Apart from Indian startups that it terms as “enablers”, the Mumbai-based early-stage investment firm, which recently closed its second fund at $60 million, is also keen to invest in overseas companies that also have an India play.
Since its inception in 2011, Blume Ventures has invested in over 75 companies, including 20-odd companies from its new fund. It has also exits some successful exits. For example, four of its portfolio companies viz., TaxiForSure, ZipDial, Promptec and 1Click.io were acquired by Ola, Twitter, Havells and FreshDesk, respectively.
In an interview with DEALSTREETASIA, Sanjay Nath, who co-founded Blume with Karthik Reddy, talks about the current investment environment and the VC’s investment strategy and plans for its latest fund. Edited excerpts
Can you elaborate on your collaboration with Draper Venture Network
Draper has a separate venture fund, which is called DFJ, which is a part of the Draper family but a separate fund that operated in India for a couple of years and then in 2013 they sold their portfolio. Draper Venture Network is not a venture fund per se, but basically a platform for member funds. This is a strategic alliance, Blume will continue to be independent. What the alliance means is that our portfolio companies and Blume become partners with them, so we get access to their corporate network, which can help our companies to make in roads to expand into global markets, for future rounds of funding, co-investments with other member companies. It’s not becoming a Blume-Draper but what it’s becoming is a partnership with their global platform.
What does Draper gain from this partnership?
This is a different India entry strategy for the Draper network. They also have other member funds like Wavemaker for Singapore and some called Draper Nexus in Japan. What they are looking for is eyes and ears in India, to really look at early- stage companies that are coming out of India and looking at taking those companies global. So they’ve known us for a while, they like our portfolio, they’ve met some of the portfolio companies. They’ve seen our platform that we’ve built. We differentiate ourselves by the platform, we’re not just an investment firm but we provide a full stack. We help our companies with costing, hiring, back office support.
How is the deployment of your second fund coming along?
We have already started investing from this fund, with investments in more that 20 companies. Locus – a logististics platform company is one, online food delivery company Runnr is another which acquired Tiny Owl. In fin-tech we’ve done a couple of investments such as Chillr and Turtlemint. Sector-wise we are looking at a lot of enablers, for example we had not done anything in healthcare tech in Fund I. But now in fund II, we’ve done Healthifyme, which is like a B2C play, and we’ve done Tricog which is a medical devices firm. In the education-tech space, we’ve done Unacademy. We’re looking at a lot of enablers and not just horizontal and vertical in the e-commerce space, there are a lot of other areas too like IOT automation.
Any sectors that you’re keen on but haven’t invested yet?
Local content is now in demand. The larger theme now is Bharat, which is outside urban cities like Tier 2-Tier 3 cities, there is a huge area for anywhere from IT-Tech to fintech to local language. Look at our support structure, our drivers, our maids how are they going to consume content. So, I think those stories haven’t been written so far. We think video and audio has huge potential. We haven’t done much in agri-tech because we are not experts in that field. We think healthcare is big. IOT is interesting, we did Gray Orange Robotics from the first fund, we have done Zenetics now.
I think AI and machine language it’s too early. I won’t call them sectors by themselves but applications, they are tools which can be applied to other sectors like real estate and medical diagnostics, big data analytics. I think investors are looking at sectors much more broadly than what they were before. Earlier it was primarily e-commerce about 5 years ago.
How do view the current startup investment ecosystem?
A lot of people had started painting a doom and gloom scenario after the go-go years of 2014 and 15. However, the good thing is that most investment firms have raised further funds, including us, so there is two-three times the money than what there was earlier. Secondly, we are all investing with a little more scrutiny. The pace is a little more measured. Also, there is going to be a consolidation. According to a statistic, almost 80 per cent of all the capital deployed went to 6-7 startups be it Snapdeal, Flipkart, Ola, Paytm. Now I think there will be consolidation in the category leaders.
The good part is that now people are not becoming entrepreneurs just for the sake of becoming entrepreneurs. People are thinking very carefully before they leave their cushy jobs, before they venture out on their own. And the second thing is that founders are coming up with actual startup experience, not just corporate experience. For example, they might have been at an Ola or a Flipkart and they seen a product launch and they think they can also do something.
There has been a reality check, now there is a healthy dose of realism.
With a larger fund, would you also be interested in cutting larger cheques?
Our DNA is to enter at the seed and the angel stage but what we are doing with a larger fund is that we are following our winners deeper and we are continuing to support our companies, so from the earlier fund, which was a smaller fund, we had played very wide. We invested in more than 50 companies, and because we were a smaller fund, we did not have as much capital to keep investing. Now we will do that because it’s a larger fund with more mature companies, we will still do at least 35-40 companies, but we will have more dry powder to invested. And we will in some co-invest in some cases and we have co-invested with VCs in the past.
How much of the second fund have you already deployed?
Without getting into specifics, we have made at least 20 investments, so it would be around the half way mark in terms of the investments that we have made.
You have deployed a bit of the second fund, so would you look at a third fund any time soon?
One of the things that you see when you speak with with fund managers is deployed/committed. So, you may not have deployed but you may have committed, at least you’ve reserved it. For us also I don’t think we’ll do anything till next year, 2018. I think this year will be better than last year, we like to think that this year needs to be a year of outcome for everybody including Flipkart, Ola everyone. This year is going to be a lot of heads down focus on portfolio building, getting companies to the next stage, creating exits from the earlier fund.
There was a surge in the number of investors also coming in, anyone with money becoming an angel investor, large PE funds also coming in at early stages, do you think, that has also rationalised?
When the going is good, everyone rushes in and it’s been a reality check for everybody, angel investors, entrepreneurs, VCs everybody. So, now the angels and even larger funds that have cast bets are going a little slow till they realise an outcome. They will also be a separating of serious angels versus people who just have excess cash. And the value added angels are now focussing time on their portfolio. We don’t worry so much about competition, I think more the vertical-specific angels and investors coming in, which is very healthy. The positive is that only the serious will survive and only the serious will continue to play, because they will realise that it’s a long-term game it’s not easy money and right from founders to investors, only people who are serious are getting into the game.
Do you see a lot more collaboration and co-investment happening now?
Yes, it’s more now because people want to diversify their risks and they want companies to raise more money and have a longer runway and keep more dry powder.
How does 2017 look like for Blume?
We will continue at similar pace, I don’t think we’ll go too fast, but we also won’t be shy. The experts say the down turn is the best time to invest because the valuations are attractive, only the serious people are starting companies and it is a cliche that necessity is the mother of invention. It’s those times when the most innovative companies start at the end of a cycle, when people have lost money and that’s a great time to invest. So we will be measured, more than cautious I would say. And we will focus on helping the portfolio.
Would you be interested in investing companies overseas?
The caveat on that is that as long as there is an India angle, in terms of either India being a market and having backend and R&D it should be fine. We would not back a Silicon Valley company for the valley. As long as there is an India connection, we can.
Any regions that are on your radar?
We are very much an India-Focused fund, but also looking at India-tech going global. Earlier, going global meant going directly to the valley or say SE Asia. Now, a range of nearer-shore options have become attractive and on our radar screens for our portfolio companies. We are very bullish on Asia, because its near shored, its close to us, so Singapore, Malaysia, Indonesia there are a lot of companies that are interesting. US obviously. One untapped area is the Middle East. Indian investors really haven’t tapped it, theres a huge opportunity. 350 million population, very similar to southeast asian nations, similar to India. Egypt has a growing rural population. The focus outside India, is very much the US, South east Asia are good places to start. Japan is also interesting.
Overseas, would you be interested in alliances or venturing on your own?
For now, it will be on our own. We’ve got a big strategic alliance which is enough for us to manage right now as far as strategic alliances go.