Having invested in 13 companies since its inception, Digit Insurance, which is currently valued at $3.5 billion, will bet Chinese cosmetics, Axotel, slightly larger than the A91 new corpus.
In August, ET
informed of that A91’s new fund was closed and it involved limited partners, or sponsors, such as the Canada Pension Plan Investment Board and the financial services major Allianz Group. Founded in 2018 by three former Sequoia Capital managing directors, Abhay Pandey, VT Bhardwaj and Gautam Mago, the Mumbai-headquartered firm raised the largest first domestic fund raise by Indian general partners for $350 million two years ago.
Speaking to ET about the latest fundraising, Pandey said, “Our aim was to invest in companies where we have the potential to generate 5X returns with an option. At this stage we think over 80% of our companies will fall under that criterion, although we only have a limited history of a few years on them… Valuations aside, the impact of the two waves of COVID-19 Regardless, these companies grew very well in terms of business. ,
The funding environment has changed dramatically over the past year, with over $25 billion in venture capital raised by Indian startup And while there are 36 new unicorns being born in 2021 alone, Pandey said A91 was clear that they didn’t want to increase their fund size any more, at least not for now. “When we launched the first fund in 2018-19, we had a certain set of opportunities in India that we needed to address as per the bandwidth of our team and at that time $350 million was a good one..” he said. But the market opportunities have expanded, which is why we can now invest $25– $30 million in 15-17 companies with sizable funds, that’s the math we did, he said. A91 invests in consumer, healthcare, financial services and technology companies and back companies, with net revenues of approximately $7-10 million. The fund says it focuses on businesses that have proven themselves to some extent, which may not be a sustainable approach but for now wants to invest in such companies.
Pressure to be bigger, more aggressive?
With traditional VCs like Tiger Global, Falcon Edge and even traditional VCs like Sequoia Capital closing a record number of deals this year, most India-focused investors have opted for an increase in fund size. Stellaris Venture Partners raised $225 million for its second India-dedicated fund, nearly three times the size of the $90 million first fund it launched four years ago. Nikhil Vora’s Sixth Sense Ventures raised Rs 2,500 crore for its third fund, which is five times bigger than his previous fund.
Mago said that while discussions were on to raise more, he deliberately chose not to do so as it allowed him to be more disciplined. If we have to raise more money, there is always an option to do so. “If you spoke to our LPs, they would be saying that we are trying to balance the forces of being disciplined as well as being relevant and productive investors,” Bharadwaj said.
On throttling deals and skyrocketing valuations, Pandey said, “We are really struggling with valuations in an environment where investors have been humbled and felt like a commodity due to surplus liquidity. The level of competition is very high which means that there are many Disclaimer And disappointment in recent months. So what do you do– you pick your spots, and work hard on them.”
Pandey, Bhardwaj and Mago’s former Sequoia squad had backed companies such as Beera, Vini Cosmetics, Oyo and Pratap Snacks during their decade-long tenure at the Silicon Valley Fund. While Mago left Sequoia in 2017, Bharadwaj and Pandey left the venture fund in 2018.
fear of missing out?
Striking a balance between being productive and being careful, does the A91 miss out on a lot of buzzy companies and exorbitant prices? “The pressure is about.. It’s not that we can’t invest in expensive rounds but ideally we don’t want to invest in all expensive rounds..” Mago said.
There is always a tension between what is relevant, which is defined by the size and performance of the fund. In the midst of an unprecedented funding boom, the likes of Tiger Global, Insight Partners are increasingly raising sizable funds. Pandey said that while the founders are more inclined to choose investors who can deduct checks from Series A in subsequent rounds and even participate in their public offerings, the bigger you get the fund’s performance. It becomes difficult to maintain.
Portfolio performance, exit
Talking about the up-round, markup and general uptick in valuations, Bhardwaj said that currently the market looks very smart to every investor for every investment they make, but do you deserve to be called “smart” Only time will tell, he said.
Pandey said the four portfolio companies of A91 have clear markups, but the firm is not focused on it. “Markets are changing everyday..from the valuation perspective of the world…it is good to be happy in the short term but it should not be the basis of your fund’s performance and long term happiness…”
Exiting in the background of several startups tapping the IPO market, A91 expects some companies like Digit Insurance to go public by the next year or so. “We are not a fund with a track record of 30 years where we need to show distribution because LPs rely on us…..,” Pandey said. Funds usually start returning capital in five-six years from the date of investment. We have some more time, after that we have to start sending money back, he said.
On companies going public at higher valuations than private markets, Pandey said it was great for the industry as a whole as LPs were finally getting the capital that they had been investing in India for over a decade. Were. “Public investors relied on private market valuations but are now paying it back with interest..” he said. M&A was never a potential exit route in India so IPO would be the best way to generate returns. We should be grateful as many companies will see this as a future exit that gives confidence to the broader ecosystem, he said. However, Bhardwaj said that people should not celebrate prematurely as India needs to see a steady flow of these IPOs, so that it is not a one-time period but something that is sustained.