Aavishkaar India, an early-stage venture capital firm, is looking to complete the fundraising process for its fourth and largest fund, likely to be $120 million. Having only started raising these funds in January, the six month time frame is significantly faster than the average which can take between one and two years. Aavishkaar’s latest fund will focus on later-stage companies that are looking for their third or fourth round of funding. Aavishkaar is among a group of VC firms that are currently looking to raise funds, including IndoUS Venture Partners, IDG Ventures India and Clearstone Venture Partners.
At least half a dozen companies are raising capital as they near the end of their investment cycle
Deepti Chaudhary & Harini Subramani
Early-stage venture capital (VC) firm Aavishkaar India will in June complete raising a $120 million (Rs.535 crore) fund, its fourth and largest.
If that target is met, Aavishkaar will raise the funds in just six months compared with the average 1.5-2 years the process usually takes, chief executive Vineet Rai said.
The size and speed reflect the hurry VC firms are showing in raising capital for new investments, taking a cue from the more active private equity (PE) firms.
Aavishkaar is among at least half a dozen VC companies that are raising funds, increasing the amount of funds and options available for entrepreneurs in the country.
A bulk of the new fund-raising is happening now because many VC firms are nearing the ends of their current investment cycles.
Typically, VCs begin raising fresh capital after committing at least 70% of their existing funds towards investments.
TVS Capital Funds Ltd, the asset management venture of TVS Group and the Shriram Group, is looking to raise its second fund, two people with knowledge of the matter said.
The firm expects to secure internal approvals for the fund at its board meeting later in May, said one of the two people, a senior executive at TVS Capital.
The fund size will be about $100 million and the money will be used to invest in infrastructure services.
“While we had initially concentrated on investments in the consumer sector, we now want to build more into other verticals,” the executive said.
Management consultants Bain and Co. said in a recent report that the appetite of limited partners, or LPs, for greater exposure to Indian start-ups remains strong. (LPs are the main investors in VC and PE funds.)
Bain cautions that although there is plenty of capital waiting to be invested in India, not all the firms that are trying to raise funds will succeed.
One LP said in an interview to Bain that investors have on their priority lists a few quality general partners (GPs, or fund managers) who have emerged in India.
“LPs are very closely looking at the kind of value-add that general partners can bring to their portfolio firms and how different the fund’s investment thesis is from others,” said Rai. Aavishkaar’s fourth fund will invest in companies seeking second or third rounds of investments.
Ennovent, a social investment fund that will back for-profit companies catering to the poor, is looking to raise $30-50 million. “Most LPs want us to raise more because the feeling is that smaller funds are not viable,” said Tripat Preet Singh, managing director, India, at Ennovent. “Our area of focus is BoP (bottom of the pyramid) and the gap that lies in the $1 million funding space.”
Among other VC firms looking to raise capital are IndoUS Venture Partners, IDG Ventures India and Clearstone Venture Partners.
IndoUS Venture is considering raising a second fund, turning its attention to early stage deals from being stage-agnostic, as Mint reported in February.
IDG Ventures’ next fund will be bigger than its present $150 million fund, said an executive at the firm requesting anonymity.
Clearstone Venture will also raise a new fund this year as its third fund, with a corpus of $215 million, is nearing the end of its investment cycle, the company had said earlier.
The fresh fund-raisings by VCs, however, are raising concerns as well.
At least $20 billion of committed capital remain uninvested (called dry powder in industry parlance) and are still available. More liquidity will add to the competition, leading to auction-like situations and unrealistic valuations, experts said.
“These will be great times for entrepreneurs but as an investor, I would worry about too much capital chasing too few quality deals… and what it may imply longer term for valuations and returns,” said K.P. Balaraj, managing director at WestBridge Capital, a VC firm that’s also looking to raise capital. Balaraj said the firm has to decide on the corpus for its new fund.