Enterprise technology-focused venture capital firm Exfinity Venture Partners has closed its second fund at Rs300 crore from a clutch of family offices, industrial houses and high net-worth individuals, including Rakesh Jhunjhunwala, India’s best-known stock market investor, said a senior executive at the firm.
The fund, called Exfinity Technology Fund-Series II, will be invested in artificial intelligence, cloud computing, big data analytics, cyber technology, Internet of things and mobile technology start-ups over a span of seven years, said Shailesh Ghorpade, managing partner and chief information officer at Exfinity Venture Partners.
The firm expects to close about 18 deals from the new fund. Exfinity has already made three investments from the new fund: Shotang, a business-to-business (B2B) marketplace; Locus, a logistics automation platform for enterprises to manage scheduled and on-demand deliveries; and MarianaIQ, which applies AI in B2B marketing.
“We have been very focused on enterprise tech when we raised the fund. We believe that is the key sector that is underserved. It does not get talked about much because a lot of hype is built around consumer tech companies. Entrepreneurs in the B2B space are far more mature, sane and respectful of capital and fairly focused on creating value and expectations of valuation are reasonable,” said Ghorpade.
Exfinity was launched in 2014 by technology industry veterans T.V. Mohandas Pai, a former board member at Infosys Ltd; V. Balakrishnan, a former board member and chief financial officer at Infosys; Deepak Ghaisas, co-founder of I-flex Solutions; and Girish Paranjpe, former chief executive at Wipro Ltd.
The firm typically invests $1-2 million in pre-Series A rounds. With the new fund, Exfinity will look to participate in follow-on rounds as well.
“Fund size plays a part. A larger fund size gives us the wherewithal to negotiate better deals. One of the issues we faced in the first fund was it was small. We can now follow through with Series B, which gives our portfolio firms a huge comfort,” said Ghorpade.
Enterprise software start-ups are fast becoming favourites of investors, who are keen to diversify their portfolios after many of their expensive bets last year on consumer Internet companies soured.
Apart from established venture capital firms such as Accel Partners and Sequoia Capital that are increasing their investments in enterprise start-ups, new funds such as Ideaspring Capital and Utilis Capital are launching with a sharp focus on enterprise deals, Mint reported on 17 May.
As firms become increasingly comfortable buying software on the Internet, Indian enterprise start-ups such as Freshdesk Inc. are rapidly expanding in international markets without necessarily building large, costly sales teams. In India, too, small businesses as well as consumer Internet firms are spending more on digital solutions provided by enterprise start-ups.
Besides, they need far less cash to expand as compared with cash-heavy, loss-making consumer Internet start-ups.
For Exifinity, which wants to stay invested in a portfolio for about four-five years, most of its exits in the enterprise technology segment will come through acquisitions by larger technology companies.
“In enterprise tech, exits will be largely through mergers and acquisitions. We do not see many companies in the enterprise tech space doing an initial public offering. Most of these companies are bought for a technology. They focus on building technology, creating intellectual property and basis that, there are several larger companies looking for acquisitions,” said Ghorpade.
A lot of venture capital firms have raised new funds in the past two years. For instance, 2015 was marked by firms such as SAIF Partners raising $350 million, Lightspeed Venture Partners raising $135 million, Nexus Venture Partners raising $450 million and Kalaari Capital mopping up $290 million. In 2016, Sequoia Capital raised $920 million, while Accel Partners secured $450 million, which essentially implies that despite a slowdown in funding, there is a lot of money to be deployed in early and mid-stage start-ups.