Exclusive: Mirchandani bets on non-tech startups, allocates 10% of new fund

Sasha Mirchandani, Kae Capital

At a time when tech startups dominate the portfolios of investors, Mumbai-based early-stage investment firm Kae Capital is eyeing a piece of the non-tech pie.

Kae Capital recently raised $30 million from existing and new investors for its second fund, and is in the process of raising $5 million more for the fund, which would have an option to enhance the cap by another $5 million if required, Sasha Mirchandani, founder and managing director of Kae Capital told DEALSTREETASIA in an interview.

Kae Capital plans to invest around 60 per cent of the total fund in B2C tech companies, 30 per cent in B2B or SaaS startups and the remaining 10 per cent would be in the consumer-facing non-tech companies.

“Consumer-facing non-tech companies–be it makers of coffee, juice or craft beer—hold a huge opportunity in an under-served market. There is a lot of potential in this space also because there are better deals available as there are lesser investors in this category,” Mirchandani said.

Kae Capital is currently invested in over 30 companies, in the cloud, tech, consumer internet and mobile platform space. From the first fund, which it exhausted in the middle of 2015, the firm invested in almost 25 startups, including TrulyMadly, The Porter, and Healthkart.

Mirchandani, in his personal capacity, had invested in online fashion portal Myntra, which was acquired by e-commerce major Flipkart in 2014, mobile advertisement technology InMobi and US-based data analytics company Fractal Analytics.

From the new fund, which closed recently, Kae Capital has invested in around five companies so far. After its first fund was exhausted, Kae Capital used a route called warehousing, which is a process that allows venture capital firms to invest in startups even when they have exhausted their funds or are yet to raise a new fund.

“This round of fund should last us at least a couple of years,” says Mirchandani, adding that the company would continue to make the first investment in companies at pre-series A levels.

“We will always come in at the entry level with funding between $200,000 and $1 million and then invest more if needed, up to $4 million,” he said.

While he refrained from putting a number to the investments Kae Capital was looking at in the current year, Mirchandani said the focus would be on startups in the financial tech, health tech and ed-tech space.

Good time for investing

At a time when investors are seen exercising caution, for Mirchandani this is the best time to invest.

“The valuations are now fair and not unreasonably high, and companies that are built in down times like this, end up being more successful,” he says, adding that when the money flow is slow, startups tend to be more frugal as they know that they need to spread the money over a longer period of time.

According to data released by CBInsights, venture-backed companies raised about $7.86 billion in India last year and there were 480 funding deals. While the first two quarters saw robust growth in volume and value terms, numbers slipped sharply on the total funding raised by startups, as well as deal volumes in the fourth quarter over the third quarter.

The number of deals dropped to 114 in the fourth quarter ended December 2015 over 139 in the previous quarter, thereby signaling a change in the overall funding environment in 2016.

While pointing out the there is never a dearth of money in the market, Mirchandani says, the urgency of investment has drastically reduced with investors taking more time to evaluate an opportunity which will lead to more stability in the ecosystem.

“The influx of investors, who invested for the wrong reasons have definitely spoilt the market, however a lot of them are now moving out of this market to other kinds of investments like the stock market,” he said, adding that such times will weed out the weak companies and help the better companies to grow.

Also Read: 

India: Kae Capital raises $30m for fund focused on local start-ups

India: Digital tech firm Shopsense raises pre-Series A round from Kae Capital, others

TrulyMadly secures $5.7 million in Series A funding

Funding will continue. Bigger challenge is for entrepreneurs to manage VC expectations: Kalaari Capital MD Vani Kola

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.