Why Vertex Ventures is so bullish about the Indian startup ecosystem

Over the past decade, Vertex Ventures Southeast Asia and India has been steadily investing within the Indian startup ecosystem, tapping into the nation’s massive working inhabitants, beneficial insurance policies, rising web base, and elevated consumption.

Since its entry in India in 2013-14, the Singapore-headquartered early-stage enterprise capital (VC) agency has made round 30 startup investments together with a couple of exits. It counts unicorn startups together with FirstCry, Licious, and Xpressbees in its portfolio.

Vertex Ventures has raised 5 funds until now, with the newest fund, Fund V, garnering $541 million final 12 months in opposition to its goal of $450 million. The VC agency additionally has a presence within the US, China, and Israel.

“With each successive fund, we have gotten bullish on India,” says Kanika Mayar, Companion at Vertex Ventures, in a dialog with YourStory.

It’s now trying to broaden the scope of its investments in India by rising the variety of offers in addition to coming into new segments. This bullishness stems from two defining elements: the rising variety of high-quality founders and the robust financial indicators of the nation.

Mayar says the Indian startup ecosystem has matured very effectively through the years with the emergence of high-quality founders who’re critical about constructing companies for the long run.

Funding thesis

Until now, Vertex Ventures in India has been centered on 4 segments for startup investments—shopper tech, fintech, software-as-a-service (SaaS), and healthtech. It now additionally desires to spend money on segments equivalent to mobility, sustainability, and clear vitality.

In response to Mayar, the VC agency seems to duplicate its previous success of constructing scalable companies with robust unit economics within the newer segments as effectively. It is going to enhance the variety of startup investments from the sooner common of 3-4 per 12 months to round 5-7 yearly.

“We purpose to maintain inside a tempo of funding which is manageable,” she provides.

The VC agency considers shifting traits in some sectors a chance. Within the shopper tech area, the rising affluence of customers mixed with the willingness to spend extra prompted Vertex to fund companies equivalent to Pilgrim, a private magnificence care model.

It has additionally taken sure contrarian bets like Licious, a web-based meat-selling platform. Mayar says, “Once we first invested, lots of people didn’t consider that we might construct a digital-first meat and seafood firm as it’s offline. It additionally took time for us to develop into comfy.”

Equally, within the fintech and enterprise SaaS segments, it believes there are sufficient alternatives to construct scalable companies. From SaaS, there may be the expectation of constructing a worldwide firm out of India whereas within the fintech area, there is a chance to construct a scalable enterprise catering to specific shopper segments.

Whilst Vertex Ventures seems to broaden its attain, it desires to stay to pre-Sequence A and Sequence A funding levels, with ticket sizes within the vary of $4-6 million in every firm. Mayar says by the fifth fund, Vertex will now have the flexibility to do follow-on rounds in choose startups.

Exits

Whereas the VC influx into Indian startups is nowhere close to the 2021 ranges, it has stabilised to a sure extent. Nonetheless, buyers are nonetheless uncertain in regards to the route of exit — both by an M&A or an IPO.

Mayar says that in Vertex’s early years within the Indian startup ecosystem, there have been questions on its means to get exits. To this point, it has had a great tiding. The VC agency has exited from child care and mother-care startup FirstCry and logistics resolution platform Xpressbees.

Additionally, a number of different startups in its portfolio have been acquired, together with Lively.Ai by Gupshup, Cloudcherry by Cisco, Flutura by Accenture, Glowroad by Amazon and many others. Certainly one of its portfolio firms, Yatra, went public final 12 months by a list on Nasdaq.

“We’ve learnt not solely tips on how to make investments but in addition tips on how to exit and this provides us extra confidence that we must always go extra bullish in India,” says Mayar.

Vertex Ventures has additionally devoted $50 million from its fifth fund to again women-led startups. Mayar says whereas the VC agency all the time had a concentrate on women-led ventures, the separate quantity comes as each a formality and a sign that it’s keen to again good firms led by ladies founders.

Vertex has earlier invested in women-led startups equivalent to Karkhana.io and Proactive for Her.

The current funding surroundings for startups isn’t upbeat as buyers are nonetheless cautious as diligence turns into far more stringent. Nonetheless, Mayar says there may be sufficient capital out there within the ecosystem however the funding bar for each founders and buyers is now increased.

“There are excellent founders to fulfill and again although the query is when to take a position,” she remarks.

Total, Vertex Ventures continues to be constructive in regards to the Indian startup ecosystem and believes within the philosophy of backing companies over 8-10 years. It additionally gives a worldwide perspective, which helps information startups.

Mayar says the connection between the startup founder and investor is all the time a two-way avenue the place as a lot as startups pitch to them, they’re additionally pitching to the startups. “Our goal is to be a little bit forward of the market.”