Why enterprise SaaS is at the heart of Cornerstone Ventures’ investment strategy

Final month, Cornerstone Ventures introduced the launch of its second fund with a dimension of $200 million. The primary fund from the agency, launched in 2019, was $50 million.

Cornerstone Ventures’ optimism within the startup ecosystem is basically because of its concentrate on the nation’s software program as a service (SaaS) startups. The agency believes homegrown business-to-business (B2B) SaaS startups have far more to supply to giant enterprises, which is why it’s doubling down on this phase with a bigger quantum of investments.

The corporate, which was based by Abhishek Prasad and Rajiv Vaishnav in 2018, has thus far invested in 21 SaaS startups from the primary fund with a mean worth of funding in every startup being within the vary of $2-3 million.

Cornerstone Ventures is anticipating to mark the primary shut of its fund in June this 12 months and ultimate closure by March of 2025. Based on Prasad, it has seen encouraging response from its present set of restricted companions and is now scouting for international traders.

On the efficiency of the primary fund, Prasad stated the portfolio of startups has witnessed a 4.5X in income development.

With the second fund, Cornerstone Ventures desires to intention larger.

“We’ll put money into the vary of $5-7 million from the second fund largely at Collection A and B phases of funding,” Prasad, Managing Associate, Cornerstone Ventures tells Yourstory.

As well as, Cornerstone Ventures hopes to hunt funding alternatives on the late-stage funding rounds.

Enterprise SaaS

The founding companions’ shut ties with the enterprise sector—Prasad and Vaishnav have been with GenNext Ventures, the VC arm of Reliance Industries—have helped them fine-tune the VC agency’s funding technique.

Prasad and Vaishnav say they noticed a shift within the startup ecosystem in 2015-16 when B2B began garnering consideration regardless of the dominance of business-to-business (B2B) ventures.

“We noticed the emergence of a brand new class of founders who have been skilled professionals with sturdy area experience. That’s once we determined that it was a superb time to construct a B2B fund in India,” says Prasad.

Cornerstone Ventures predominantly invests at early stage—Collection A and B—and pre-Collection A in just a few circumstances.

Based on Prasad, relationships with CXOs of huge enterprises who’re additionally restricted companions within the fund, is a bonus. This permits the agency to assist their portfolio corporations to get entry to the big enterprises as potential clients and likewise get sturdy referrals by this CXO community.

Startups in its portfolio embody blockchain startup Dhiway, fintech-focused startup Credilio, AI automation platform Tune AI, buyer engagement tech agency Wootag, and API-driven tech startup targeted on the aviation business, Mystifly.

Larger scale

Cornerstone Ventures believes that the size of the SaaS startup ecosystem in India is barely going to get greater. A report by Chiratae Ventures and Zinnov notes that the Indian SaaS business is about to succeed in $26 billion when it comes to income by 2026.

A report by Bain & Co on the Indian SaaS business for 2022 stated it expects Indian SaaS corporations to collectively attain ~$35 billion in ARR and seize ~8% of the worldwide SaaS market within the subsequent 5 years.

Prasad says a number of macro tendencies are in favour of the SaaS phase. First, the broad macroeconomic indicators within the nation are giving rise to optimism of sustained larger financial development, secondly, the arrival of generative AI (GenAI) is predicted to create new enterprise alternatives and lastly, enterprises are eager to undertake the newest applied sciences.

SaaS, like different sectors, has felt the nippiness of funding winter in addition to suffered from slower income development and elevated commoditisation.

A working example is the share value of Freshworks, which has been buying and selling a lot under (at $13.74 on Could 21) its IPO value of $36 per share.

Nevertheless, the VC agency is hopeful of returns. Prasad says, “The SaaS enterprise mannequin is right here to remain however it can take new avatars transferring away from the licensing mannequin to a worth primarily based mannequin.”

He believes that whereas there’s an elevated degree of commoditisation within the SaaS house however there’s additionally a shift by a sure set of corporations who’re concentrating on delivering options which truly result in larger income for his or her clients. That is an instance of the value-based mannequin.

Prasad says Cornerstone Enterprise is targeted on these SaaS startups that are producing precise worth to the big enterprises although the gross sales cycle for such engagements stretches as much as six months. “One you might be in, it’s a long-term engagement,” he remarks.

A distinct segment

In India, the SaaS funding phase is a crowded house with the presence of a number of funds reminiscent of Peak XV (previously Sequoia India), Accel, Blume Ventures, 3one4 Capital to call just a few.

Whereas some funds are devoted to the SaaS sector like Collectively Fund, and Pentathlon, others have these corporations as a part of their bigger portfolio.

Based on Prasad, Cornerstone Ventures’ USP is its potential to attach and community with the big enterprises which in flip helps within the development journey of their startup portfolio. It additionally has a number of partnerships with giant enterprises to showcase their startups.

“We perceive what it takes for a startup to have a profitable partnership with a big enterprise,” he says.