Market liquidity has increased, will continue improving every year, says Lightbox’s Talwar

Sid Talwar at the Asia PE-VC Summit 2016, organized by DEALSTREETASIA, in Singapore.

Mumbai-based venture capital firm Lightbox India Advisors Pvt Ltd is focusing on strengthening its existing portfolio as it readies to raise a new fund.

Sticking to its strategy of a small portfolio, Lightbox spent most of the year working with and strengthening its existing investee companies. The investment firm signed only one new deal last year. In December last year, Lightbox led a $7-million funding round by Flinto Learning Solutions Pvt. Ltd, which offers activity-based learning kits for children under the Flintobox brand.

In April 2014, the firm launched two funds to invest in startups in the consumer technology space in India. Lightbox Fund I acquired equity stakes in GreenDust, ZoomIn, MapmyIndia, Paymate, FutureBazaar and Kotak Solar.

Lightbox Fund II was closed at $100 million in late 2014, as a fund for a concentrated investment portfolio of 7-8 companies with an investment horizon of 7-8 years. In late December 2016, it topped up its second fund with an additional $53 million, giving it further runway.

From its Fund II, it has already invested in around five companies including Embibe, tech-enabled fast food chain Faasos, furniture subscription business Furlenco, automobile marketplace Droom, and online jeweller Melorra.

Lightbox is reportedly looking to raise a new $100-million fund in 2018.

In an interview with DEALSTREETASIA, Siddharth Talwar, Partner at Lightbox Venture, provides a VC’s perspective to the slowdown in early-stage deals and what’s in store for Lightbox this year. Edited excerpts:

How do you view the year gone by for Lightbox and the industry?

2017 was a good year, in our Fund II every one of our businesses has raised the capital that they needed which is very good. A lot of the businesses are well on their way to profitability, which is also very good. There is a lot of stability in the future right now. We have a small portfolio, so it’s important for everyone in the portfolio to perform well. In 2017, the concern was more on the lines of how fundraising would go, and now the goal for businesses more than fundraising would be to scale bearing in mind profitability.

We made one new investment out of our Fund II, much later in the year as the concentration was more on our existing portfolio in the first half of the year. Overall we had a good year. 2018 will be a bigger roller coaster ride given all the things that can happen because a lot of them are keyed to potentially be big things, so it’ll be exciting to see.

You had only one investment in 2017, do you think you would look more actively for investments in 2018?

We don’t make that many investments in a year, the range is around 2-3 in a year. Three is also a lot for us in a year, so maybe two investments in 2018. We will also start seeing a lot of things happening in our current portfolio, which is a lot more fun for us.

Any new sectors or areas of interest that you might be keen on investing in?

I don’t see areas as being hot or not. Sectors being hot from a VC perspective has little bearing on our investment strategy. What we see in a sector may be different from what others may think is hot or not. We are still very gung-ho about the consumer space and brands. To a large extent we are excited about how products are being launched into the market where there are better and cheaper products with better packaging, be it in the beverage space or food space or clothing space. Brands are still very exciting, within which fashion is still very interesting, we are going to be looking in that direction. For us, anything within consumer from a revenue standpoint becomes very interesting. Also, (we are) excited to see other verticals in the classifieds space.

There was a slowdown in early-stage deals last year. How do you view the overall funding environment from a VC’s perspective?

I think there is a very robust ecosystem from an early-stage standpoint with a lot of angels coming in and bringing in money. A lot of family offices are coming about. People want to put money in early and at the seed level, which is a good thing. There was a tonne of deals that were taking place in the previous year, so there was deal flow coming in, compared to any other year. But, I don’t think there is much to read into that. There is a 10-year cycle. I don’t think anyone’s long-term strategy has changed from 2016 to 2017 or the previous year to this year.

Has the pile-up of dry powder and slowdown in deployment built up pressure from LPs?

I think there is a lot of dry powder in the market because there have been a lot of funds that have raised a lot of money. We don’t work on a timetable to say that this year we must do this. It is more of I have a timetable for a certain number of years, so either I find a good deal now or later, I can’t force myself to deploy capital. I don’t think anyone gets pressure from LPs unless there is something to be worried about, which is not a year by year thing. It’s over a longer period of time. I don’t think it’s people not wanting to fund. Media likes to look at it on an annual basis, but we don’t and I don’t think others look at it like that for their personal businesses or funds.

The exit environment has improved now, and with your portfolio also now maturing, are you ready for some exits?

At the right price and right way, we are always ready to look at potential exits. Business is as much about liquidity as anything else. You have to decide why you’re looking for an exit versus the potential of that business in the future. I think it’s an important distinction to make. In some businesses, if the right price comes up then we could consider it and in some cases, the businesses are very young. If you see the businesses that are providing exits to VCs, they have been around for a long time and rightfully so.

Cycles will become shorter but many of our businesses are still execution based businesses and building brands. They are built on the back of the time and effort that goes into building a business like that and then you reap larger rewards and that’s where we are reaching right now. If someone offers us something significant according to what we believe the value will be in the longer term, then sure we will consider it. We also know that we have a long horizon in our fund, we are only in year four and we still have many years. Having said that, the overall liquidity in the market has increased massively and will continue to improve every year.

What is the status of the new fund that Lightbox was planning to float in 2018?

In our business, we are measured by the potential success of our portfolio companies in the future on the basis of which we raise more capital. We always want to raise more capital and it’s a process. The larger global funds take a shorter time to raise the capital whereas for us, we take longer. That requires a lot out of us. We will raise a fund, but whether we start now or close in 2018 or 2019 is inconsequential. What is more important is that we have money to put into our businesses and new businesses.

What is the status of your new second fund then? How much of it is left?

We have money to put in new businesses. We have put in money in seven businesses so far, we have plenty of capital for 2018.

So you haven’t started raising capital for the new fund?

Not yet.

Also Read:

India-focused Lightbox may raise new fund of $100m next year

India: Lightbox raises $54m as extension to its $100m fund