosystem is ahead of other Southeast Asian countries. Therefore, making IPOs the primary exit option may attract more global VCs,” said Murakami.

According to a Nikkei Asia report, Tokyo VCs like Genesia Ventures and Beyond Next Ventures have also shown interest in the third-largest unicorn generator. When the funding winter finally thaws, a new bunch of VCs may bring new investment themes and more capital to empower India’s emerging businesses.

[Edited by Sanghamitra Mandal]

The post Why Japan-Based Incubate Fund Is Bullish On India’s Consumer Economy appeared first on Inc42 Media.

Mohit Gulati, managing partner of ITI Growth Opportunities Fund believes in the power of purpose, the raison d’être, to be precise. He may not have been the brightest student as a kid, but he was a dreamer with an in-depth understanding of people’s aspirations. Growing up with doctor parents, he also understood the importance of performance and delivery.

Given this mindset, Gulati wanted founders to succeed and knew he must become a jack of all trades to help people with different aspirations. This philosophy is also reflected in his work at ITI GO.

An MBA from IIT-Bombay, he launched Fund I worth INR 62 Cr in 2018 in partnership with the Investment Trust of India (ITI). The financial services conglomerate is led by Sudhir V. Valia, cofounder and director of Sun Pharma, and owns more than 15 businesses in key sectors such as lending, broking, wealth management and more. As a result, the group provides significant cross-synergies for ITI GO across various verticals, including equity funding, venture, debt, investment banking and IPOs.

The fund has performed well in the past five years, investing in 22 startups and returning half the capital to investors. Gulati is working on his next endeavour, ITI Growth Opportunities Fund II, which has a corpus of INR 200 Cr and a greenshoe option of INR 100 Cr.

“We did it in record time. We got the SEBI approval in October 2023 and have already closed INR 80 Cr of our target. We are now ready to deploy the capital,” said Gulati in an interaction with Inc42 as part of our ongoing Moneyball series.

According to him, the entry of new limited partners (LPs), including a major family office and other veteran investors, is critical to this success. Having a seasoned partner like the ITI Group is another key criterion. The VC firm also leverages the presence of a competent board of advisors, including large asset managers and market players, providing strategic insights into business development.

“Most of our LPs are mature investors seeking diversification. With ITI’s support, we can help them invest across assets to maximise returns,” he added.

Historically, most LPs partnered with big VC funds for secure and profitable investments. But with the private investment scenario undergoing a tectonic change in a post-pandemic world, where agility and adaptability matter most instead of set pieces, smaller but efficient VC firms are gaining traction rather than the VC leviathans.

Let us take you through ITI GO’s investment playbook, its intriguing potential and the measures taken to deliver attractive returns amid economic volatility.

Fund I Investment Thesis And How It Performed In Tough Times  

Gulati is sticking to a consistent investment thesis for both funds, believing that successful venture capital investment often requires swimming against the tide and backing resilient founders who can survive against all odds. This has led to early investments in startups such as the all-in-one mobility app Bolt, logistics drone specialist Redwing Aerospace Labs and D2C skincare brand Cureskin, among others.

The VC emphasises that their investments have always been in areas they like and understand. During the funding frenzy of 2021 and 2022, ITI GO made only two investments from Fund I due to skyrocketing valuations and subsequent market corrections.

“However, we made six investments in 2023 when the markets stabilised and we are launching the second fund now,” he said.

The first fund was well-aligned with Gulati’s vision, weathering the test of time and delivering significant returns. ITI GO made 22 investments and exited agritech startup Fasal within a year apart from partially exiting another startup. The fund has an IRR (internal rate of return) of 33% and a DPI (distributed-to-paid-in capital) ratio of 0.45, while four portfolio companies have seen more than 3x valuation markups.

Overall, the fund has achieved a 4.9x valuation markup on deployed capital within 60 months of inception.

While the fund’s core focus areas were consumer internet, healthtech, edtech and the new-age economy, it also invested in aerospace, agritech, fintech, electric vehicles and enterprise tech.

Fund II From ITI GO To Remain Sector-Agnostic

As with Fund I, Gulati prefers not to commit to any specific sector to ensure broader access. While freezing investment and deployment principles for Fund II, the VC has adopted two more strategies.

“About 35% of our fund will be allocated for pre-seed and seed stage investments, while 65% will be reserved for Series A, selective Series B funding and pre-IPO opportunities. In fact, we will have a preferential allotment for some of our portfolio companies heading for IPO. These will ensure a broad deployment spectrum and necessary liquidity to recycle capital,” he said.

Redeploying capital mid-fund will allow ITI GO to opt for fund distribution, returning the money to investors early on. “We are one of the few VCs in India that has managed to return at least half the capital in less than five years while running the first fund. We want to set up a practice where we can return principal investment capital within 5-5.5 years,” added Gulati.

ITI GO Is Not Bullish About Three Popular Sectors

The deal pipeline for Fund II currently features four startups in agritech, wealthtech, consumer internet and edu-fintech. But this time, Gulati is wary of the direct-to-consumer (D2C) space.

“We will approach this sector cautiously while allocating capital from Fund II. D2C is still trying to find its path to scale, and it has been difficult for most brands to progress beyond the initial stage,” he said.

With the emergence of GenAI and the rapid integration of ChatGPT-like technologies across the knowledge industry, Gulati feels that the edtech sector may witness a dip in investor interest. He also has reservations regarding deeptech, believing execution will be difficult in India.

Deeptech startups built on top of intellectual property (in the form of patents, data, know-how, or expertise) may still have potential. However, non-IP products/services (tech commoditised for scale and simplicity) are price takers, not protectable and often lack business control. Spacetech is an exciting area, but Gulati believes the valuations need to adjust for more venture capital investments.

“Nevertheless, we foresee India as a $10-12 Tn economy by 2030, which makes wealthtech a key focus area. India’s wealth is expected to compound at 14-16% annually in the next five to six years, creating numerous opportunities for capital allocation. So, alternative investments are particularly attractive for us,” Gulati pointed out.

AI & Other Tech Tools Assessing Deals, Managing VC Operations

As Gulati and his team soon discovered, running a SEBI-registered fund would offer many learning opportunities. They went through all the nitty-gritty when raising Fund I and strengthened the firm’s internal processes through tech enhancements. These processes help identify focus areas, evaluate strategic investments and time exists effectively as market cycles change.

“We have a comprehensive tracking system for our deal flow and integrated several advanced AI solutions into our evaluation process. It enables us to reach out to entrepreneurs much faster than most VCs in the industry,” he added.

The ITI GO team has also developed an internal ERP for day-to-day VC operations, including deal sourcing, portfolio monitoring, value addition and network expansion. This team will continue to explore and implement advanced technology tools based on AI, data analytics and SaaS to maintain a competitive edge.

Small And Targeted Funds Work Better In India

Globally, the venture capital market is not exactly booming due to an exit drought even after billions of dollars were put into startups in recent years. But for Indian VCs, it can be fairly comfortable going ahead.

Gulati says that venture capital firms in India are uniquely positioned at this point. These are well-capitalised (the country’s PE/VC firms are reportedly holding dry powder worth $20 Bn) and looking for the right investment opportunity.

This capital advantage, coupled with the absence of overseas giants like Tiger Global, SoftBank, Accel and others from the Indian market, presents a promising opportunity for Indian VCs. After a FOMO-driven funding frenzy during the pandemic, major global funds became cautious and rarely took part in mega deals here, given the volatility across the Indian startup ecosystem.

“The next two to three years will be pivotal for Indian venture capital practices. The surge in domestic SIP inflow to INR 18-19K Cr per month makes the capital markets less dependent on foreign investments, although the latter was significantly higher in the past. I see a similar transition in the Indian venture capital market,” said Gulati.

Incidentally, the total amount collected through SIP during May 2024 stood at INR 20,904 Cr per an AMFI report, compared to INR 14,749 Cr in the year-ago period, a 41.73% jump. If this indicates improved risk appetite at the retail level, it is hardly surprising that 270+ Indian investors, with a cumulative corpus of $33.72 Bn announced during 2021-2023, will only be too eager to track bright business plans and hit landmark moments.

The ITI GO founder also anticipates further development of patient capital, as investors are willing to adopt a long-term approach and build businesses from the ground up. LPs are also more proactive, driving the investment momentum. Raising INR 80 Cr for Fund II with zero distribution speaks amply of active commitments from LPs, says Gulati.

Moreover, a non-distributed fund (where fund managers need not split their fees with external entities), even if it is a small one, ensures a higher margin and enables quicker capital returns due to better performance. In contrast, it is challenging for an INR 2K Cr fund to be fully invested and returned, given the limited depth of the Indian market. Only one or two funds in India can do this.

“Therefore, our strategy is to focus on raising smaller, targeted funds. We plan to raise INR 300 Cr for Fund II and will continue to raise similar amounts for the next funds. This will ensure healthy cash flows across all funds, which is difficult to achieve when pursuing an ultra-large fund,” concluded Gulati.

[Edited by Sanghamitra Mandal]

The post ITI GO Fund’s Mohit Gulati On INR 300 Cr Fund II, Indian VCs’ ‘Dry Powder’ Advantage & More appeared first on Inc42 Media.

VentureSoul Partners has launched its maiden debt fund, VentureSoul Capital Fund I, with a target corpus of INR 600 Cr. The fund is a SEBI-registered Category II AIF and has so far received commitments from family offices, corporates, high-net-worth individuals and other eminent investors.

While Micro Labs Ltd. is the anchor investor for the fund, KreditBee founder Madhusudan Ekambaram, Glen Appliances Ltd, PSN Group, Baazar Kolkata promoter Abhishek Khemka, Pure Chemicals Group’s Ponnuswami M are the other notable investors.

The sector-agnostic fund will primarily focus on tech startups in diversified sectors, including fintech, B2C, B2B and SaaS companies. 

VentureSoul is eyeing the first close of the fund by the end of June. The fund will invest in startups that are at Series A or beyond stage, with a demonstrated revenue model and having raised at least $10 Mn of equity funding.

The fund will focus on delivering differentiated debt solutions to the new economy space. VentureSoul cofounder and managing partner Ashish Gala said that beyond the traditional debt model, there are not enough structured financing models available in the Indian tech startup ecosystem. 

“The fund looks to bring together the private credit world which focusses on the old economy and venture debt which focusses on the new economy. It aims to invest in around 20-25 companies in the first batch with an average ticket size of INR 25-30 Cr. The maximum amount will be capped INR 60 Cr,” he added.

VentureSoul Bets On The India Growth Story 

VentureSoul was founded by three ex-HSBC bankers – Gala, Anurag Tripathi, and Kunal Wadhwa, who bring together over 65 years of experience. Having had the experience of successfully building businesses ground up for various domestic and international organisations, the partners launched VentureSoul to create a value-based enterprise.

 According to VentureSoul founders, given the transition in the new economy from growth-at-all-costs to sustainable and disciplined growth, this is an opportune time for a debt-focused fund that brings prudent debt offering on the table.

 The founders see mergers and acquisitions and consolidation as a prominent theme playing out in the sector. Further, as the companies in the sector mature, there would be a need for debt solutions targeting a variety of additional end uses. 

Wadhwa said that the share of debt funding is currently as low as 3-5% in the Indian startup ecosystem. Besides, debt funding is also not properly leveraged in the overall economy. 

According to Inc42 data, pure debt funding accounted for approximately 4.3% (or $6.5 Bn) of the total $148.8 Bn funding raised by the Indian startups between 2014 and April 2024. Also, between 2021 and 2023, only 13 debt funds were announced with a total corpus of $1.5 Bn, which was just 4.4% of the around 270+ funds announced with a cumulative corpus of $33.72 Bn.

“We believe debt funding is going to take off in the hockey stick growth curve now and will play out well in the next decade of India, as the country aims to become a $25-35 Tn economy by 2047,” Wadhwa added.

 VentureSoul aims to differentiate itself by blending prudent banking principles with new-age credit evaluation technology, adopting a partnership approach towards its portfolio companies, and specialising in providing tailor-made solutions.

“The group intends to create a sustainable, scalable organisation that partners for growth capital and beyond. India is at an inflexion point, where it would need its experienced and skilled talent to come forward to push the juggernaut forward,” added Tripathi.

The post VentureSoul Partners Launches INR 600 Cr Maiden Debt Fund To Back New-Age Tech Startups appeared first on Inc42 Media.

Marc Andreessen had it right when he declared, “Software is eating the world” in a 2011 Wall Street Journal article. More than a decade later, SaaS (software as a service) is still thriving. But enterprises and end users are keen to leverage the AI edge to usher in new, more efficient and cost-effective software solutions than traditional SaaS.

That does not mean enterprise/B2B SaaS, as we know it, is in any immediate danger. The Indian SaaS market size is estimated to reach an annual recurring revenue (ARR) of $50 Bn by 2030 as the ecosystem caters to local and global clientele. Additionally, SaaS centaurs (startups with $100 Mn ARR) and unicorns are expected to generate between $20 Bn and $25 Bn in revenues by that time.

The growth has been further fuelled by venture capitalists putting in $32 Bn+ (according to Inc42 data) across India’s enterprisetech ecosystem between 2014 and 2023, per Inc42 data. Besides, more than 13 pure-play B2B SaaS-focussed VC funds were launched between 2022 and 2024, while every sector-agnostic or B2B-focussed technology fund has SaaS or enterprisetech as one of its key focus areas.

But there’s more to it. Industry experts are now debating a fundamental rethinking of the software industry and how an innovative blending of SaaS and artificial intelligence may soon emerge as the next big technology transformation.

When Pune-based Pentathlon Ventures announced its second B2B tech fund with a corpus of INR 450 Cr ($54 Mn), it caught our interest for several reasons. For starters, its primary focus is deep-diving into B2B SaaS, but it is not too vertically focussed and its approach is industry-agnostic. More importantly, it explores Digital Transformation 2.0 (read an enterprise AI makeover), along with new-age SaaS. Ensuring that Indian tech startups can use this basket of technologies for innovative products, global scale and sustainable growth is Pentathlon’s mission.

Set up in 2020 by a team of seven, Pentathlon is positioned as a founder’s fund and brings more than 150 years of cumulative entrepreneurial and investment experience. It launched Fund I with a corpus of nearly INR 80 Cr ($9.5 Mn) and invested in 23 startups. Out of these, 11 portfolio companies claim an ARR (annual recurring revenue) of more than $1 Mn and 8x revenue growth since the VC’s investment.

The second fund came in September 2023, aiming to invest in 25 B2B SaaS startups across sectors, including enterprise digital transformation, ecommerce enablement, fintech, vertical SaaS, applied AI, sustainable tech and healthtech.

Pentathlon’s core team includes Gireendra Kasmalkar (founder of IdeasToImpacts), Sandeep Chawda (founder of Clarice Technologies), Saurabh Lahoti (former investment officer at Grassroots Business Fund), Madhukar Bhatia (founder of Sapience Analytics), Ashok Mayya (founder, Mayya Consulting LLC), Hemant Joshi (cofounder of Sprih) and Shahshank Deshpande (cofounder of Cubyts).

Asked about the backstory, Chawda said his startup Clarice Technologies was acquired in 2015 by Globant, a New York Stock Exchange-listed MNC. For the next five years, he worked with the U.S. company to scale Clarice from a 300-person team to a 2K-strong organisation.

“I started contemplating my next move by 2019-20 and saw a couple of options. I could launch another startup or build one to help scale 20-25 ventures. That was how the idea of getting into the venture capital ecosystem came to my mind,” he added.

The VC firm has been named after the five-event Olympic sport for a reason. “The qualities required by pentathletes are typically strength, focus, perseverance, stamina and resilience. A startup founder also needs these to become successful and be a part of our VC fund. Hence, the name,” said Chawda.

In an exclusive interaction with Inc42 as part of the Moneyball series, he shared the VC firm’s journey and vision and the opportunities ahead of India’s burgeoning SaaS startup ecosystem. Here are the edited excerpts.

Inc42: Pentathlon primarily focusses on B2B tech. Why did you zero in on this space in spite of more attractive B2C narratives?

Sandeep Chawda: For us, Pentathlon is nothing but a startup in the VC world. For any startup to succeed, there are two crucial things – clear differentiation and clear focus. Our biggest differentiation is that we are defined as a VC firm ‘by the entrepreneurs, for the entrepreneurs’. As for focus, it was clear from Day 1 that we would not invest in anything and everything that could make money. Instead, we would look at going deeper into specific sectors.

As all the partners had exposure to enterprise software, we realised this had to be a core part of our thesis. That way, we could bring more insights to our portfolio companies and help create a more profound impact across many fields. Had we invested in B2C startups, we could not have helped much beyond the capital.

At the time, the choice seemed counterintuitive because India had already witnessed the success stories of B2C startups. Nevertheless, there were early indications that many B2B startups were doing well, which eventually proved true. Of the total 115 Indian startups that have attained unicorn status so far, 44 are in B2B tech, according to Inc42 data.

We felt confident about B2B tech when 15 portfolio companies raised follow-on rounds. We invested in 23 startups from Fund I, and two to three companies are already profitable. Our exit from Tripeur gave us 2.5x returns. This is enough, as 100x usually doesn’t happen in B2B.

Inc42: What is Pentathlon’s USP? What are your key capabilities as a VC fund?

Sandeep Chawda: Many funds are now investing in B2B tech or B2B SaaS. But very few say they are pure-play B2B SaaS funds and solely invest in that domain. Of course, that is our focus area, and as I said earlier, focus is extremely important. In fact, that is one of our differentiators. Our unwavering focus on enterprise SaaS has helped us go deeper into the ecosystem, think up new value additions for our portfolio companies and fine-tune our strategy to find the right companies.

Take, for instance, Tripeur, the company we exited. It specialised in travel spend management and we funded it in early 2020. As you know, the travel industry crashed during Covid-19 and Tripeur had negative revenues at the time. Its founders were under tremendous stress and wanted to give up. We stitched together a bridge round for them, a small round of INR 30-35 Lakh, but no other existing investor came forward then. We also helped the startup trim its workforce, extend its runway and survive a difficult phase.

As the pandemic subsided, its revenue grew at 100% MoM for the next few months and quickly returned to its pre-Covid level. Now, Tripeur is part of the US-based Navan, a $10 Bn company.

It was a terrific journey for all of us. A company that was almost a write-off gave Pentathlon a handsome exit with some help from the VC firm. It was such a leap that the startup’s founder is now an LP for our Fund II.

Inc42: That’s a remarkable turnaround. So, what areas do you target within B2B SaaS and how do you perceive their growth? 

Sandeep Chawda: In the last 20 years, software services companies dominated the entire industry in India. The next 20 years will belong to software products companies from India, which will do exceptionally well.

If we look at our fund and its focus on horizontal SaaS, enterprise AI transformation will be a very prominent theme there. People would have called it digital transformation earlier, but the new flavour of digital transformation is AI transformation and every company has to embrace it. We have made two investments in this space. One is Vodex, which uses generative AI [GenAI] for sales lead validation, and another is ElevateHQ, which uses AI for sales compensation management.

Next in line is the entire ESG [environmental, social and governance] wave, including sustainable and climate tech, now emerging as a strong theme. So, for us, the opportunities are not in ecommerce companies but in products that provide building blocks to take other firms’ products online. We call these ecommerce enablement products, another prominent theme that will play out in the future. Cybersecurity is another area where we see huge potential for Indian software companies.

Given these areas of interest, it’s clear that we are not too vertically focussed and we are also industry-agnostic.

Inc42: Has your investment thesis changed in between? Will you do things differently when allocating from Fund II? 

Sandeep Chawda: Well, our second fund will see a few changes, but the core thesis remains the same. We invest in early stage B2B SaaS companies with revenue between INR 1 Cr and INR 5 Cr. However, we have raised more capital this time. Fund I had a corpus of INR 80 Cr or so, while Fund II is worth INR 450 Cr. This is a big jump – earlier, we were writing cheques of INR 2-2.5 Cr, but now we can write cheques in the INR 4-8 Cr range.

It means we can lead more rounds and negotiate for better equity. Also, our portfolio startups won’t have to approach five other investors to raise the amount they need. Maybe Pentathlon alone or just one more VC fund can co-invest in a round. It will also allow us to do more follow-on rounds.

Additionally, Fund I had a 70:30 ratio for first cheques and follow-ons, but with Fund II, it will be 50:50.

Inc42: Will there be more global opportunities for Indian SaaS startups?

Sandeep Chawda: Let’s go through the opportunities one by one. To start with, talent has never been an issue here. When it comes to talent in the product ecosystem, even if these are not Indian products [MNCs are increasingly setting up their global capability centres or GCCs in India], many engineers got exposure to building and deploying world-class software offerings.

We are also seeing the flywheel effect in the Indian startup ecosystem, creating continued growth and improvement. The scenario was not so vibrant when we launched our venture in 2008. But today, as a VC fund, we evaluate more than 200 B2B SaaS startups every month.

Furthermore, SaaS is not a product. It’s a channel, an avenue to deliver value to end users. It is a powerful growth mechanism because you can provide software as a subscription or software as a service. And it will be easier to scale globally if the product has been thought through from a global perspective from Day 1.

Finally, it comes to markets. Earlier, you would only target the US market as a growth engine when you wanted to grow globally. But that scenario has changed. Companies are now exploring other markets, especially Southeast Asian economies and Gulf countries. These are geographically closer and easier to enter, and the US may emerge as the final base camp.

Inc42: What about unicorns? Do you think many more Indian SaaS startups will reach a billion-dollar valuation soon? 

Sandeep Chawda: After the Covid-19 pandemic, Indian businesses have also understood that SaaS can take their business growth in an entirely different direction. Overall, it is a very welcome change to see the Indian ecosystem consume a lot of software product offerings.

We also see more unicorns emerging from the sector, but we are not swayed much by that tag. Valuation is just a byproduct for companies with decent revenue growth. I value a startup more for making $50-60 Mn instead of one with a unicorn tag just because somebody has decided to give it that valuation.

If a startup sees good growth and its revenues are growing, those are very positive indicators for us. And it is going to happen. The revenues of B2B tech companies will continue to grow at a fast clip.

Inc42: We see a huge price disparity in India compared to global SaaS markets. Can Indian players charge as much as their overseas counterparts? 

Sandeep Chawda: I think it is a function of how much value a company gives to the product and what impact it is going to have on the overall top line or the bottom line of the business. And then they will be more than willing to pay. It is all about how a company values a product and how the product impacts its top or bottom line. If products bring value, companies will be more than willing to pay, and the price disparity will decrease. On the other hand, rising competition in overseas markets may lead to lower pricing and ensure an overall parity.

Other factors may also contribute. For instance, new or evolving technologies can drastically reduce overall costs for product companies, helping them retain their profit margins despite the competition. As Indian businesses invest more in technology, they can leverage it to their advantage and increase their profits without inflating the price index.

Inc42: What are the critical challenges for early stage SaaS startups? How does Pentathlon create a difference there?

Sandeep Chawda: Most tech [startup] founders in India come from a technology background and their tech acumen is usually very sharp. However, we have seen them somewhat lacking in go-to-market or sales and marketing.

At Pentathlon, we have launched an initiative called GTM Dialogues [Go-To-Market Dialogues] to address this. Every month, we pick a different city, such as Pune, Bengaluru, Chennai, Delhi, Noida, or Mumbai, and hold a meetup where 100+ B2B SaaS founders or sales and marketing heads come under one roof. We also have some experts coming in who have succeeded in the go-to-market space.

We have fireside chats and panel discussions, during which they provide insights and tips to these founders based on their firsthand experience about what works and what does not work for various aspects of go-to-market.

Inc42: What are the key areas B2B SaaS startups must tap into for scaling up? 

Sandeep Chawda: Well, there is no specific formula for this. Founders must draw upon their professional experiences and the domains they have worked in. In that way, they can readily identify the gaps, and their firsthand experience will help them come up with innovative solutions. The use of technology is a given in any solution, but the crucial aspect is finding the right solutions backed by their domain expertise. Founders must offer something highly differentiated, a quality we prioritise when evaluating potential investments.

Inc42: Do you have a specific target or plan for this year or the next? How do you see the Indian startup ecosystem growing?

Sandeep Chawda: We are witnessing early signs of progress, indicating light at the end of the tunnel. After the funding winter in 2022-2023, investments are beginning to pick up, transitioning from an artificially inflated market two years ago to a more cautious period when investors are hesitant, although the capital is available.

This hesitancy is gradually easing, and investors are starting to re-engage. This is an opportune moment for investors because founders’ expectations have become more realistic than two years ago. Earlier, they sought extraordinary valuations that were not always justified by their revenues or business plans. But now, founders are more grounded, creating a favourable environment.

We plan to make two investments per quarter in the next two years, steadily building our portfolio. Based on our current pipeline, the outlook appears highly positive.

[Edited by Sanghamitra Mandal]

The post Pentathlon’s Vision For B2B SaaS: A Deep Dive Into The ‘Selective’ Investment Thesis, AI Insights & Fundamentals appeared first on Inc42 Media.

In 1999, the Tata group considered selling its car business to Ford. The latter dismissed the idea, saying it would be doing the Indian conglomerate “a favour” by purchasing the business. The Tatas called off the deal but in 2008, acquired Jaguar Land Rover from the iconic automaker for $2.3 Bn, elevating India’s position in the global market.

More than a decade later, India once again witnessed the corporate house making a firm stride to lift the country’s semiconductor industry.

On March 22, 2024, the Tata group announced setting up a semiconductor ATMP (a combination of assembly, testing, marking and packaging) worth INR 27K Cr in March 2024 Assam. In February, Tata Electronics (TEPL) also received approval to build India’s first AI-enabled semiconductor fabrication facility in Gujarat’s Dholera.

TEPL is developing the project in collaboration with Powerchip Semiconductor Manufacturing Corporation of Taiwan (officially, the Republic of China), investing about INR 91K Cr in the fab and creating more than 20K jobs.

However, the Tata group is one of many players in the semiconductor space. The Vedanta Group is also building a chip foundry in Dholera and India-based SaaS MNC Zoho recently announced its plans to launch a commercial semiconductor manufacturing unit in Tamil Nadu. In early 2023, the US-headquartered Micron Technology said it would build an INR 22K Cr semiconductor testing and packaging plant in Sanand, Gujarat.

The list gets longer. However, global automotive giant Tesla’s strategic pact with TEPL for sourcing semiconductor chips has positioned the country as an emerging force to reckon with. But the question is: Why are domestic and international players bullish on India’s semiconductor story, a sector largely monopolised by Taiwan, Japan, the US and South Korea? This is all the more pertinent as India was a laggard here long after its independence.

Simply put, it is about finding capable industry players who can meet the growing demand in a global market.

According to a March 2024 report by Visual Capitalist, Taiwan had a 68% share in 2023, followed by South Korea (12%), the US (12%), and China (8%) in advanced foundry capacity (manufacturing of semiconductor chips). Whereas India’s share was miniscule in comparison.

However, Taiwan’s dominance is expected to shrink by 2027, with countries like the US and Japan investing more in domestic fabrication. Besides, global companies are also planning to fund semiconductor fabs, making it a $1 Tn opportunity by 2030. The shift in global sentiment and investment patterns may bring new opportunities to India as it tries to establish itself as a significant player.

Inc42’s report, “The Rise Of India’s Semiconductor Startups Report 2024” estimates that India’s semiconductor market will reach $150 Bn by 2030, up from $33 Bn in 2023, witnessing an impressive CAGR of 24%.

“There has always been a talent advantage for India on the global stage, whether in design or engineering. This advantage, honed in the software industry, can now be leveraged in the semiconductor sector. Therefore, there is substantial potential for Indian startups to capitalise on,” Haresh Abhichandani, managing director at Millennium Semiconductors told Inc42.

The Making Of An Indian Chip: A Saga Of Five Decades

India formally entered the semiconductor space in the mid-70s when the Union Cabinet, chaired by then Prime Minister Indira Gandhi, approved a proposal to set up the Semi-Conductor Laboratory (SCL), an autonomous body currently operating under the ministry of electronics and information technology (MeitY). However, Continental Device India (CDIL) is the country’s first private-sector semiconductor manufacturer.

It was launched in 1964, collaborating with Continental Device Corp. of Hawthorne, California. Around the same time, Bharat Electronics (BEL), a public sector undertaking under the ministry of defence, started developing semiconductor devices.

Speaking to Inc42, Prithvideep Singh, general manager at CDIL, said that India was home to many semiconductor companies until the mid-90s. Additionally, the country boasted a robust ecosystem of electronic equipment manufacturers, with companies like Onida, Videocon and BPL emerging as front-runners.

The global landscape changed when the World Trade Organization’s (WTO) Information Technology Agreement (ITA-1) came into force. The agreement eliminated all import duties and other charges on IT and semiconductor products, compelling India and other nations to compete globally rather than regionally.

Again, other nations typically provided massive subsidies and grants to bolster their semicon ventures. But that kind of state capitalism was not practised in India until the government introduced the India Semiconductor Mission (ISM) in 2021 as a nodal agency, with an outlay of INR 76K Cr to revitalise the semiconductor ecosystem.

In addition, the government has set aside INR 1K Cr to fund semiconductor design startups, and states are likely to contribute substantially. The government has also committed $30 Bn in electronics and semiconductors, of which $10 Bn would be allocated for semiconductor manufacturing research and design.

MeitY also introduced a design-Linked incentive (DLI) scheme in December 2021 to support domestic companies, startups and MSMEs at various stages of semiconductor design, including integrated circuits (ICs), chipsets, systems on chips (SoCs), systems and IP cores, and semiconductor-linked designs.

To encourage local production of semiconductors, the government has further waived the basic customs duty (BCD) on certain types of capital goods, machinery, electrical equipment and other instruments and their parts. However, this exemption does not cover populated printed circuit boards used in semiconductor wafers and liquid crystal displays (LCDs).

However, India’s recent proposal to the WTO about not extending customs duty moratorium on electronic transmissions will hinder local design companies working for global partners. Designing chips often require frequent data exchange across locations, within the country and outside. But taxing that data is bound to throw a spanner in fast and seamless operations.

A close look at the last five decades underscores the challenges the industry has long faced, including inadequate infrastructure, sluggish technology adoption, subdued demand, a shortage of top-tier talent and financial constraints.

Shashwath T R, cofounder and CEO of Chennai-based Mindgrove Technologies, noted that the semiconductor business is capital-intensive, so much so that setting up a single outsourced semiconductor assembly and test (OSAT) plant can cost more than $500 Mn. Even in the design space, a successful fabless enterprise may require tens of millions of dollars before becoming profitable.

“Such capital was scarce earlier. But now, with the government’s support, it is available both as equity and debt,” he added.

What Pushed Indian Policymakers & Startups To ‘Chip Up’

Traditionally, the semiconductor landscape at home has been dominated by global giants like Intel, Nvidia, Micron, NXP and Qualcomm. Government entities like DRDO (Defence Research and Development Organisation) also play a significant role in this domain.

Although the foundation was there, and R&D into advanced semiconductor material and device technologies was ongoing, India did not make significant strides towards design and fabrication goals for decades due to huge expenses and the intricacies of the processes involved. But when the Covid-19 pandemic broke out in 2020, it brought a host of challenges, including a complete breakdown in the global supply chain and a subsequent shortage of microchips.

The massive shortage deeply impacted several industries, especially electronics and automotive, as these chips are essential components of many digital consumer products (more on their functions later). Additionally, their demand skyrocketed as consumer and industrial requirements increased during months-long lockdowns for containing the pandemic.

India, too, faced the impact. A 2019-20 report by the ministry of statistics, planning and implementation (MoSPI) estimated supply deficiency in major sectors such as education, health, transportation, communication, entertainment and certain household gadgets using chips-based devices.

A dearth of merchandise depleted nearly 50% of average consumer spending across these categories, thus affecting the companies and the overall economy. On the other hand, a long-term supply crunch pushed the prices up and saw an inevitable demand dip. Not exactly a healthy scenario in post-Covid times when every industry and every country tried to regain pre-pandemic growth rates.

Given these ground realities, India saw an opportunity to establish itself as an up-and-coming semiconductor hub to meet the increasing global and local demand. It also coincided with the surge in the startup ecosystem and the rise of aspiring entrepreneurs making forays into trending technology segments.

“In the past decade, the demand for semiconductor chips has grown significantly, while India is boosting its manufacturing in key sectors for exports. Therefore, investments in the semiconductor space and related electronics businesses seem feasible now,” said Shashwath.

Chips, Chips Everywhere, But What Do They Do?

According to the Inc42 report, more than 100 startups are functioning across the value chain, specialising in R&D, design, assembly, verification and validation. In fact, the widespread demand for semiconductor chips will continue to rise for powering everything electronic and digital and building an IoT/IIoT ecosystem of smart devices and systems, which require sensors and integrated electronic circuits/chips for receiving inputs and executing actions based on logic.

In essence, chips are the brains and building blocks of all things tech – from video games, cars and supercomputers to precision farming and weaponry. These electronic circuits are embedded in tiny wafers made from semiconductor materials (like silicon) and contain multi-layered lattice works interconnected electronic components called transistors for transmitting signals.

Also, the smaller the size of an individual transistor (there can be a million or a billion in a chip), the more can be packed tightly, making a chip more powerful. Chips are measured in nanometres (nm), referring to the size of an individual transistor and equalling a millionth of a millimetre.

Nowadays, the ‘nano scale’ generally indicates a chip’s overall performance rather than the exact size of the transistor. But true to the original quality parameter, most advanced chips remain the tiniest on the nm scale, ensuring fast processing, less power consumption and less heat generation.

However, these require a high level of technical sophistication, component purity and stringent quality control implemented by very few global companies. Even a state-of-the-art chip manufacturer like the Taiwan Semiconductor Manufacturing took three decades to reduce the chip size from 3 micrometres to 3 nanometres (1 micrometre is equal to 1K nm).

Semicon chips can be analogue, digital or mixed, with different functionalities – namely, logic chip, memory chip, ASIC (application-specific integrated chip) and SoC (system on a chip).

Although experts are already debating the ‘Beyond CMOS’ concept that surpasses traditional digital logic, the current technology has ushered in ingenious products such as power-over-ethernet (PoE) standards for connected lighting, MOSFET (metal-oxide-semiconductor field-effect transistor) signal switchers and signal amplifiers for the telecom sector and the insulated gate bipolar transistor (IGBT) devices, which guarantee low power losses and are widely used in automotive, consumer electronics, IT and communications, healthcare, aerospace and defence.

How Indian Startups Are Seizing The Newfound Opportunity

Although India might not be looking at fabricating 2-3 nm chips right now, larger design features below 200 nm work well for automotives, audio chips and display drivers and account for a substantial market. Additionally, the country’s growing focus on developing networking devices and telecom equipment, coupled with the rapid adoption of artificial intelligence (AI)  and 5G, will help drive the domestic market.

As Shashwath of Mindgrove points out, the multiple usage and fast evolution of the semiconductor technology are creating new opportunities for Indian startups, which are rapidly building the expertise and the resources to design (and fabricate) widely used microchips, as well as more complex ones required for AI applications. In fact, it is one of the most promising sub-sectors within the semiconductor space.

At present, the tech clusters of Bengaluru remain the most active semiconductor startup hub, housing 63.7% of the ventures. It is followed by Delhi NCR (9.9%), Hyderabad (5.5%) and Chennai (4.4%).

A few startups in the semiconductor space have also attracted investor interest and raised early stage funding, although the ticket sizes are pretty small. Among these are InCore Semiconductors ($3 Mn), a processor design startup; Mindgrove Technologies ($2.32 Mn), specialising in RISC-V-based SoC designing, and AGNIT Semiconductors ($1.37 Mn), a designer and manufacturer of GaN (gallium nitride) components used for defence and telecommunications.

The funding landscape may soon change, given the global trends. According to a recent report by Moody’s Analytics, Asia will continue to lead in chips and electronics production in the foreseeable future as innovation leaders across the globe work with top manufacturers from Taiwan and South Korea to keep the formidable cost of chip production as competitive as possible.

With India focussing on both fab and non-fab expertise, tech companies are bound to explore yet another emerging hub. Of late, a few investments in the semiconductor industry seem to be moving away from China, yet another reason why investors may turn towards India. The growing ecosystem of startup enablers within the country’s semiconductor industry will further fuel growth and funding potential.

The infographic below features some key startups in India’s semiconductor services landscape. Also, there is a rising wave of semiconductor startups catering to specific verticals such as AI, industrial automation, consumer electronics, automotives (including EVs and autonomous vehicles), and telecom and wireless communication.

Among the leaders are Ola Krutrim, Semiconsoul, Signalchip, Cientra, Wafer Space (now ACL Digital), Saankhya Labs, AGNIT, InCore and Sensesemi Technologies, among others. Located in Bengaluru, the fabless chip design venture Sensesemi develops SoCs for the Internet of Medical Things (IoMT) and other IoT devices. On the other hand, Krutrim is pioneering a unique chiplet architecture for system-in-package solutions, targeting Indian companies specialising in Edge computing and automotive products.

Can India Emerge As The Next Big Chip-Maker? 

India aims to become a chip-making superpower, propelled by robust government support and a burgeoning startup ecosystem. But the path ahead is fraught with challenges. The lack of fabrication facilities and manufacturing experience, along with heavy dependence on procuring raw materials from global suppliers, can limit a country’s capabilities.

Next comes the most pertinent question: Has India got talent for chip design and fabrication? A Q4 CY23 report by Zinnov-NASSCOM estimates 50K+ specialised workforce catering to more than 55 semiconductor GCCs (global capability centres) across the country, underlining there is no dearth of engineering talent in India. However, there is a shortage of service and maintenance experts and a lack of individuals well-versed in the fundamentals of semiconductor equipment.

“These things accumulate over time, leading to inventory pile-up, longer lead times and higher freight costs,” observed Singh of CDIL.

Shashwath of Mindgrove also pointed out the competitive landscape, emphasising that Indian chips are frequently compared to those from industry giants like Texas Instruments and NXP, which have established relationships with OEMs. This makes it exceedingly difficult to penetrate the global market.

On the flip side, there is growing optimism among stakeholders due to robust government support and the upcoming launch of quite a few top-grade semiconductor plants. In many cases local and global leaders are working in collaboration (think of the tie-up between Tata Electronics and Taiwan’s PSMC) for the best possible output, which will put all doubts about quality at rest.

The government’s plan to establish a graphics processing unit (GPU) cluster to support startups specialising in AI model training also aligns with the INR 1,100-1,200 Cr design-linked incentive scheme. For certain fabrications, ATMP and OSAT units, the government will provide 50% of the project cost/capital expenditure to eligible applicants on a pari-passu basis, an incentive driving many companies to set up semiconductor units across the value chain.

In line with an earlier analysis by McKinsey & Company, Inc42’s latest semiconductor report projects that the global AI semiconductor market will reach $190 Bn by 2030, with India poised to account for $21 Bn. This growth is attributed to the country’s ambitious smart city projects, infrastructural development and the increasing popularity of AI-powered consumer devices like smart home appliances and gadgets.

Given these developments, there will be opportunities galore for startups in the semiconductor space, whether they ensure a steady supply of bespoke ingredients to fab and fabless units, double down on intricate designs or do the final magic and make the chips. Also, the co-location of suppliers, designers and manufacturers will help fulfil every activity of the value chain, eventually unlocking new product potential.

Meanwhile, India must overcome a few practical difficulties (meet the expenses, for starters, and access the latest know-how) and gear up for global competition to ensure that these Make-In-India deeptech projects will finally take off.

[Edited by Sanghamitra Mandal]

The post Decoding The $150 Bn+ Semiconductor Market Opportunity For Indian Startups appeared first on Inc42 Media.

In 2011, when Hardika Shah, now the founder and CEO of Kinara Capital, was contemplating setting up a non-banking finance company (NBFC), she had two options — either to join hands with larger enterprises to offer secured loans or support the country’s micro, small and medium enterprises (MSMEs) growth story with collateral-free offerings. Shah chose the latter — the road less taken.

While the move was bold (as it defied the trend back then), the idea was to flourish alongside the country’s MSME space, which has long been credited as the backbone of the Indian economy.

Notably, at the time (2011-12), the country fostered 26.1 Mn MSMEs, employing 59.5 Mn individuals, a far cry from an estimated 75 Mn such enterprises, employing a stonking 123 Mn individuals, which mushroomed by the end of the financial year 2022-23 (FY23).

Thirteen years on, Shah’s NBFC has been profitable consecutively for the last nine years despite multiple industry-wide debacles, including the IL&FS crisis of 2018.

What convinced us (Inc42) to engage in a tête-à-tête with the Bengaluru-based NBFC, which first turned full-year profitable in FY15 with a book size of INR 72 Cr, is the consistency with which it has been able to be in the black, all while locking horns with headwinds triggered by aberrations such as the GST impact, demonetisation and the Covid-19 pandemic.

Notably, over the past 12 years, the NBFC has expanded its loan offerings to meet the needs of MSMEs, helping them grow. It serves over 50 sectors, including food products, fashion, construction materials, textiles, provision stores, paints and varnishes, machine components, plastics, fabrication, and auto components.

Now, before we delve deeper into understanding how a management consultant with Accenture, Shah, cracked the profitability code in the country’s one of the most vulnerable spaces (lending), let’s quickly steal a glance at some of the company’s key metrics.

Kinara Capital’s Initial Journey

Speaking with Inc42, Shah said at the core of Kinara Capital’s vision has always been building a financially inclusive society where every entrepreneur has equal access to capital.

“At the time (in 2011-12), I believed that providing fast and flexible loans without property collateral to small business entrepreneurs in India can transform lives, livelihoods, and local economies,” said Shah.

As a result, she entered into the world of MSME lending. Although she had a basic understanding of how to run an NBFC, it was not enough. At first, she was faced with the uphill task of maintaining a stable revenue stream, which in the case of an NBFC is interest income.

Then, she needed to be sure of what her operating expenses and finance costs were going to be and how to control them. Finally, and one of the most critical of all, how to keep non-performing assets (NPAs) in check for sustainable growth.

After struggling for three years, the company tasted its first profitable financial year in FY15. However, the next big task was to sustain it.

For this, the NBFC expanded its loan product portfolio to satiate the diverse needs of MSMEs. It started by offering loans as small as INR 1 Lakh across categories and broadening its knowledge of its customers.

“With a thorough knowledge of our customers, we have maintained a high-tech and high-touch model. Our approach to staying the course coupled with addressing macro headwinds has helped us grow and led to investor interest,” she added.

Kinara Capital’s High-Stress Profitability Trail

While Shah has been managing the NBFC effectively, she said that there is little control over external factors. Over the last decade, she has faced several challenges that threatened the survival of NBFCs, causing many to fail.

First, there was the demonetisation in 2016, the impact of GST in 2017, the IL&FS crisis in 2018 and the Covid-19 pandemic in 2020.

Additionally, geopolitical tensions in Europe strained the Indian economy in FY23, disrupting the global supply chain and setting off inflation. These issues made it difficult for businesses to repay loans, leading to high NPAs and delayed collections for NBFCs.

Shah said that during these times, they had to be careful with new loans and needed to understand their customers’ pressures. For example, when GST was implemented, the NBFC anticipated delayed collections from their borrowers (60% of whom were manufacturers).

“We knew that it was a temporary phase and the GST situation would get normalised soon, putting collection cycles back on track. So, we extended the payment cycle from 90 days to 180 days to help businesses adjust,” Shah said.

Similar was the case during demonetisation and the pandemic. The startup’s anticipation playbook, among other factors, has helped it keep its NPAs at bay, we were told.

Kinara Capital’s Tech-Driven Approach

One of the key pillars of the company, which helped them demonstrate scalability and profitability consecutively is their “High Touch-High Tech” MSME lending model. This is essentially a blended tech model wherein the NBFC touches upon all consumer points of contact online as well as offline. This has helped in increased consumer engagement, and also in lowering the cost of acquisition over the years.

Almost 90% of the Bengaluru-headquartered NBFC’s customers originate from its 125 physical branches across 100+ cities in India. These branches are spread across six states – Tamil Nadu, Karnataka, Maharashtra, Andhra Pradesh, Telangana and Gujarat. These regions account for approximately 70% of India’s manufacturing output.

The remaining 10% comes from its end-to-end digital platform, which is capable of handling functions, including lead generation, customer screening, underwriting, disbursement, and collections.

Here’s how the NBFC uses tech for maximum impact:

• The NBFC runs video and static ads on Facebook and YouTube in local languages for lead generation. In FY24, the company disbursed INR 160 Cr to digitally sourced leads, up 10.3% from INR 146 Cr in FY23.
• It uses an automated loan decision system to determine loan approval, amount, tenure, and risk-adjusted interest rates.
• Automated reminders via calls, SMS, and WhatsApp in local languages, along with automated ACH clearance, have reduced EMI bounce rates.
• Kinara Capital combines digital collections with in-person efforts. Various payment options like UPI, deposits at Airtel Payment Banks, and payments through their website support their collections strategy.

What’s On The Horizon For Kinara Capital

So far, Kinara Capital has raised a total of $178 Mn from prominent investors like Sorenson Impact Foundation, Gaja Capital, responsAbility Investments, IndusInd Bank, Impact Investment Exchange, British International Investment, Nuveen Investments, and BlueOrchard Finance, among others.

The NBFC currently claims an NPA rate of 3-4%. By the end of FY24, the company’s assets under management (AUM) stood at INR 3,142 Cr, up 26% YoY. Further, its capital adequacy ratio stood at 27.6%, higher than the minimum requirement of 15%. For the uninitiated, the purpose of the capital adequacy ratio is to ascertain whether a bank or an NBFC has enough capital on reserve to handle a crisis.

Meanwhile, when asked if the company has any plans to go beyond MSME lending and service new-age startups, Shah said that would deter the company from its mission of empowering MSMEs.

For FY25, Shah is targeting $100 Mn (INR 832.6 Cr) in revenue and is heading towards doubling the current AUM by FY26. The growth plans will be anchored on Kinara penetrating further into existing geographies via its branch-led model.

In the larger lending tech space, Kinara Capital competes with the likes of Lendingkart, Finova Capital, Kissht, and Navi Finserv, just to name a few.

Notably, the Shah-led NBFC operates in the burgeoning Indian lending tech space, which has seen the emergence of multiple new-age tech startups in the past few years.

These startups are looking to quench the growing capital thirst of small businesses enduring liquidity crunch. Additionally, banks are cautious while dishing out loans to these unorganised businesses as they lack assets to offer as collateral. It is this whitespace that Shah aims to fill in the Indian lending tech space expected to become a $1.3 Tn market opportunity by 2030.

[Edited by Shishir Parasher]

The post How Kinara Capital Stayed Profitable For Nine Years With Its “Only For MSME” Ethos    appeared first on Inc42 Media.

India is rapidly emerging as a global leader in the SaaS (software as a service) market, second only to the US in scale and maturity. According to a report by Bessemer Venture Partners, the Indian SaaS market is projected to reach $50 Bn of annual recurring revenue by 2030. However, the market may get bigger and better as tech enhancements and multiple integrations, including large-scale cloud adoption, GenAI incorporation and cybersecurity features, will propel the next phase of SaaS growth.

A March 2024 report by McKinsey and SaaSBoomi estimates that the industry landscape will quickly evolve from SaaS as we know it to AI.SaaS, is a transformational shift that will simplify workflows and help develop a wide range of integrated solutions and business models for industry niches. No doubt these trends will initially disrupt existing SaaS businesses before throwing open new market opportunities worth $150-200 Bn for SaaS companies building with AI.

Cornerstone Venture Partners, an early-and-growth-stage venture capital firm headquartered in Mumbai, was quick to spot this opportunity as early as 2019 when integrating GenAI with other tech segments for a never-before DevOps landscape was a distant dream. Set up by former Reliance executives Rajiv Vaishnav and Abhishek Prasad, CSVP invests in B2B tech startups, especially enterprise SaaS ventures, which are adept at building vertical SaaS and marketplace solutions for local and global companies.

The VC firm launched a $50 Mn Fund I in mid-2019 and has since backed 21 startups, including Tune AI (formerly NimbleBox.ai), CreditNirvana and UniAcco, among others. It is currently raising its Fund II worth $200 Mn.

Vaishnav and Prasad, two seasoned professionals, first met in 2015 during their stint at Reliance Industries. Prasad, an electronics engineer with an MBA from IIM-Bangalore, previously worked for Infosys, Unilever, IBM and others, where he specialised in investment, finance, portfolio management and global expansion.

Vaishnav was a driving force behind India’s startup movement as the cofounder and director of TiE and director at NASSCOM, where he was an integral part of the team that worked on 10K Startup program and established several 10K warehouses (incubators) in various states. He holds a degree in Science from Mumbai University and has mastered the art of building organisations and brands from the ground up.

“We primarily focus on enterprisetech, but we have also found some interesting core tech opportunities, which may or may not operate within SaaS modules but come under B2B play. For instance, we have invested in New Space Research and Technologies. It is not a typical SaaS startup but a dronetech business. Given this scope for expansion and growth, we have positioned ourselves as a B2B tech-focussed fund,” said cofounder Abhishek Prasad.

In an exclusive interaction with Cornerstone’s Abhishek Prasad, Inc42 delved deep into the investment thesis of its $200 Mn Fund II, India’s burgeoning vertical SaaS opportunity and the VC firm’s road ahead. Here are the edited excerpts.

Inc42: You had a cushy job with Reliance when you decided to launch a tech-focussed VC fund for B2B startups. What was the trigger?

Abhishek Prasad: Between 2005 and 2015, India emerged as a prime investment hub driven by its consumer-oriented economy, growing digitalisation and rising number of startups across different niches. Initially, investor interest was limited to overseas models of global companies entering India [Amazon, Uber and the rest]. Then, it shifted to their Indian replicas like Flipkart and Ola, among others.

With the entry of global VCs like SoftBank and Tiger Global, India saw the emergence of a few unicorns (10, as per Inc42 data) during this period. But the overall mortality rate of [B2C] Indian startups was high, pushing investors to look at the B2B space. This also prompted us to set up a B2B-focussed tech fund. The timing was suitable, too, as it was evident that the future of venture capital lay in B2B.

We left Reliance in mid-2018, obtained SEBI approvals and started fundraising the following year. By the middle of 2019, we started making investments from Cornerstone’s Fund I. Today, we have backed 21 companies, 15 of which received substantial funding of $2-3 Mn, and six represent emerging sectors, where we have allocated smaller amounts, around $500K.

Inc42: What are the most significant B2B opportunities today?

Abhishek Prasad: That’s precisely what we have been discussing for the past eight to 12 months – what is next in the B2B ecosystem? In 2018-19, the biggest inflexion point was the emergence of SaaS. The growth trajectory was promising, but after a year, it still left India under 5% of the global market. According to some reports, it was a $300 Bn market then [it’s probably around $500 Bn now]. So, a ballpark figure for Indian companies was $10-15 Bn in 2019-2020.

But that landscape is poised for a change. By 2030, most legacy systems are expected to disappear, and there will be widespread adoption of cloud-based solutions and SaaS. This will transform the global SaaS market into a trillion-dollar industry. India’s market share is also projected to surge from 5% to 25-30% and may reach $250 Bn.

We are investing from Fund I to align with this mammoth shift. It’s a jump from a market size of $10-15 Bn to $200-250 Bn. As we transition towards Fund II, we think we are at a juncture where a few other inflexion points will converge to accelerate SaaS/cloud adoption and the subsequent growth. This also makes us feel confident about our investment outcomes.

Inc42: How would you assess the ongoing shift from horizontal to vertical SaaS?

Abhishek Prasad: In horizontal SaaS, you will find global competition from Day 1. Take Zoom, a Silicon Valley-based video-conferencing solution accessible worldwide with minimal effort and low subscription costs. Competing with established players like Zoom, Google Meet or Microsoft Teams from the outset poses significant challenges, given the nature of horizontal SaaS, where offerings often have similar features.

In contrast, vertical SaaS has two primary forms – industry/domain-specific platforms catering to multiple stakeholders within a particular domain (think Shopify or Toast) and marketplace-oriented play (Mystifly, Blubirch and more) tailored for specific industries.

Initially, Indian companies leaned towards horizontal SaaS as local businesses had limited access to such solutions and kept looking for those. However, when global companies like ServiceNow, UiPath and Salesforce forayed into the Indian market with their horizontal SaaS offerings, competition became daunting. Consequently, a shift towards vertical SaaS ensued.

Inc42: Does Cornerstone also focus on vertical SaaS?

Abhishek Prasad: Yes, I would say so. We primarily focus on vertical opportunities, which target/cater to large enterprises for sustained growth. Of course, acquiring those accounts may take many months, but the payoff is significant (example -$100K to $200K per account). In contrast, horizontal SaaS yields numerous customers quickly. But the payment is much smaller (example -around $100 per customer). Consequently, horizontal ventures incur substantial cash burn and marketing expenses.

Vertical SaaS emphasises sales-driven growth, leading to profitability at the account level and fostering more impactful and enduring business models. We have invested in a few horizontal ventures, but our primary focus is vertical SaaS.

Currently, 70% of our portfolio comprises software platforms developed in India for global markets, especially for retail/ecommerce, financial services, distribution & logistics and healthcare. We have also allocated 30% of our portfolio to marketplaces tailored for India.

Inc42: What are the key opportunities in Cornerstone’s focus areas?

Abhishek Prasad: I am very bullish on logistics and distribution. There is a lot of headroom here to create efficiencies while organising a primarily unorganised sector.

Again, healthcare is a crucial and complex area, particularly in India, where we must deal with issues of awareness, access and affordability. The entire space is fragmented and we have a massive opportunity to address a multifaceted and difficult problem. But no single platform can provide a magic wand to fix everything in one go.

VCs also target financial services. But finding new opportunities in this sector is becoming increasingly challenging due to significant advancements already made in the ecosystem. Even revenue generation heavily relies on the basis points of transaction value. So, unless they have a massive share of the transaction value, startups won’t be able to create very large companies. It seems like an overconcentrated space, but obviously, innovation and changes in infrastructure will create new opportunities here.

In retail and ecommerce, we have seen huge spending on marketing enablement, giving rise to a large number of companies. But this space has now witnessed the advent of Web3, which will create new investment opportunities.

Inc42: Enterprises today seek full-stack SaaS models for operational ease. Will it lead to more consolidations in the SaaS segment?

Abhishek Prasad: Absolutely. With Fund II, we are betting on several key trends shaping the current landscape. This is a critical business approach as we see the convergence of major trends in India.

For instance, second-generation or third-generation young entrepreneurs are now leading Indian enterprises. They drive the country’s GDP per capita growth and are open to new technologies. These fast-evolving enterprises are lucrative bets for enterprisetech startups in terms of pricing and technology adoption. The shift from ‘big’ to ‘good’ [a vast market now offering a better price] is a significant macro trend that SaaS startups can leverage.

We also see a transition from subscription-based models to value-sharing formats. Instead of the typical per-user, per-month payment model, enterprises today assess the value brought by a SaaS solution, say, a 3-10% revenue increase in a financial year. This new-age pricing strategy has unlocked substantial value for SaaS companies and counters commoditisation by aligning revenue with the value chain.

Again, GenAI is maturing into foundational models and developing practical use cases at the enterprise level. This helps SaaS companies enhance their value propositions [and revenue] significantly.

Finally, the shift from Web2 to Web3 is gaining momentum, driven by the desire to reduce reliance on major tech players like Google, Meta or Apple. In a Web3 environment, enterprises can directly interact with consumers, bypassing intermediaries and earning more revenue. This shift underscores the importance of preparing for a Web3 future, as applications in this space are now coming to fruition.

Inc42: That’s interesting. But how does venture capital benefit from the Indian market?

Abhishek Prasad: Well, there’s the valuation edge. Currently, Indian SaaS is more cost-effective than its global counterparts, with valuations ranging from 5-7x recurring revenue, significantly lower than the multiple of 12-15x seen in the US.

This practical approach to valuation makes India an appealing destination for investments in enterprisetech, especially for a growth-stage VC like Cornerstone. Our funds align with this trend, capitalising on the convergence of practical valuations, ambitious ventures and the evolving SaaS ecosystem to identify new investment opportunities.

Inc42: Did your investment criteria change after Fund I?

Abhishek Prasad: Fund I had a $50 Mn corpus, and our average ticket size for Series A and B funding was $2-3 Mn. However, as lead investors, our involvement typically required $5-7 Mn, which meant additional investors for the cap table. We maintained a hands-on approach, providing governance, actively managing portfolio companies and dedicating efforts during the initial 36 months of engagement.

From now on, we will focus on Series A and B funding with bigger cheques [contributing $5-7 Mn on our own]. It will reflect our increasing commitment and involvement. We also encourage founders to consider us as their extended leadership team. We help them leverage our network and expertise for new customers and revenue streams. Fund II will have $200 Mn to support this strategy.

In Fund I, nearly 80% of our capital came from domestic family offices, HNIs and institutional LPs. In Fund II, we expect institutional participation to move up to 60-70%. Of course, 30% will be our existing HNI investors, doubling down on the second fund. New family offices will also contribute here.

Like Fund I, about 40% of our companies will receive follow-on investments as winners emerge over time. We aim to maintain a portfolio size of 15-20 companies, focussing on Series A and B deals and some provisions for late-stage investments.

Inc42: What are the critical metrics for picking a portfolio company?

Abhishek Prasad: We look for companies with annual revenues between $2 Mn and $5 Mn and assess their scalability, commercial validation, customer base (especially large enterprises) and YoY growth. However, our primary focus is account-level profitability. We prioritise companies that consistently generate profit from each customer account, emphasising the importance of long-term sustainability.

Demonstrating profitability across individual accounts over six to 12 months is particularly appealing to us, and we are enthusiastic about supporting such companies.

Inc42: What gaps and challenges do you find in the current ecosystem?

Abhishek Prasad: We have observed a notable shift since 2018-19 – a decline in leadership quality among founders. This is similar to what occurred in B2C during the Covid era when entrepreneurship became a trend.

We are disappointed when we meet founders who attempt to revolutionise industry segments without the requisite domain expertise. Understanding the domain and its challenges is crucial, especially in vertical SaaS. So, we strongly advocate a more mature approach. This will enable investors to focus on the SaaS ecosystem as a whole rather than on specific verticals and their nitty-gritty.

However, Cornerstone is optimistic about the evolving SaaS landscape in India. The price differential between the US and India is narrowing, indicating growing industry maturity. Additionally, India’s wealth of tech talent, developed through decades of IT services leadership, uniquely positions the country for a significant market share in SaaS development.

In essence, India’s potential in the SaaS domain is underscored by its rich talent pool and increasing alignment with global standards.

Inc42: What’s the next opportunity in India for SaaS startups?

Abhishek Prasad: The obsession with going West and going global was relevant in 2010. It was the time for horizontal SaaS.

Fifteen years later, a significant trend is emerging in India. We now see an increasing demand for specialised solutions tailored for SME verticals. Just as Zoho and Freshworks paved the path globally by providing accessible, high-quality and cost-effective horizontal solutions, up-and-coming SaaS startups from India are now poised to cater to our SMEs.

The big opportunity for Indian SaaS founders lies in developing innovative vertical SaaS solutions at 1/10th of the global cost and offering these locally to Indian SMEs. This significant cost advantage, coupled with the ease of implementation and the added GenAI capabilities, could make them [enterprisetech startups] 3x smarter and solidify their position in the Indian market.

These opportunities are waiting to be unlocked. Also, when verticals are democratised, there will be no cost constraints and solutions can be provided to the smallest customers. India has the biggest number of SMEs, nearly 50 Mn or so. Therefore, building a bridge between vertical SaaS and the SME ecosystem can be a massive growth opportunity.

Inc42: What are your plans for FY25?

Abhishek Prasad: We anticipate the first close of Fund II by June 2024 and plan to raise 20-30% of the corpus by then. We also want to kickstart investments from the new fund and raise 80% of our target by year-end. If we can meet that target, we will raise the entire corpus by March 2025. This may extend by a quarter or two because global institutions have longer processes and take more time.

We had one exit from Fund I [Shiprocket acquired Wigzo Technologies] and expect a few more this year. This will help us gain more confidence and have better conviction in our thesis. So, it’s going to be an exciting year for us.

[Edited by Sanghamitra Mandal]

The post Decoding Cornerstone VC’s $200 Mn Investment Thesis For The B2B Tech Market appeared first on Inc42 Media.

Singapore-based angel investment network ThinKuvate has obtained a SEBI license to launch their first India-focussed fund with a corpus of INR 100 Cr. The fund will look to invest in early-stage tech startups from seed to pre-Series A across sectors.

ThinKuvate will be kicking off its fundraising activities with a series of investor-centric roadshows in Nagpur, Raipur, Bengaluru and Chennai. The first close of the fund is expected to be within this quarter.

The fund is founded by Nagpur University alumni Ghanshyam Ahuja, Ritesh Toshniwal and Vikas Saxena. The fund has also expanded its core team with Mayank Jain joining ThinKuvate as CEO of the fund.

Launched in 2015, ThinKuvate was started by a group of close friends with an interest in angel investing with a pooled corpus of $1.5 Mn. It has been an active investor in India and SEA for the last seven years. Today, the angel network has grown to 150+ mid to senior professional NRIs.

This network will help the fund to bring in added capabilities for its portfolio companies such as mentorship, help with technology and restructuring, go-to-market discovery, business development and more.

“Thanks to the entrepreneurial spirit of India, even if we [NRIs] have been living away from India for 10 or 20 years, we still have that connection back to India. We still understand the market well, which brings in a natural affinity for our network to invest in the Indian market,” ThinKuvate founding partner Ritesh Toshniwal told Inc42.

The fund is counting on this network and is looking for India-based HNIs and family offices to come onboard as LPs. “In my view, we can look up to 60% overseas and 40% local capital availability,” he added.

They currently have a portfolio of 22 startups, of which 40% have gone on to raise Series B rounds while one of them is getting listed on Australian exchanges. Sixteen of these startups are from India which includes the likes of CureSkin, Vidyakul and QubeHealth.

The fund has already made a partial exit from CureSkin. The average investment size from the new fund is likely to be up to INR 3 Cr. The fund plans to invest in 12 -15 startups in a year.

ThinKuvate’s Investment Thesis

ThinKuvate stands for Think, Innovate, Incubate. According to Toshniwal, ThinKuvate primarily invests in B2B2C startups that are solving real-life problems with technology and can scale up fast, not only in India but also across Southeast Asia.

Although sector agnostic, Toshniwal believes that the fund can find high-potential startups to invest in sectors such as healthtech, edtech and consumer tech.

From an investment perspective, the fund does a 360-degree due diligence before investing in any startup. The team looks at startups showcasing continuous month-on-month revenue growth in the last six months with strong financials and unit economics. The team also prefers to invest in startups with two or more founders.

Toshniwal also believes that this is the right time for the fund to launch in India.

As he explains, compared to seven years before, India today has a lot of repeat founders who know how to go to market faster and scale sustainably, thereby giving an option for faster exits. Also, now more professionals with 10 or 15 years of experience are entering into entrepreneurship as there is a whole ecosystem of investment and mentorship available to them.

“Gone are the days when the entrepreneurs had to completely bootstrap or even sell their properties to build a startup. At the same time with the advent of increased technology adoption, both enterprises and customers have evolved, opening up a plethora of opportunities,” he added.

The post Singapore’s ThinKuvate Targets Indian Startups With Maiden INR 100 Cr Fund appeared first on Inc42 Media.

Estimated to become a $2.1 Tn market opportunity by 2030, the Indian fintech space is one of the fastest-growing sectors in the world. Propelling its growth is digital lending, which is projected to surpass the $1.3 Tn mark by the end of the decade.

While things appear all rainbows and sunshine on the face of it, the rot of stressed loans and non-performing assets (NPAs) runs too deep ailing the industry.  According to RBI’s “Report on Trend and Progress of Banking in India 2022 & 2023″, banks reported a gross non-performing assets (GNPA) ratio of 3.2% at the end of September 2023.

The report further states that the GNPA (Gross Non-Performing Assets) ratio of NBFCs continued its downward trajectory, with the personal loans segment maintaining the lowest GNPA ratio in September 2023 (3.6%).

Trying to keep these NPA numbers at bay have been the country’s new-age debt collection tech platforms, which are part of the larger Indian debt collection software market projected to grow at a CAGR of 9.18% from $190.78 Bn in 2023 to $296.08 Bn in 2028.

It is this lucrative opportunity that Credgenics, an AI-focussed digital-first collections platform, wants to leverage by helping banks, non-banking finance companies (NBFCs), fintechs, and asset reconstruction companies (ARCs) strategically manage risks across loan collections lifecycle.

Founded in 2019, the startup today handles 11 Mn retail loan accounts and claims increased lenders’ resolution rates by 20% and improved collections by 25%. Further, the startup takes pride in reducing collections costs and time by 40% and 30%, respectively.

Notably, the startups entered the Indian debt collection space at a time when most lenders were too vulnerable to data leakages. It was this white space that was staring right into the eyes of Credgenics’ cofounders Anand Agrawal, Rishabh Goel and Mayank Khera, and waiting to get disrupted.

“Lending in India has been growing at a CAGR of more than 22-23% since FY19. The growth of the Indian debt collection space has been on par with the growth in lending. But, when we entered the market, only a few technology players were catering to the collection use case. Most fintechs and legacy lenders have been doing collections on their own with manual processes while facing high data leakages,” Agrawal said.

Sensing the opportunity to disrupt the Indian lending space, the founders of Credgenics decided to build a platform that could be integrated into lenders’ loan management systems to optimise pre and post-litigation collections and settlements.

With its integration, Credgenics gave lenders the superpower to take full control of their loan lifecycles, including borrower communication, defaulter management and legal.

In August 2023, the startup raised $50 Mn in a Series B round at a valuation of $340 Mn. The round was led by Westbridge Capital, Accel, Tanglin Ventures, Beams Fintech Fund and other strategic investors.

In 2021, it raised $25 Mn in a Series A round at a valuation of over $100 Mn. Since then, Credgenics claims to have grown 7X in 2023.

It claims to have turned operationally profitable, garnering total revenues of INR 90.25 Cr in FY23, up from INR 32.55 Cr in FY22. Credgenics has yet to file its FY24 financials.

Credgenics Gets The Covid-19 Booster Shot

The cofounders started building a debt collection system in early 2019. It took them about a few months before they rolled out their first minimum viable product (MVP) towards the end of 2019.

“As we kept building, we joined hands with fintechs like RupeeRedee and Cashkumar, which were open to experimenting with our offerings then,” he said.

However, soon the Covid-19 pandemic struck havoc on the world. Realising that a lot of people were either facing pay cuts or job losses due to the Indian economy coming to a standstill, the RBI offered moratorium relief to Indian borrowers. Consequently, debt collections came to an unsettling low.

Following the end of the three-month-long moratorium period, Indian lenders witnessed a huge wave of loan defaults. Even big banks like HDFC and ICICI had put out public comments about how loan defaults were increasing.

Agrawal told Inc42 that upon recognising the opportunity, he began reaching out to lenders, positioning the platform as one that can handle collections at scale with technology at the centre.

“So, that’s what we targeted and we started onboarding a lot of these clients, especially starting with fintechs and went on for NBFCs and then got banks on board too,” he said.

Today, we were told, the fintech SaaS startup works with more than 100 clients and claims to have touched an overall loan book worth $60 Bn in FY23. Some of Credgenics most notable clients are IIFL Finance, Mahindra Finance, ICICI Bank, HDFC Bank, DMI Finance, Hero Fincorp, TVS Credit, IREP Credit Capital and Indifi.

Its product stack encompasses multiple mini-modules, allowing enterprises to choose according to their specific requirements. Additionally, they have been expanding internally by introducing more loan products onto the platform. For instance, they began with credit cards but have since expanded to include commercial vehicle loans, two-wheeler loans, and personal loans as well.

“All our products stay in a growing stage all the time, and we keep on building mini modules for each use case,” he said.

How Credgenics Disrupts Debt Collections Market With Its AI, ML Models 

As stated above, Credgenics disrupted the digital lending market by assisting its clients in reducing collection costs, minimising collection time, and significantly boosting collection rates.

For example, on a case-by-case basis, Credgenics helped increase collection rates by 90-92% while reducing costs by 20-35%, achieving results faster than traditional manual processes.

According to Agrawal, these efficiencies are enhanced by incorporating extensive data analytics and data science. For instance, if a client has a portfolio of 1 Lakh customers but a team of only 300, how can they reach out to them in just three days?

“At Credgenics, we approach this by identifying customers who require manual intervention and ensuring that the right person is sent via the right channel with the appropriate trigger of communication. This ensures efficiency and targeted outreach, where we leverage machine learning models to identify the most effective approach and customer segment to target,” Agrawal said.

In addition to this, Credgenics utilises AI and machine learning (ML) in three key areas:

Capturing The Customer Journey: Credgenics’ ML models assist organisations in tracking the consumer journey from the initial communication. This behavioural data serves as training data to develop more effective collection models and customised collection strategies, optimising ROI for clients.

Empowering Collection Agents: Credgenics’ AI, ML models enhance the efficiency of on-ground collection agents for clients. For example, standard communications can be automated, and agents can intervene only when human interaction is necessary.

Engagement With Customers Via GenAI Bots: Credgenics offers GenAI-focussed voice bots to automate clients’ mundane daily customer engagement processes.

The Future Of Debt Collections

Credgenics competes with industry players such as Receeve, CreditMate (acquired by Paytm), Credility, CreditNirvana, CLXNS, GoCollect, and Creditas. These entities are actively developing digital-first solutions in the debt collection space by leveraging technologies like AI, ML, and data analytics.

In addition, there exists another layer of debt collection players who manage their loan books and offer debt collection as part of a service-led approach rather than a product.

Asserting how Credgenics has emerged as one of the largest players in this segment, Agrawal said, “In India, there are approximately 220 Mn accounts with some form of loan, including credit cards, secured, and unsecured loans. Eleven million of these accounts are managed on our platform for collections.”

As of now, Credgenics, which, according to Agrawal, has been EBITDA positive for a few months now, is looking to rope in more clients from the public sector. However, Agrawal believes that onboarding PSUs may take anywhere between 8 months to a year.

As of now, being a completely cloud-operated digital SaaS platform is another challenge for Credgenics, as it sometimes takes time for an organisation to change its collection approach, which makes it longer to build a point of contact.

Meanwhile, the growing opportunity in the debt collection space offers a lot of opportunities for existing and new incumbents. However, entry barriers are formidable for players offering tech-enabled solutions, as tight integrations with loan management systems are essential. These integrations facilitate seamless information flow between systems, making it challenging to replace established solutions.

However, the slow pace of control, training, and adaptation of new models favours startups like Credgenics in retaining clients. Moreover, unless a new player introduces a critical differentiator, disrupting the market will be challenging. However, this also indicates that Credgenics would have to continue to innovate while tapping into different areas of the collection life cycle and turn profitable.

The post How Credgenics Is Using AI & ML To Help Banks & FIs Improve Debt Collection By 25% appeared first on Inc42 Media.

As the world stayed indoors during the pandemic years and actively looked for distractions to compensate for social isolation, gaming in all formats was a boon and none could escape their addictive attraction. India, too, was at a loose end and took to gaming as never before. The country recorded about 455 Mn online gamers in 2023, per a Statista report, an 8% YoY increase.

The number is likely to surpass 491 Mn by the end of 2024. More interestingly, about 90 Mn gamers paid for online games last year although India is traditionally a utilitarian and price-conscious market.

The adoption of interactive media is surging as well, driven by the rise in non-money gaming and over-the-top (OTT) audio/video content. Despite a slowdown in digital advertising spend, a risky bet on behavioural shift now that life has returned to normalcy and a regulatory upheaval impacting the real-money-gaming (RMG) space, the outlook remains strong. At least many game-makers are doubling down on their businesses and are not in a mood to cut back anytime soon. In essence, gaming and interactive media is emerging as a sunrise sector in India, with immense potential and promise.

One of the early stage investors leveraging the India opportunity is Lumikai, a specialised VC fund focussed on gaming and interactive media.

The fund is led by founding general partner Salone Sehgal, who has donned many hats during her 18-year career as an entrepreneur and a global investor. She was the principal at London Venture Partners (LVP), a seed-stage fund backing the gaming ecosystem, with a track record of investing in 40+ companies and achieving $20Bn+ in shareholder value.

Sehgal is the cofounder of TrulySocial, a UK-based venture-backed gaming company. Its vision is to reinvent the gaming experience for the female audience by creating social worlds through interactive narratives and bringing in global celebrities, influencers and brands for a dash of glamour.

She also worked for global bulge bracket banks and financial institutions like Barclays, Morgan Stanley and KPMG. In the course of her work, she executed M&A deals worth $10 Bn+ across sectors.

Sehgal believes that her experience as an entrepreneur and a VC, as well as the time she spent working across global markets such as the EU, and North America, gave her a crucial vantage point to watch and understand the gaming industry.

“It did two things. First, it helped me build a very large global network. Second, it enabled me to look at the trends from a global perspective and see what was happening in the Indian market. That’s precisely what drove me to come to India in 2019,” she added.

As part of Inc42’s ongoing Moneyball series, we had an exclusive interaction with Sehgal to delve deeper into Lumikai’s investment thesis for India’s gaming and interactive media space and the secret sauce to help startups succeed. Here are the edited excerpts.

Inc42: Lumikai entered the Indian market in 2020. Was it the right time to launch a gaming and interactive media fund?

Salone Sehgal: I would say so. Around 2019, we saw inflexion points in India similar to what had taken place in China in 2007. Smartphone proliferation led to high data consumption, and an average person consumed about 30 GB of data. It fuelled the growing adoption of games and media.

So, we thought it would be a good idea to bring in horizontal and generalist venture funds here for at least one VC cycle. But as the market deepens, so does the VC industry, and we have more verticalised strategies to ensure better outcomes. That’s how we started our early stage investments in gaming and interactive media. It’s a privileged and exclusive opportunity.

While 2020 felt like the right time for such a fund, Covid-19 struck us at the same time. As people had to sit at home for months, interactive media took off in a big way across all sub-segments, from gaming and apps to interactive audio streaming [think Spotify or Apple Music] and more. Everything started to go through the roof.

Due to our global exposure [I was both a founder and a funder], we could zero in on this opportunity to launch a fund and build a team around it. Fund I came in 2020 with a corpus of $40Mn, as we aimed to support pre-seed to Series A stage startups with cheque sizes ranging between $200K – $1.5 Mn. We started deploying in early 2021 and rolled out Fund II worth $50 Mn in 2023, just after a span of three to four years.

If you look at digital media and entertainment [including interactive media], the Indian market is at least worth $25 Bn. Out of that, games, anime, VFX and the like account for $12 Bn. This segment is growing at a CAGR of 20% and is expected to hit $30 Bn in the next five to seven years. We have forayed into this category as a very early stage investor and want to make a significant impact.

Inc42: How did the first fund perform before you decided to raise the second? What kind of investments did you make?

Salone Sehgal: So far, Lumikai has backed 15 companies using both funds. This includes companies such as All Star Games,  AutoVRse, Bombay Play, BuyStars, Cloud Feather Games, Eloelo,  Giga Fun Studios, House of X, Loco, Qurious Bit, Singularity, Stealth, Studio Sirah, Super Nova, and Vobble.

The idea is to invest between $80 Mn and $90 Mn in the interactive media ecosystem here.

We make frontier bets [explore untapped but innovative startups] and cover a vast range, including content, game streaming and social app platforms, gaming infra [say, tool stacks for automation], mixed reality, GenAI, spatial computing and game development studios creating casual, hypercasual, or mid-core games and more. We aim to find category-leading bets and catalyse their growth with specialist capital and sector-specific strategy because that’s what we understand best.

We also work on game systems where the principles of interactive game mechanics can be used to disrupt a number of industries like edtech, fintech or healthtech. We have a business called Supernova, which is in immersive game mechanics and has created an AI tutor to disrupt the edtech space. This 24/7 interactive AI tutor has been developed to teach spoken English to kids. It’s the company’s first educational module and the business is growing incredibly fast.

As for our investment thesis, we have been consistent throughout. There’s not much difference between Fund I and Fund II. The first fund focusses on very early stage startups and we may write small cheques as low as $200K. Or it may go up to a little over $1 Mn for a first cheque. Then, we will have enough capital for follow-on rounds. We mostly stick to this strategy.

Inc42: How has the Indian gaming ecosystem evolved in the past three to four years?

Salone Sehgal: The ecosystem has grown significantly in three ways. The first is talent growth. When we entered India, we thought there would be hardly 100 deals in this space. But we grossly underestimated the entrepreneurial talent. In the last decade, we saw major players like Zynga, Glu Mobile, EA, Ubisoft, GSM Scopey and RocQ in the gaming space alone, and they operated in this country. Also, several teams now handle P&Ls between $50 Mn and $100 Mn.

We have seen successful exits, and the number of companies securing substantial venture capital has also gone up. A new wave of entrepreneurial talent is now emerging. They want to build their own companies and are very ambitious. This talent influx has changed the ecosystem enormously. More companies are coming up, and we have already evaluated more than 1,800 startups.

Next comes investment. Domestic players initially hesitated to put their money in the interactive media. But that has now changed. We have 30+ global co-investors and the likes of General Catalyst, Lightspeed, Fireside Ventures and Peak XV [the last two are India-based venture firms] did deals with us. Lumikai also partnered with Griffin Gaming, Courtside Ventures and Play Ventures to infuse more capital into the follow-on rounds for the companies we have backed.

Finally, we have seen some very very aggressive strategies for the Indian market. There are companies like Krafton saying: Hey, we want to invest $150 Mn in India. Then it launches titles suitable for the Indian palate to gain traction. Or think of Mixi Inc, a Japanese conglomerate now looking at the India market, both as an investor and a partner [read mentor]. Sony, too, recently announced a partnership with Airtel for running a 24×7 anime channel for the Indian market.

All this tells us that the work we have been doing for market education, evangelism and analysing market numbers is paying off, and we can see the progress.

Inc42: Indian startups such as Nazara, Dream 11 and MPL have cornered the market. But most ecosystems here are still very niche. What early-mover advantage do you foresee as a VC?

Salone Sehgal: Broadly speaking, if things are done right in the media and gaming business, companies can start monetising very early.

In an ecommerce or B2C business, when a user visits a platform but doesn’t spend – doesn’t make a purchase or buy a subscription – that person becomes redundant. But a game or a media business is all about the attention economy. If it has high retention power and a user lands there, there will be multiple ways to monetise. One can get ad revenue, leverage IPs, or sell subscriptions. So, the user gets monetised in every possible way. This differentiates gaming and interactive media from other industries.

This is very important for our portfolio companies. We have 15 of them, all young companies, most of which are generating revenue. It would be best if one came in early to back such companies. Other investors recognise them only when they start to make money and turn a profit.

The industry has become more lucrative now that UPI allows users to do micro-transactions. For instance, the ARPPU (average revenue per paying user) in India is about $19 [around INR 1,600] a year. But micro-transactions worth INR 29-30 tend to work for the masses to buy add-ons and enhance their gaming experiences. It eventually leads to very high margins.

Additionally, gaming companies can better leverage ad monetisation as the eCPM rate [effective cost per mille indicates how much an advertiser pays per 1K ad impressions] in India has increased. In 2008, it used to be 30-35 cents. Now, it has exceeded $1 or even $1.5. So, one can check the likes of Chartboost to add more value and set the pricing accordingly.

Inc42: You have also funded global startups. How does it differ from investing in gaming and interactive media in India?

Salone Sehgal: Investing in India requires a mindful business approach. First, we have to look for category-leading bets and find out if they are building for India or the world. If they are targeting global customers, how do they plan to compete with the global best? That is a key criterion for us.

There will be more questions. Have they found a white space? Is there a particular niche to explore and develop that will help them compete with industry leaders? What is their right to win – the ability to navigate a competitive market for short- and long-term success? Can they leverage something intrinsically valuable, say, best-in-class user acquisition expertise or a deep understanding of their target market/consumer base for whom they are developing?

Here is a case in point. When Eloelo was building an India-first solution, it had in mind Tier II and III Bharat consumers, with women accounting for 40% of the audience. Those are the fundamental lenses we need to apply.

Suppose a startup is building a global product from India. In that case, Lumikai would try to provide access to global best practices, talent, performance marketing expertise and more. These are the lenses we apply when identifying target companies for investment.

Inc42: How would you assess the Indian government’s stand on gaming and interactive media from a regulatory perspective?

Salone Sehgal: Things have improved in the last two years, especially in the interactive media space, as the government has broadly done a few things right. From data privacy laws to digital security compliance, things have been laid out right.

New tax laws have also come in. From October 1 [2023], the finance ministry implemented the amended provisions to levy 28% GST on full face value of bets. If a company is in real-money gaming, earning on cash-based outcomes, it has to pay that tax, but it does not apply to all formats. No tax is levied on games which are IP- or act-based, with provisions for in-app transactions. Also, eSports is now recognised as a bonafide sport, which is good news.

As the government has demarcated the verticals and created specific rules and tax laws around them, it has brought much more clarity.

The authorities also understand this is a bona fide sunrise sector and needs to be legislated and taxed in a certain way. The AVGC [The Animation, Visual Effects, Gaming and Comic] promotion task force also talks a lot about promoting India as a hub for technology development in animation and VFX by leveraging AI. It won’t be for games alone but also for movies and the overall arts and media landscape.

All these are a step in a really good direction for the interactive media industry.

Inc42: Given the market trends and regulatory landscape, what should be the focus areas for a gaming/interactive media startup?

Salone Sehgal: The first step is deciding whether to build a venture-scale [powered by VC money] business or a self-generating, self-sustaining one. Both have different paths. As an entrepreneur who has gone down the path of building first, I would advise young companies to take that decision first.

For those looking to build a venture-scale business, it is crucial to understand the opportunity landscape for creating, let’s say, category-leading bets. Because those are the bets that attract investors.

More queries will follow. If they are building for global markets, what untapped opportunities or white space have they identified? How do they position themselves as category leaders if they target the local market? What unique insights do they possess that can help them build very large and valuable entities? What real problems are they solving for their users?

The next parameter: How does a business build best-in-class products and services, as Indian users are very discerning? Unlike China, we are not a walled garden. We are exposed to the global best. And when consumers are exposed to the best products, apps, mechanics, or art aesthetics, Indian companies must be able to service them on a par with that quality. Anything less than that, and people will say: Hey, I have already used Instagram, or I use something else. What is so uniquely appealing in your product?

I think startups should carefully consider these factors. Although capital is available and one can be bold, they should also keep in mind that they have companies to build. Therefore, they must think about revenue generation and distribution first.

I also advise startups to start thinking more on how they can integrate AI or GenAI into their development pipelines. They need to identify which areas they can use AI smartly. It can be in development, marketing, quality check, testing, debugging, data analytics among others.

Startups should also consider integrating AI/GenAI into their development pipelines. This technology has a vast potential and businesses need to identify how it can be smartly used for development, testing, debugging, quality checking, marketing and data analytics, among other areas. In fact, this can be a game-changer for startups building an interactive media. It will save time, enhance efficiency and build better products.

Inc42: Finally, do you see specific challenges for the startups in this space? What are your plans for 2024?

Salone Sehgal: A couple of challenges are there, I would say. The first challenge will be around talent – our ability to attract and retain them. Finding the best talent could be difficult, as the skillsets here are more specialised. But this is important.

The second is thinking about distribution first: How does a company reach its consumers, and when and how can it manage user acquisition costs? These are the areas founders should think very deeply about.

At Lumikai, we have already broadened our thesis. We have made three investments from Fund II and will announce a few more in the coming months. Then, we will probably look into three more deals this year.

Currently, we are really excited about companies leveraging GenAI and thinking distribution-first. We are also bullish on companies that are looking to build for India and from India for the world. As founders get more ambitious, it becomes very interesting for investors focussing on innovation, quality and global reach.

[Edited by Sanghamitra Mandal]

The post Decoding Lumikai’s Investment Playbook For India’s $30 Bn Gaming & Interactive Media Industry appeared first on Inc42 Media.

Singapore-based global investment firm Lighthouse Canton has launched a new fund to back global companies seeking growth in the  GenAI domain.

The investment vehicle, the LC GenInnov Global Innovation Fund, is led by Nilesh Jasani, an industry veteran with market experience of three decades and a subject matter expert on GenAI.

He is the founder of GenAI-focused investment firm GenInnov Funds and previously led the Asian business of Jefferies before stepping down as vice chairman of the American investment bank.

Lighthouse Canton offers asset and wealth management solutions to a diverse client base, including family offices, institutional investors and UHNWIs across India, SEA and the Middle East.

Through the latest fund, Lighthouse Canton seeks to capitalise on the rapid pace of innovation and the transformative power of innovation-driven market opportunities.

Drawing parallels from the progress of the internet, Lighthouse Canton sees unprecedented wealth creation in the downstream applications of innovation across sectors such as biotech and healthcare, robotics, home automation, consumer wearables and cleantech, among other emerging themes.

Designed as an absolute return fund, it adopts an evidence-based strategy for investing in scalable and profitable companies, focusing on risk reduction through diversification across different geographies and sectors.

The fund employs a distinctive four-bucket investment approach, categorising investments according to innovation, scalability, market expansion potential, profitability, and valuation. By focusing on diversification, profitability, and valuation, it aims to strike a harmonious balance between innovative investments and financial stability.

According to Jasani, the world is now moving beyond the foundational elements of computing and large language models, to harness AI’s true potential through its application in real-world scenarios. It’s in the downstream use cases – beyond chatbots, image editing and text formation – where the transformative power of AI coming to life is being seen.

“Our fund is poised to capitalise on these advancements, aiming to surpass transient trends by investing in groundbreaking innovations that promise enduring impact and value”, he said.

Given the rapid pace of disruption, the fund follows an actively managed strategy. It invests predominantly in public equities and will also focus on investments beyond the technology sector.

Lighthouse Canton further believes that the real beneficiaries of Gen-AI advancements will be found in application areas beyond the tech sector, rather than in the initial creation of AI technologies.

It will also look to leverage private innovation investments, given the potential of the investments to catalyze network effects and drive sustained growth over multiple periods.

It also departs from the ‘Spray and Pray’ approach to focus on identifying compounders based on fundamental investment principles, aligning with long-term growth themes such as innovation.

The fund is available to professional and accredited investors seeking differentiated growth opportunities across all market cycles, focusing on capital preservation and attractive risk-adjusted returns.  

Founded in 2014, Lighthouse Canton currently has $3 Bn assets under management. It operates two main business verticals – asset management and wealth management – each with its own set of differentiated product offerings and unique revenue model.

The investment institution competes with global giants like Asia Partners, UBS Asset Management and Dymon Asia, to name a few.

Earlier Lighthouse Canton launched three public market funds – LC SageOne Select Stock Portfolio Fund, LC Beacon Global Fund, LC Global Select SP Fund

It is also running four private market funds – LC Supply Chain Credit Fund, Neovantage Innovation Parks, LC Nueva AIF, LC Venture Debt Fund as well. The fund invests in startups with annual revenue exceeding $5 Mn, EBITDA-level profitability and a minimum of $8-10 Mn in funding from reputed VCs. It had already backed 13  startups, such as Rentomojo and LoanTap.

The post Lighthouse Canton Launches LC GenInnov Global Innovation Fund  appeared first on Inc42 Media.

Despite the economic havoc caused by the Covid-19 pandemic, the beauty and personal care (BPC) industry has seen the rise of a consumer clan mindful of the regenerative power of the products they use and the nature of the ingredients. The trend has continued post-pandemic, and almost every new-age brand now promises clean, green or natural-origin BPC products.

Although legacy players at home and abroad are somewhat slow to ditch their classic product lines (mostly chemical-based), India’s digital-first, direct-to-consumer (D2C) BPC market is expected to boom, riding the current trend. Pegged at $5 Bn+ in 2023, it may surpass $28 Bn by 2030.

With more than 60 new-age brands, such as publicly listed Mamaearth, IPO-hopeful SUGAR Cosmetics, and their reputed peers like Wow Skin Science, Plum, mCaffeine, Himalayan Organics, Anveya Living and 82 degree E jostling for a place in the market, the competition is getting cut-throat. The D2C players are also trying to lock horns with local and global giants like Hindustan Unilever, Himalaya, L’Oréal and P&G for a share of the overall BPC market, projected to grow to $30 Bn by 2027, per a Redseer-Peak XV report.

However, the high-octane competition has not deterred newbies like Minimalist from entering the race. Set up by the Jaipur-based siblings – Mohit and Rahul Yadav – the startup develops clinically tested and highly effective skincare, haircare and body care products using ‘active’ ingredients (more on that later). It also claims to be one of the fastest-growing D2C brands in the country.

“We started in October 2020 and grew to an INR 100 Cr business [in revenue terms] in eight months. We were profitable when we did INR 1 Cr of products in the first month at Minimalist. Even today, we are in the green every month. It is a rare scenario as most companies have negative EBITDA early in the business while we had 100% positive EBITDA from the beginning,” Mohit told Inc42.

In July 2021, Minimalist raised INR 110 Cr ($15 Mn) in Series A, led by Peak XV Partners (formerly Sequoia Capital India), with participation from Unilever Ventures. It has also entered overseas markets through Minimalist Global and operates in the US, the UK, the Middle East and some parts of Southeast Asia.

In FY23, the brand registered an operating revenue of INR 184 Cr, a 70.37% increase from INR 108 Cr in the previous financial year. However, its net profit fell 68.7% to INR 5 Cr from INR 16 Cr in FY22.

Mohit attributed the drop in profit to the startup’s ongoing hiring and team-building efforts. Minimalist has grown from 80 people to 650 members over the last two years.

The startup raised an angel round of $2 Mn from Surge in 2020 to build a manufacturing setup in Jaipur and now plans to invest INR 100 Cr for a second plant there. Its existing facility operates at 60-65% capacity but can produce 1.5 lakh units per day. However, the founders want to build a new plant to increase production capacity five times to meet growing market demand.

How The Yadavs Embedded Efficacy & Transparency In Minimalist

One would come across startling backstories behind popular skincare brands. But Mohit said the brothers entered the world of entrepreneurship not to solve any deep-rooted problem. It was just that the brothers wanted to stay together.

Rahul was a fourth-year student at IIT-Roorkee when he launched a fashion startup called Scopial in 2008. Meanwhile, Mohit worked as an AVP at Credit Suisse but got a job opportunity that required relocating to Hong Kong.

“If I had taken that job offer, our dynamics would have been very different now. But we both wanted to stay together. So, in 2010, I took a  plunge into entrepreneurship and we rebranded Scopial Fashions as MangoStreet, an ecommerce store for branded kidswear in India,” recalled Mohit.

Later in 2012, MangoStreet was acquired by Hushbabies, which was run by Lapis Marketing and backed by IndoUS Ventures.

Next, the brothers moved to CarDekho.com, a leading portal for buying and selling new and used cars. They spent around four years at the unicorn’s Jaipur headquarters and then at its Singapore division after CarDekho and Indonesia’s largest media company Emtek announced a joint venture called Oto.com, an automobile portal focussing on the Indonesian market. But by 2017, the duo felt the urge to start another venture.

They did not have to look far and wide for an idea. As a chemical engineer, Rahul had in-depth knowledge of formulations, built a network of researchers and R&D professionals from India, the US and the UK, and was well acquainted with formulation makers who could turn their ideas into products.

This led to their entry into the beauty and personal care space with Freewill in 2018. It was the first homegrown venture that created customised hair products based on each customer’s unique requirements, lifestyle, habits and the climate in which they lived (hot, cold, dry, wet and their different permutations and combinations required different treatments).

At first, the founders thought that personalised solutions powered by advanced technology would create an innovative brand unlike the legacy players targeting the mass market or even the masstige segment. But within a year, they faced scalability issues, which meant they could not leverage offline retail as an expansion piece. Also, much effort and money went into marketing, signalling all was not well with their initial approach.

“We realised that if we can solve two things – bring the right product to our customers and be honest and transparent with them – only then we can build a brand. That is how the idea of Minimalist came about,” said Mohit.

Freewill was no longer operational, but the brothers moved on to launch the Minimalist site in the thick of the Covid-19 pandemic. Soon, the brand expanded its reach and started selling on Amazon and Nykaa within the next three months.

At Minimalist, ‘active’ skincare ingredients are primarily used to target specific skin/body issues and hair concerns. Active ingredients include chemical and biological minerals (inorganic solids produced by living organisms like plants) and other components responsible for product effectiveness. For the best outcomes, a selective mix of active ingredients can be used in a single product.

As Mohit explained, the brand uses a variety of ingredients, such as retinal, Vitamin K, matmarine and fullerene, which are not commonly available in India. Therefore, the brand procures all its ingredients from global companies like BASF, Croda, Seppic, MERK & Co., Dow Chemical and more. Each product is lab-tested and certified before hitting the market. As part of the brand’s transparency practice, the results of these clinical trials are posted on its website.

Each Minimalist product mentions the hero ingredient on the front of the mono carton, along with the product category and benefits. The source of the hero ingredient is also specified, as well as the concentration of the key actives used.

“Our formulations are unique and we use ingredients that have clinical evidence to be safe and effective compared to similar ingredients. For example, we do not use minoxidil (a common medication) to stimulate hair growth in our 18% hair growth serum. Instead, we use a blend of Capixyl, Redensyl, Procapil, Anagain and Baicapil, which gives similar results without side effects,” said Mohit.

Strategies That Powered Minimalist From 0 To INR 100 Cr+ Revenue

Direct-to-consumer BPC brands from India promising unique selling points have grown manifold. They have built community and brand loyalty as ‘woke’ customers continue to challenge traditional beauty regimes and off-the-shelf mass-market products.

For new product lines like Minimalist trying to position themselves as a game-changer, finding the product-market fit requires extensive customer surveys, expensive R&D and effective go-to market measures. But that is just the beginning. Scaling the startup’s revenue to INR 100 Cr+ is the next hurdle.

Success will depend on multiple strategies adopted by founders, from proper execution to unit economics and growing the repeat customer rate. As analysts often observe, going from 0 to 1 is difficult, given these challenges and more.

These are typical growth pains for young startups, but when the Yadav brothers get frustrated by problems, they gear up to create solutions. So, here are the five key strategies Mohit has been working on to grow Minimalist at home and abroad.

Focus On Product R&D, Differentiation

Hundreds of brands are in the same space, but the product becomes too commoditised in many cases. The only way to escape that is to focus on product R&D. This will ensure better product quality and help build one’s intellectual property (IP). The startup’s R&D team has executed this well by developing a patent-pending formulation for hair bond repair (a new way to revive damaged hair). The product also won the best hair serum award from Elle magazine.

However, disruptive innovation may not be enough for long-term value creation, as entry barriers are now low and competitive advantages don’t last long. Brands must differentiate by weaving many strands, including product uniqueness, transparency and customer loyalty, to retain and reinforce their market presence.

Mohit, for one, is keen to dispel product misconceptions in the BPC space. According to him, most people believe that 100% natural ingredients are safe and effective and that all things chemical are bound to be unsafe. This perception is entirely wrong.

“Everything contains chemical components; even water (H₂O) is a chemical compound. Therefore, chemical-free products don’t exist. At Minimalist, we use high quality ingredients/chemicals to make clinically tested products. That’s a key differentiator and we are upfront about how we create real value, thus winning consumer trust,” he added.

Pricing it high is fine, if the product is worth it

One should be aware of the category prices in general. Given that the market is price-sensitive in India, no brand can deviate much from that. But most of the time, brands work backwards before arriving at the price. They first identify the pain point, explore how efficiently they can solve it and then determine the pricing.

“If our product is 10-20% costlier than the average but offers an innovative solution, we are fine with it. At Minimalist, we have never wanted to stick to the lowest price point in a category,” the founder said.

Choose Hero Products Wisely For Global Markets

Mohit knows that the best-selling products across the three categories – skin, hair and body care – could differ in the countries where the brand operates. When going global, one should keep a tab on things like trends, seasons and other elements. Keep those in mind when choosing promotional strategies in different countries.

“If you have a hero product in India, you cannot promote it like that in all other global markets. You have to identify the hero products for each country,” explained Mohit.

Keep Marketing Costs In Check From Day 1

For any D2C brand, costs involving people, logistics, or gross margins are very similar in percentage terms. However, Minimalist has taken the lead in marketing cost control.

“Most brands spend 40-50% on marketing while we spend around 25%. That’s where most ventures bleed. So, founders need to figure out whether they have the PMF [and how it can help],” said Mohit.

Putting 60-70% of the cost in marketing may initially attract customers. But it is not sustainable until a brand is careful about critical metrics like the percentage of customers who continue this journey and the number of new customers acquired through referrals.

Even if the percentage of marketing costs remains the same overall over a period of time, a D2C brand must push for branding activities rather than performance marketing.

“Initially, we might have been spending 30% on marketing. Over time, it came down to 20-22% as we primarily focussed on performance marketing. Now, we spend more on brand-building. Our combined cost for branding and performance marketing is around 28%, but the percentage of performance marketing is gradually getting reduced and branding activities are increasing,” said Mohit.

Turn Customers Into Brand Evangelists

Good brands have loyal customers, and many have actually experienced products/services that exceeded their expectations. Unsurprisingly, they become impromptu brand evangelists whenever they recount those narratives. Minimalist bets big on their genuine exuberance and posts these narratives across channels to educate its target audience instead of going for (paid) influencer marketing.

It also follows key metrics to know and interact with customers at every touchpoint in sync with a successful D2C playbook. Mohit thinks such an approach can take customer loyalty to a whole new level and drive growth without a hitch.

Next On The Cards For Minimalist: Cracking Offline Retail

Much like its D2C peers, Minimalist remains a digital-first brand and its website remains the top channel for customer acquisition. Mohit says that the site continues to deliver beyond sales, as it is a platform where people can interact, ask questions and find the most appropriate product/s they should use.

“Most visitors to our website may end up buying [our products] from marketplaces due to personal preferences or after-sales experiences. Nevertheless, we will continue to grow our engagement to help people with their product journeys. Our site is no doubt a sales tool, but we consider it more of a communication channel through which we interact with each other,” he added.

For now, offline retail accounts for 10% of the brand’s overall business. Minimalist products are available in 1K or so modern trade stores across 15-16 Indian cities.

While discussing different sales models, Mohit revealed his preference for the online format due to instant access to product knowledge.

If you make a purchase from Nykaa, you can consume a lot of content about the product and find loads of images, videos and reviews. People get an overall idea, which may help shoppers, he said.

“But when it comes to traditional retail [read offline], all you have are the front and back panels to understand whether the product will suit you. Again, you don’t know whether the support staff is adequately trained or if the team is recommending something to earn their incentives. Something is still broken in that retail format,” he added.

The founders are working to make the offline retail buying experience as seamless as online shopping. In the July-September quarter, they plan to expand the brand’s retail presence across more Nykaa outlets and modern trade stores to offer a tech-enabled experience.

“We will use face recognition systems and other AI applications to help customers find the right beauty routine and right products. An exclusive brand outlet (EBO) in a major metro is also on the cards to strengthen its omnichannel presence,” said Mohit.

For context, AI-powered face recognition systems can analyse an individual’s skin tone, texture, and other relevant features to provide tailored recommendations in real time that match the unique needs of each customer. This will transform the BPC industry, stopping arduous product browsing and generic recommendations. As and when this technology is used extensively, it will boost customer satisfaction and ensure targeted marketing and product development.

Asked if Indian customers are ready for a techno-commercial drive in the BPC space, Mohit said the brand would be taking one step at a time.

“We have made it a priority to engage with our consumers for each and every query. This has enabled us to provide impeccable customer experience across geographies and differentiate ourselves,” he said.

In a bid to grow sustainably, the founders plan to expand their product line and build a house of brands. “We already have two – the mother brand [Minimalist] and a prescription line called Minimalist Rx,” informed Mohit.

The Bottom Line

According to a McKinsey report published in 2023, the lines between beauty and wellness will increasingly blur in a post-pandemic world as consumers engage more with highly effective, wellness-inspired BPC products. Globally, this shift may lead to a $2 Tn opportunity for brands, retailers and investors, with India poised to become a hot spot in the long run.

The Indian skincare market and other BPC segments are experiencing rapid growth, offering a promising landscape for new entrants. However, success in this rapidly shifting, highly competitive market is not guaranteed. As Mohit pointed out, ventures like Minimalist can thrive by establishing themselves as “science-backed brands committed to transparency”. But those looking for success must create value, maintain quality and foster a loyal community of informed consumers.

Also, to internationalise and scale one’s business, it will be imperative to develop nuanced global strategies so that products are tailored for different geographies (essentially, hero products will differ from market to market). M&A targets will also change, and brands with innovative product pipelines will be acquired quickly to build invincible houses of brands.

During our conversation, Mohit identified these components as growth drivers and detailed how Minimalist was working on these strategies. Can its playbook continue to drive its profitable growth to the next level?

[Edited by Sanghamitra Mandal]

The post How D2C Brand Minimalist Built An INR 100 Cr Business Within Eight Months Of Inception appeared first on Inc42 Media.

The venture capital industry, both at home and abroad, has encountered stiff challenges in the past couple of years. The media has been abuzz with the departures of longtime VCs at the top and the transformational rebranding of storied funds (Peak XV Partners, Elevation Capital).

Then again, global headwinds have deterred limited partners (LPs) from loosening their purse strings while cash burns and profitability issues have plagued many renowned portfolio companies, stuff that headlines are made of.

Nevertheless, there are steady players like Chiratae Ventures (formerly IDG Ventures India), an India-focussed VC veteran that has been operating since 2007. It started as a small team of seven but has grown to 30+ members, with $1.2 Bn under advisory. To date, it has made 50+ exits, including three IPOs by Newgen Software, Policybazaar and Yatra.com.

Globally, venture capital could be at a tipping point with investors like Reid Hoffman, Michael Moritz, Jeff Jordan and their ilk stepping back and several VC firms cutting their fund-raising targets. Three months ago, the Foundry Group, a Boulder-based VC that has backed 200+ startups since 2006, said it would no longer raise new funds.

Not so with Chiratae.

Even when the going got incredibly tough last year (2023) due to a funding winter globally, it announced the final close of its maiden growth fund in May 2023. The fund was oversubscribed by 34% and the total corpus amounted to INR 1,001 Cr (nearly $120 Mn), although the initial target was INR 750 Cr ($90 Mn).

The VC firm’s global advisory board includes industry veterans such as Ratan Tata (chairman emeritus, Tata Sons); Infosys cofounder Kris Gopalakrishnan; Asian Paints’ vice-chairman Manish Choksi; Bruno Raschle, founder of the Zurich-based Adveq Group; Andreas Hettich, chairman of Germany-based Hettich Corporation.

Regional Advisory is comprised of Ken Shibusawa (Japan), Founder and CEO of &Capital, Senior Advisor at Brunswick Grp; Pat McGovern III(USA), Trustee and chair of the Investment Committee at McGovern Foundation; Puneet Pushkarna (Singapore) GP at solmark.com and Chairman of TiE -SG; and Dr Ferzaan, Engineer, Cofounder and Chairman of Cytecare Hospitals (India).

The success story was initially scripted by founders Sudhir Sethi and TCM Sundaram, who have known each other for more than 30 years. Interestingly, from 1996 onwards, they recognised a big opportunity brewing across the Indian startup landscape, even though it was a nascent ecosystem at the time.

For context, India saw the emergence of its first homegrown portal Rediff.com, its first local search engine JustDial featuring B2C and B2B SME listings and its first ecommerce company Fabmart between 1996 and 1999.

As the ecosystem grew and young ventures started attracting private investments, Sethi and Sundaram roped in Ranjith Menon into the team in 2007. Ranjith subsequently became a partner. It was a great value addition as Menon had worked at the intersection of engineering (mechanical), electronics and software, bringing to the team his unique expertise and perspective needed for identifying emerging sectors at the time.

Myntra is one of Chiratae’s early bets, which Sudhir identified, and invested in. Ranjith supported Sudhir in this deal. Chiratae rolled over its investment in Myntra to Flipkart and subsequently sold its Flipkart stake at the time of Walmart’s purchase.

In 2011, Venkatesh Peddi joined the team and subsequently became a partner and managing director, bringing a deeper sector focus across the key themes Chiratae has been following. He also supported TCM in his investment in Lenskart (still in its early days) to the VC fund’s portfolio. Six years later, the eyewear brand entered the unicorn club and is currently valued at $4.5 Bn.

Despite cyclical downturns and the changing nature of the VC business – many are now getting into wealth management and investment advisory to broaden their scope – Chiratae has had a smooth sail most of the time.

It boasts a portfolio of 130+ companies, including eight unicorns like– Cult.fit (earlier Cure.fit), FirstCry, Flipkart, GlobalBees, Lenskart, Policybazaar, MyGlamm (now Good Glamm Group), and Uniphore. It also claims a steady track record of returning capital to investors every year over the last 12 years.

As part of Inc42’s Moneyball series, we had long talks with Chiratae’s founders, as well as two partners, Menon and Peddi, to take a trip down memory lane and get an insight into how the fund was set up, its key learning, exit strategies and the journey ahead.

A Camaraderie That Cemented A Venture Capital Foundation

Long before they entered the world of venture capital, Sethi and Sundaram worked together at Wipro’s Bengaluru office in 1986-87. They soon became good friends and have got along ever since. Sethi left Wipro a decade later to join a global VC fund, Walden International, as its India head. Sundaram joined the fund in 1999 and they led the business together.

Venture capital was becoming a popular concept by then and quite successful in countries like the US. The duo believed it would be successful in India, too, although there were few takers at the time.

“Working for Walden at that time was a learning experience. It was a very small world, but that’s where we learnt the ropes. One of the biggest takeaways was that the venture space and the landscape for building new technology companies were vast,” said Sethi.

For instance, several funds, such as SAIF Partners (now Elevation Capital), Norwest Venture Partners and Aavishkaar Capital, were operational in the country.

In 2006, Sethi and Sundaram raised an anchor investment from IDG USA to set up a $150 Mn India-focussed VC fund called IDG Ventures India. However, after the death of Patrick J. McGovern, the founder-chairman of the IDG Group, the VC firm was rebranded as Chiratae Ventures in 2018.

“Chiratae means leopard in Kannada. It highlights another passion of Team Chiratae, as a few of us are wildlife photographers. Our passions have gelled well in our launch video and it is mesmerising,” chuckled Sethi.

Why Chiratae Got Bullish On An LP Base From India After Fund I

Chiratae Ventures has been operational for more than 17 years. But when the founders and other partners started working on their first fund, little did they know what it would take to make it happen. For example, they had to learn how to raise capital in the first place.

Recalling Fund I, Menon said that Chiratae (then IDG Ventures India) had 100% offshore capital on the LP side. However, IDG USA had significant R&D capital at the time, which got the VC firm thinking whether domestic capital could play a pivotal role in building India’s startup ecosystem.

That was why it was determined to evangelise startups as an asset class in the domestic market while raising Fund II.

“It was quite difficult because not many people understood the associated risk. Entering a VC fund as a limited partner means putting in patient capital for eight to 10 years with no guarantee of returns. So, we spent a lot of time on building confidence in this asset class,” Menon added.

Their efforts paid off. As Sethi claimed, 20% of its Fund II was Indian rupee capital and Chiratae was the pioneer in that space.

“Today, we have an AUM of about $1.2 Bn, including INR 4,000 Cr in domestic capital. It also makes us the single-largest fundraiser in the country across the VC space. We are raising Venture Fund V right now,” said Sethi.

What Drives ROI, Startup Growth: 4 Key Performance Areas Chiratae Looks At 

For Chiratae, it is strategically important to examine every company, entire sector and even market/sector outlook for 10 years to identify white spaces and fundable startups.

“After identifying those white spaces, we look at the companies and decide which has the stellar team and which has the differentiated strategy. We can get the best outcome when they align with a large market opportunity,” said Sundaram.

Also, it is essential to determine whether companies are solving real-world problems and creating large-scale impact. For example, Lenskart is an eyewear brand for everyone. But Chiratae saw it as a company solving the problem of myopia and similar medical conditions for 2 Mn people worldwide, making it a massive market.

Chiratae has created differentiated outcomes because of this approach and it continues to look for investible white spaces/verticals. Take, for instance, vertical ecommerce. There was a time when everybody wanted to back horizontal ecommerce companies like Flipkart and Snapdeal. In contrast, Chiratae invested in several vertical ecommerce ventures like Myntra, Lenskart and FirstCry. All of them are market leaders today.

“That is something we have done differently. We have been investors in that sector [ecommerce] since our first fund. In fact, it has been an important, strategic sector for almost all our funds. That [exposure] made us stand out from the rest, and entrepreneurs came to us whenever they had the choice to decide whom they wanted to raise money from,” said Sundaram.

How The Investment Thesis Has Evolved At Chiratae

Chiratae’s focus areas for Fund I included software (SaaS was not a popular industry term at the time), hardware (manufacturing) and ecommerce. But with each new fund, the VC firm’s sector focus has deepened.

The broad areas attracting investments include consumertech, fintech, healthtech and SaaS (software as a service). However, the VC firm has continuously evolved, adding new and emerging sectors as these verticals become more extensive and critical. As of now, Chiratae is looking at mobility, deeptech, climate tech, gaming, DevOps, generative AI (genAI) and other current trends.

“We have an active thesis on these and other large verticals that we have seen from the past, whether it is fintech, SaaS or consumertech and healthtech,” said Peddi. “We see more and more subsegments emerge, and we plan to go after these as new sectors going forward. Moreover, we will keep evolving and continually adapt to changing trends as new opportunities arise within these segments.”

Recalling the fund’s early days, Peddi clarified how its investment strategy changed over the years.

“In the first five years, it was a lot more generalistic – we focussed on companies that could grow quickly using technology,” he added. “In the next five, it started getting deeper and became more specialised from a sector perspective and region-wise. Also, winners from the previous cycle began to emerge. That was exciting.”

The Chiratae team also realised that technology is critical in building differentiation and ensuring robust returns. Tech disruption enables massive scale, low-cost market penetration and a higher target/addressable market. It also helps create a very different moat around the business through innovative products/services. Eventually, these ventures could fend off competition and become large companies.

As Fresh Blood Comes In, Investors Need To Act As Mentors & Trusted Partners 

Chiratae primarily invests in companies where everything is new, including the business model, revenue model, technology and the go-to-market strategy. The average age of the entrepreneurs with whom it is working is around 20s. There is no set playbook to replicate, and founders are not very experienced, thus putting the onus on investors for successful outcomes.

Sethi believes that investors have to prove every day their capability to sit on the boards of their portfolio companies. They have to learn about the company, the sector, products/services, the technology, the team and more so that they can help the startup through their networks within and outside the organisation.

He also thinks that the day capital goes into a company, the VCs have to be very humble about it. Building a company is a lonely and complex sequence of things and a trusted partner is needed to go the long mile with the entrepreneur.

“We are constantly trying to position ourselves as a trusted partner and mentor to entrepreneurs. Moreover, entrepreneurs today do their due diligence regarding investors before raising funds. Therefore, investors have to stay ahead of the curve. More importantly, everything we do must be better than what we have done before,” added Sethi.

Reaping The Gains: Will Dragons Deliver Big Returns? 

Chiratae believes building deep exit capabilities is critical for any venture capital fund. But rather than cash-guzzling unicorns, a fund should have ‘dragons’ in its portfolio to achieve that. For context, dragons are early-stage startups that keep costs under control, go for sustainable growth and may return the entire fund amount. Unsurprisingly, dragon startups can raise $1 Bn or more in a single round, given the kind of returns that may happen.

The VC firm did not reveal much regarding portfolio sale, but Sundaram provided some interesting numbers. “Chiratae has done 50+ exits out of the 134 portfolio companies. And its highest exit saw nearly 43x returns,” he claimed.

According to the founders, they have attempted to develop a disciplined approach to exits, a key reason why they are able to return $846 Mn in 12 years from 2012 onwards.

Sundaram emphasises that exits don’t happen on their own. They require careful planning because it may take six to 18 months after the founders decide to sell. It is also essential to maintain transparent communication with founders about exit plans and work closely with them, the board and co-investors.

As exit looms, there could be differences of opinion and investors need to be sensitive about these. But it makes a lot of difference as long as one can keep the guardrails together and move towards the final goal.

According to Sethi, VCs should prepare for massive exits translating into huge gains. At the macro and company levels, startups are growing much faster and good exits can happen soon if things are done right from the beginning. As VCs focus on overall execution, they should ensure proper governance, onboard the right people and have the right investors on the cap table so that the company has the capital to grow.

“VCs should also talk to potential buyers to find a good home for the business [and the founders, in case they choose to stay for some time]. When a company is sold, it is not the end but the beginning of a new chapter, and everything should work out well,” he added.

 Chiratae’s Learning Along The Way & The Road Ahead

“Throughout the journey, we have pursued scale and performance, adding product lines to optimise achievements and fine-tuning our exits. In 2024, we are poised to become the first fund in India to cross $1 Bn in exits,” claimed Sethi.

Going forward, Chiratae is excited about the opportunity to grow companies and technologies at the global level.

Unlike in the early 1990s, when Indian ventures looked to the US to replicate their business models, innovation in India has now reached global standards, said Sundaram. “It is not just about problem-solving but also impacting global markets. India is no longer seen as a leader in emerging markets, confined to building there. Today, innovative startups like Pixis and Miko are solving problems in the US and the EU. They are on an equal footing with their global counterparts.”

For the curious, Pixis is a no-code AI platform that helps brands optimise and monitor marketing campaigns for effective outcomes. On the other hand, Miko develops an AI-based companion robot to educate and entertain children globally.

Founders and partners at Chiratae Ventures firmly believe that the growth of the Indian startup ecosystem hinges on raising new funds, better availability of domestic capital and the rise of unique products and services through innovation and technology edge. And the focus should be on nurturing the startup ecosystem as a whole.

Talking numbers, Sundaram said India’s GDP could reach $20 Tn to $35 Tn by 2047 when the country celebrates its 100th year of Independence.

“It is a once-in-a-lifetime opportunity to grow from the current GDP of $3.5 Tn to a six-times scale. And it will be substantial as technology disrupts across the ecosystem, whether it is banking, investing, lending, manufacturing, or all the new-age media or next-gen AI that is going to come. We are excited about this opportunity and the scope to back entrepreneurs in their 20s who are fearless about taking on the best in the world,” he concluded.

[Edited by Sanghamitra Mandal]

The post Decoding Chiratae Ventures’ Near-Two-Decade-Long Journey Across Indian Startup Ecosystem appeared first on Inc42 Media.

The first quarter of the current calendar year (January-March 2024) started with a shout-out to the newly minted Indian unicorns – Krutrim and Perfios. Last year, economic headwinds, geopolitical unrest and a harsh funding winter made it look like the age of the unicorns (startups valued at $1 Bn or more) might be over soon. But they seem to be out and about once again, and market sentiment has improved amid hype over emerging sectors like generative AI (genAI) and growing investor confidence.

This indicates a venture funding rebound, with the VC community sitting on more than $60 Bn of dry powder, ready to be poured into the startup ecosystem.

The country’s macroeconomic environment has also stabilised and India is expected to register better-than-expected GDP growth in FY25 (ending in March 2025). According to the interim Union Budget 2024-25, India’s real GDP is projected to grow at 7.3%, in sync with the revised upward projections by the RBI from 6.5% to 7%, prompted by strong growth in Q2 (July-September) and a bump in Q3 GDP growth at 8.4%.

As economic growth accelerates and startups continue to focus on profitability and sustainable development instead of indiscriminate cash burning and blitzscaling, Inc42 foresees Indian startup funding to surge by 36% or so year over year in 2024. Consequently, the country’s much-coveted billion-dollar club is all set to welcome more than 100 future unicorns to its fold.

According to an Inc42 analysis titled Unicorns Of Tomorrow – Decoding India’s Soonicorn Landscape Report, 2024, as many as 112 Indian startups (soonicorns, to be precise) are on their way to enter the unicorn club. With valuations ranging between $200 Mn and under-$1 Bn, these companies have a combined valuation of more than $40 Bn and secured $15 Bn+ in funding by March 2024.

However, out of the 112 soonicorns, only 47 made their FY23 annual reports public and barring nine, the rest 38 were in the red. Those who turned a profit included BookMyShow, CarTrade, Finova Capital, KreditBee, Lendingkart, Navi Technologies, Nazara Technologies, True Balance and IdeaForge.

Overall, these 47 soonicorns made a combined operating revenue of $3 Bn+ in FY23. While the combined profits of the nine soonicorns stood at $93.6 Mn+, the remaining soonicorns (38) had a combined loss of $1 Bn+ in FY23.

A further slicing of the numbers shows 13 soonicorns managed to pare their losses compared to the previous financial year. Although SUGAR Cosmetics’ losses remained unchanged for both years, Whatfix, Pocket FM, HealthKart and BlueStone reduced their losses by 50% or more in FY23.

Soonicorns That Incurred Maximum Losses In FY23

Out of 38 loss-making soonicorns, as many as 24 or 63% reported an increase in losses in FY23 compared to FY22. Among these, Bengaluru-based EV manufacturer Ather Energy posted $108.1 Mn in losses, a 151% jump from $43 Mn in FY22. Its losses soared despite its operating revenue growing 4.3x to $223 Mn from $51.1 Mn in the previous fiscal.

Fintech soonicorn Cashfree Payments saw the biggest percentage jump in YoY losses at 4,341.5%, followed by Hubilo (174.7%), Bizongo (170.7%) and Ather (151.3%). Cashfree’s net loss widened 42x to $16.6 Mn in FY23 from $0.4 Mn in the previous year, although its operating revenue increased 75.4%, or 1.7x, to $76.7 Mn from $43.7 Mn in FY22. GIVA, Jumbotail and Jupiter also saw their losses more than double in FY23.

On the other hand, Ather had the highest share of losses in FY23 among the soonicorns at $108.1 Mn, followed by Rapido ($84.3 Mn) and Bira91 ($55.7 Mn).

On a positive note, a few soonicorns saw a less than 10% rise in their losses in FY23 compared to the year before.

These included:

• INDmoney: $9.2 Mn loss in FY23 against $8.7 Mn in FY22, a 5.7% increase
• Aequs: $14 Mn loss in FY23 against $12.8 Mn in FY22, a 9.4% rise
• Clear (earlier ClearTax): $29.2 Mn loss in FY23 against $27.8 Mn in FY22, a 4.9% hike
• Ninjacart: $40.8 Mn loss in FY23 against $38.5 Mn loss in FY22, a 6% rise

Why Profitability Eludes Most Indian Soonicorns

Most soonicorns are growth-stage startups, with Series A to Series C funding in their kitty and their valuations typically in the range of $200 Mn to under $1 Bn. They have already achieved product-market fits, but most are trying to scale their revenue above $100 Mn.

Unlike the seed stage, where teams are small and resources are limited, the growth stage requires significant scaling up. Such growth drives call for substantial investments in the team and leadership, product/service enhancement, and sales and marketing without losing track of critical growth metrics like customer lifetime value (CLTV), customer acquisition cost (CAC) and operational efficiency.

As soonicorns constantly look for new markets to drive growth, much of their revenues and/or growth capital is spent on growing the team and marketing products/services.

In FY23, Hubilo spent $14 Mn, of which 83.4%, or $11.7 Mn, went to employee benefits. Clear (formerly ClearTax) spent $43 Mn in FY23, of which $31.4 Mn, or 73%, accounted for employee benefits. On the other hand, mCaffeine spent 42%, or $16 Mn, on marketing in FY23 out of a $38 Mn expenditure.

As expenditure (and, at times, losses) tend to rise to ensure revenue growth and business expansion, VCs do not shy away from investing in loss-making soonicorns, pushing them closer to billion-dollar valuations.

IPO Or Equity Funding: Where Are The Soonicorns Headed?

Industry analysts believe unicorns are losing steam, with key players piling up huge cumulative losses on dwindling revenues. Given the spotlight and the intense scrutiny the ‘unicorn’ status triggers, soonicorns are gradually moving away from the valuation milestone to keep the hype down and focus on other growth essentials.

For example, B2B marketplace Bizongo raised $50 Mn at a valuation of $980 Mn, while insurtech platform Turtlemint was valued at around $950 Mn during its $120 Mn Series E round. Pushing for billion-dollar valuations might not have been too difficult for these startups, but it’s no surprise that they refrained from doing so.

Moreover, sectors like agritech and deeptech comprising spacetech, dronetech, IoT/Hardware among others have yet to witness the much-hyped valuation game. Interestingly, we find many profitable and fast-growing startups in these sectors but not a single unicorn. Which may well indicate that these startups will no longer focus on venture funding or valuations but will straightaway dive into the IPO market for the next level of growth.

Talking to Inc42 off the record during a previous interaction, an investor also emphasised that growth stage companies past initial rounds would not necessarily require VC funding. “At the growth stage, companies can secure another round to stabilise revenues, strengthen fundamentals and even opt for an IPO at a valuation as low as INR 250 Cr ($30 Mn),” he said.

Will that be an upcoming trend across the dynamic VC landscape after a thaw in the funding freeze? Will storied VCs be in trouble after top-level exits and business makeovers at local and global levels, especially as they sit on dry powder and may be under considerable pressure from limited parts for fund deployment?

It may not be as easy as it sounds. The upcoming general elections may impact stock returns and investor sentiment, although 55% of the investors said 2024 would be a good year for IPOs, per an Inc42 survey.

With markets getting corrected, valuations under control and a massive amount of dry powder ready to be deployed, funding channels will be wide open for Indian soonicorns, and there may be choices galore. It is worth watching which route they take to spearhead sustainable growth.

[Edited by Sanghamitra Mandal]

Update: The article earlier mentioned Loco as a profitable soonicorn. It is now corrected and removed from the infographic “Most Profitable Soonicorns In FY23”. 

The post How Indian Soonicorns Fared In FY23 appeared first on Inc42 Media.

Mumbai-based investment firm Filter Capital has announced the final close of its maiden CAT II AIF growth-stage fund – Filter Capital India Fund I – at INR 800 Cr (close to $100 Mn).

The firm’s founders, Nitin Nayar and Sumit Sinha, started raising funds for the first fund in 2021 and marked its first close in mid-2022 at $40 Mn.

Filter Capital is a technology-focused growth-stage investment firm with a focus on leading/co-leading Series B and C rounds. It aims to invest in 8-10 companies from the first fund. The firm invests in IT services, SaaS, and technology-led businesses across consumer, financial and business services sectors. The average ticket size is INR 60-100 Cr ($7.2 Mn -$12 Mn).

The fund has received capital commitments from a diverse investor base – 60% domestic investors and 40% international investors. Leading Indian institutional investors and family offices such as HDFC Fund of Funds, SIDBI, SRI Fund, Oister Global, DSP family office, Amansa Capital founder Akash Prakash, and Dream11 CEO Harsh Jain are among those who have committed investments.

The fund has invested over 30% of its corpus across four companies – Capillary Technologies, Chalo Mobility, LoadShare Networks, and THB.

Filter Capital’s founders together have decades of experience in the Indian venture capital space. While Nayar worked with Warburg Pincus for more than 14 years in India, Sinha worked with renowned VC and PE firms such as Temasek Holdings, Warburg Pincus, and Multiples Alternate Asset Management in the past.

“In fact, that’s how Sumit and I met each other. We worked at Warburg for about five years between 2010 and 2015. We were looking at almost 300 tech companies together and made some good deals such as in CarTrade, Quikr, and Capillary Technologies,” said Nayar.

Later, when Sinha was leading investments at Multiples, the PE firm invested $23 Mn in Dream 11 and he was on the fantasy gaming unicorn’s board before Multiples exited and it returned the whole fund for Multiples as they got $550 Mn from that deal.

“So, in 2018, when I decided to move out of Warburg Pincus, Sinha was the first person I called,” said Nayar.

Why The Focus On Series B/C Stage Startups

Filter Capital founders believe that Series B/C stage businesses offer the best opportunity as they have enough traction by that stage but are not “discovered by the broader market”.

Besides, with their experience of writing big cheques of $20 Mn-$25 Mn for companies like CarTrade and Quikr in their previous job roles, the founders are confident about investing in Series B/C businesses.

“We both have years of experience in growth stage investing in tech and tech-led companies. We also realised that there is a very interesting risk-reward worth pursuing in the Indian market that makes sense for India but may not make sense for a large-cap PE firm. This has now become the genesis of Filter Capital,” said Nayar.

Sinha said Filter Capital has a unique perspective as, by DNA, it is first and foremost a private equity firm rather than a venture capital investor.

“That keeps us disciplined and gives us the belief that we can get really good returns without playing a binary outcome game or without taking undue risk. That has also kept us focussed on a bunch of themes that we really focus deeply on,” added Sinha.

Strong Focus On Valuation 

Sinha believes that tech investments should offer a good risk-reward balance and this is what Filter Capital is focussed on.

With a concentrated portfolio of 8-10 startups, the investment firm aims to focus on companies which are protected from downsides and do not lead to any capital loss. At the same time, it aims to make investment bets which give confidence that they can give 10X returns if executed well.

“That balance of risk and reward also keeps us very disciplined about what valuation we want to enter at in every deal we do,” Sinha added.

Filter Capital currently has a team of seven people. It is looking to invest 75% of its fund in first cheques while keeping the remaining 25% for follow-on rounds.

The post Filter Capital Announces Final Close Of Maiden Fund At $100 Mn appeared first on Inc42 Media.

Mumbai-based venture capital fund Centre Court Capital has rolled out its maiden INR 350 Cr fund with a focus on sports and gaming space.

Centre Court Capital, a SEBI-registered Category II AIF, had already raised INR 200 Cr in commitments from eminent investors and top athletes.

The fund has the Sajjan Jindal Family Trust as an anchor investor, with Parth Jindal at the helm, along with the Small Industries Development Bank of India (SIDBI), PremjiInvest, USK Capital and other large corporate sports investors in the country, including GMR Sports and SG Sports among others.

Other notable figures from the world of sports and media have also joined.

The fund was founded by Mustafa Ghouse who is the former CEO of JSW Sports, former Asian Games Bronze medalist and member of the Indian Davis Cup team. He brings with him the operating experience of having put together Inspire Institute of Sport, India’s premier Olympic training facility, aside from leading the acquisition and heading teams across the IPL, ISL, and PKL.

He is joined in by Alok Samtaney, former Investment Director with TVS Capital and Sabre Partners with more than 15 years of experience. He has made and managed a diversified portfolio of venture capital and private equity investments and has seen a substantial number of exits.

According to Ghouse, with this fund, they want to be at the forefront of India’s sports and gaming revolution. Both public and private investment in Sports has more than quadrupled since 2020.

“As a result, we’re seeing an acceleration in the number of startups that are building from India for India and the world. Adding to that, with 396 million gamers, we’re the 2nd largest population of gamers in the world and the gaming sector is poised to grow at a 5-year CAGR of 21%,” he added.

The fund has already completed its first two investments in the sports tech space, although the names of startups remain undisclosed. It will look to focus on early-stage opportunities, earmarking INR 8 to 24 Cr, while reserving 40-50% of the fund for follow-on investments.

Also, Centre Court Capital is soon launching an offshore feeder fund in GIFT City, to raise capital from international investors.

The post Centre Court Capital Floats Maiden INR 350 Cr Sports Tech And Gaming Fund appeared first on Inc42 Media.

Listed business services provider and private sector employer Quess Corp Limited has bought Bengaluru-based gig economy platform Taskmo for an undisclosed amount.

As an early investor in Taskmo, Quess infused $1.4 Mn in 2021 followed by equity and debt rounds.

Both Taskmo founders – Prashant Janadri and Naveen Ram – will see an exit post-completion of the acquisition by Quess. The acquisition is expected to further strengthen Taskmo’s position in the market and accelerate its growth trajectory.

Founded in 2020, Taskmo was started as a Facebook page with the vision of revolutionising the gig economy. In the last three years, the Facebook page has evolved into a gig marketplace connecting marquee businesses with on-demand talent for various tasks and projects. Its mission is to digitise gig jobs for the next half a Bn internet users.

Taskmo uses artificial intelligence and a unique algorithm to help gig workers find both hyperlocal and digital tasks on their platforms. It provides real-time visibility for businesses to track tasks and enables trained gig workers to find work nearby.

The platform also provides training and upskilling courses to gig workers to prepare them for various tasks. Its services are also available across many regional languages.

The startup claimed to have seen a growth of 20X in the last two financial years. In a statement, Janadri also claims to have served more than 35,000 unique taskers or gig workers so far.

It completed 2 Mn+ tasks with the help of over 75,000 gig workers. Their clients range from startups to Fortune 500 companies, including Amazon, Flipkart, Tata Group, Reliance, Paytm, Byju’s, Uber, Ola, Swiggy, Zomato, SBI, Airtel, ITC, Bharatpe, Phonepe, BigBasket among others.

Taskmo is currently serving across 10,000 pin codes in the country.

In December 2021, global digital employment platform Monster.com, owned by Quess Corp raised INR 137.5 Cr ($18.1 Mn) in a funding round led by Akash Bhanshali (Volrado Venture Partners) and Mohandas Pai (Meridian Investments), with participation from Quess– Monster’s parent company.

Quess was listed on the Indian stock exchange in 2016 and is currently listed at a market cap of INR 8.33 TCr.

The post Taskmo Founders Exit As Early Investor Quess Corp Seals Buyout  appeared first on Inc42 Media.

The Singapore Tourism Board (STB) and fintech major PhonePe have entered into a two-year strategic partnership to promote UPI payments for Indian visitors in Singapore. 

Indian travellers can now use the PhonePe app across 8,000+ merchants in Singapore.

The Memorandum of Understanding (MoU) was signed on Wednesday (April 3) between  STB’s chief executive, Melissa Ow, and Ritesh Pai, chief executive officer, International Payments Business for PhonePe. 

This collaboration builds upon the existing UPI linkage between India and Singapore, which allows customers to instantly make cross-border transactions between the two countries directly from their existing Indian bank accounts, PhonePe said in a statement. 

As part of the partnership, STB and PhonePe will both invest in joint marketing efforts across India and Singapore.

Walmart-owned PhonePe currently claims 520+ Mn registered users and a digital payments acceptance network of 38 Mn merchants. It also processes 230+ Mn daily transactions with an annualised Total Payment Value (TPV) of $1.5+ Tn. 

Since its launch in 2016, the PhonePe Group has expanded into financial services (Insurance, Lending, Wealth) as well as new consumer tech businesses (Pincode – hyperlocal e-commerce and Indus App Store – India’s first localised App Store). 

In February 2023, PhonePe also launched support for cross-border UPI payments, under UPI International. This allowed users to make payments in foreign currencies directly from their bank accounts, similar to international debit cards.

Introduced by the cross-border arm of the National Payments Corporation of India (NPCI International Payments Limited), UPI International facilitates UPI transactions for the Indian diaspora abroad. The NPCI has also inked agreements with multiple countries, including Nepal, France, Sri Lanka, UAE to take UPI global apart from Singapore

In India, the transactions on the Unified Payments Interface (UPI) rose 11% month-on-month (MoM) to 13.44 Bn in March 2024 from 12.10 Bn. On a year-on-year (YoY) basis, the transaction count surged 55% from 8.7 Bn.

As per the National Payments Corporation of India’s (NPCI’s) data, the transaction volume in March stood at INR 19.78 Lakh Cr, up 8% from February’s INR 18.28 Lakh Cr. It also zoomed 40% from INR 14.1 Lakh Cr in the year-ago month.

The NPCI as well as the government have taken a number of steps to promote UPI. The NPCI continues to add new features and launch new services to further increase the adoption of UPI. It has launched innovations like UPI Lite, credit lines on UPI, UPI LITE X and Tap & Pay, Hello! UPI, and BillPay Connect, among others, over the years. 

As of now, it is eyeing the introduction of a new service to enable an interoperable payment system for net banking through NPCI Bharat Billpay (NBBL). The system will facilitate quicker settlement of funds for merchants. With banks and fintech firms planning to get onboard, the NBBL is likely to enable such transactions in April.

The post Now, PhonePe Users Can Pay Via UPI In Singapore appeared first on Inc42 Media.

IndoEdge has received approval from the Competition Commission of India (CCI) to acquire an 8% stake in MG Motor India.

As per ET’s report, the deal will route through IndoEdge India Fund – Large Value Fund (LVF) Scheme.

The acquisition of shares in MG Motor India will grant IndoEdge India Fund 8.70% of the voting and economic rights, the report said, citing a statement by the antitrust regulator.

The acquirer is a large value fund for accredited investors, a scheme by IndoEdge which is a contributory determinate trust registered with the Securities and Exchange Board of India as an alternative investment fund, it said.

Chinese automotive manufacturer SAIC Motor-owned MG Motor India has been operating in the Indian electrical vehicle space actively for the last few years.

Most recently it entered into a joint venture with JSW Group that will produce both electric and internal combustion engine cars to capture a large chunk of the Indian market which is primarily dominated by Maruti and Tata Motors.

At the time, the company also shared a hint on gearing for an IPO and may bring in additional investors with local origin to “Indianise the company”.

In June 2022, it entered into the metaverse with its platform–MGverse. With the new metaverse platform, MG Motor wants to provide an immersive experience to its customers and stakeholders.

Before that, in May 2020, it entered into a partnership with Tata Power to set up superfast chargers for electric vehicles (EV). In this partnership, Tata Motors will install superfast chargers for EVs at select MG dealerships to offer end-to-end charging solutions to its dealers across India.

Update (Wednesday, 13:52): The story earlier mentions Info Edge as the acquiring entity incorrectly. It’s now corrected to IndoEdge.

The post IndoEdge Gets CCI Nod For 8% Stake Buyout In MG Motor India appeared first on Inc42 Media.

Indian electronics contract manufacturer Dixon is in talks with the local unit of Chinese handset maker Transsion Holdings for a potential acquisition.

Dixon is looking to buy a majority stake in Transsion’s India business, which is valued at around INR 700 Cr, ET reported.

Transsion Holdings, which makes smartphones and feature phones for its brands Techno, Infinix and Itel, has a capacity of 25-30 Mn units at its three manufacturing units in Noida. The three brands together have a 14% share of India’s overall mobile handset market and an 8% share of the smartphone segment.

Dixon on the other hand has a manufacturing capacity of 30 Mn smartphones and 50 Mn feature phones at its four plants in Noida. It is already a manufacturer of domestic and international brands like Xiaomi, Oppo, Vivo, Realme, Samsung, Motorola and Jio.

In September last year, Dixon also announced to invest over INR 400 Cr ($48.2 Mn) in a new manufacturing facility located on the outskirts of New Delhi. Spanning 300,000 square feet, the plant will primarily focus on producing Xiaomi smartphones.

The development comes at a time when the Indian government is leaving no stone unturned to promote its ‘Make In India’ initiative. The Centre wants Indian companies to have more hold over the country’s mobile phone industry, which is currently dominated by Chinese brands like Xiaomi and Oppo among others, as part of an informal mandate, according to the media report.

This is partly due to pressure from the government to engage with local players and benefit from the production-linked incentive (PLI) scheme for phone manufacturing. The scheme’s objective is to generate incremental production worth INR 3.35 Tn over the next six years.

Earlier in August 2023, the Centre received 38 applications, including 25 from domestic companies, for the PLI Scheme 2.0 for IT hardware including Dixon Technologies (India), VVDN Technologies, Optiemus Infracom, and Sahasra Electronic Solutions. Global PC manufacturers such as Dell, Hewlett Packard, Foxconn (through a subsidiary), Asus, Acer, and Flex also submitted their applications.

The post Xiaomi Supplier Dixon In Talks For A Majority Stake In Transsion Holdings’ India Unit appeared first on Inc42 Media.

New Delhi-based travel and lifestyle startup Assembly has raised $2.1 Mn (around INR 17.4 Cr) in an undisclosed funding round led by Prath Ventures, with participation from Anicut Capital, Blume Founders Fund and a host of angel investors.

The startup will use the fresh funds to expand its team and product range while increasing focus on marketing and branding initiatives.

Founded in 2019 by Aditya Khanna and Mohit Garg, Assembly offers mass-premium luggage, backpacks and travel accessories tailored for the contemporary traveller.

“Our focus this year is on expanding our product offerings and reaching a wider audience of travellers,” said Garg.

Assembly also appeared in Shark Tank Season 3 where they claimed that in the last three years, they helped more than 2 lakh travellers with their products. They also have a vision to become India’s leading and thoughtful travel store in the next 2 to 5 years. However, the founders couldn’t close any deal.

Prath Ventures, established in May 2022 by Piyush Goenka and Harmanpreet Singh, supports early-stage consumer businesses and their enablers. With a focus on deploying fresh capital into approximately 15 startups, Prath Ventures aims to fuel growth and innovation in the consumer sector.

Saptarishi Sen, vice president at Prath Ventures, said, ” We believe Assembly, with its robust supply chain capabilities and design aesthetics, is primed to capture this evolving trend. We are excited to partner with them in shaping a new-age challenger brand in the luggage space.”

This marks the third investment of Prath Ventures from its debut fund, which made its second close at INR 225 Cr last month. Earlier, it had invested in D2C F&B startup Jimmy’s Cocktails.

The post Travel And Lifestyle Startup Assembly Bags $2.1 Mn From Prath Ventures, Others appeared first on Inc42 Media.