Avataar Capital Management, led by former Norwest Venture Partners (NVP) executive Mohan Kumar, has floated a $300-million venture capital growth fund to bet on business-to-business (B2B) and software-as-a-service (SaaS) companies in India and Southeast Asia.
Global private investment firm HarbourVest Partners is the sole sponsor of the fund.
The fund – Avataar Venture Partners I – will focus on making $10-30 million growth-stage investments in companies that have at least $15 million of annual recurring revenues and are looking to scale globally, Avataar said in a statement on Monday.
The fund has already acquired stakes in six B2B, SaaS companies, namely Appnomic, Capillary, CRMNext, ElasticRun, Manthan and Zenoti from Norwest Venture Partners, it added.
“The focus of the fund is primarily India as it is the hub for B2B and SaaS startups. While over 90 per cent of the fund would be invested in India, it would also look at deal opportunities in other Asian markets including Singapore, Indonesia and Vietnam,” said Kumar in an exclusive interaction with DealStreetAsia.
“While we have already invested in six companies till date, the fund would look at a maximum of 10 more investments,” Kumar added.
At NVP, Mohan advised investments in Attune Technologies, Borqs, Capillary Technologies, CRMnext, iProf, Manthan Systems, NationWide Primary Healthcare Services, Ovum, Perfint Healthcare, and Zenoti. As an angel investor, he is active in helping startup companies in areas of mobile solutions, content and applications.
Apart from Kumar, other key partners in Avataar include Nishant Rao, ex-COO of Freshworks.
According to Kumar, capital is merely not enough and startup founders today need additional support in terms of operational management.
“We really need to work with the founders, help them primarily in sales and marketing, with CXO level connects, and deeply with product road map and sales process planning. Avataar will provide capital, and this support as well.” Edited Excerpts:
Have you started raising the fund already? Who are the limited partners?
We have already raised close to $300 million, and have no intention to increase the size further. It’s a 5 +1 year fund. The main LP is HarbourVest . They are the largest LP in the world with about $64 billion worth of assets under management.
In total, how many investments are you targeting from this fund?
Our investments will be spread over the next 18 months, and we will look at a maximum of 10 more companies.
What is the purpose behind launching Avataar? Who are the other key partners in the fund?
I left Norwest in December 2018. At that time, my purpose was to raise a fund for B2B and SaaS companies. It took me about 7-8 months to close the deal. I got in another partner, Nishant Rao, who was the COO of Freshworks. You will see at least two more executives joining the top management in the next two months.
What was the thought behind naming it ‘Avataar’?
Avataar means the next phase of one’s life. It’s another version of you. This fund is basically focusing on companies that have raised money and are now looking to grow on exit whether through an M&A or an IPO. Unlike a consumer, a business has to scale. We will come in when a business is at least making $15 million in revenues. From this, going to a $100 million would require companies to mark themselves and show their next avatar in order to scale and go global.
Typically, you will find that they have $110 million in one geography but that’s not good enough. I don’t think SEA as a market can sustain $100 million dollar revenue companies. Moreover, they may be good in one market, but are unable to expand in others. And that’s where most companies struggle. So, the next avataar for them is to go global, that’s where we step in. That’s why the name Avataar.
We do not have many growth-stage funds in India? What was the trigger behind getting into this space?
We felt a strong need for capital in this segment. There are 500 plus companies in the Asian market that are funded, but a majority are below $5 million in revenue. While there are a lot of B2B, SaaS companies, there is not enough to follow through, both in terms of capital and health.
We are an operationally-focused fund that provides capital and also expertise. There’s a need for such specialty funds today. The previous time was all about doing everything for everybody. The time has come where you could specialize.
When the entire economy is going through a slowdown, how right is the time to start a new fund?
Our fund is focused on the global market. It is not necessarily tied-up to the Indian economy. Global economy is witnessing a much slower growth than the Indian economy. There is a need here. If you look at the Indian ecosystem, there are a lot of early-stage funds and they do almost everything. If we come to the later stage, say Series C and beyond, and deals ranging between $15 million and $40 million, there is a paucity of funds that are focusing on B2B and SaaS companies. While there are a lot of funds on the consumer-side like Tiger Global and SoftBank, there are a very few are focused on these segments. And that’s why we launched it.
But even Tiger Global has been looking at B2B and SaaS startups very actively?
That’s of late. It’s only in the past 2-3 months that Tiger Global has started looking at these segments. Before that, they were not present in this space.
We believe to be successful here, money is not enough. I was a part of Norwest, and looked after their B2B and SaaS portfolio. It also requires an operating mindset. There, partners have scaled companies, have actually been part of a startup, and worked with large companies. They have helped scale companies from $10 million to $100 million. In ten years, how many companies have reached $100 million? The only one we can think of is Freshworks. Unlike in consumer where you can throw capital and expect to grow, it is not possible in B2B and SaaS. We really need to work with the founders, help them primarily in sales and marketing, with CXO level connects, and deeply with product road map and sales process planning. Avataar will provide capital, and this support as well.
You said Avataar is a global fund. Which other markets, apart from India, would the fund be targeting?
The focus of the fund is primarily India as it is the hub for B2B and SaaS startups. While over 90 per cent of the fund would be invested in India, it would also look at deal opportunities in other Asian markets including Singapore, Indonesia and Vietnam. I don’t see too many deals coming from these regions. There will be few, but we will not ignore them.
In B2B and SaaS space particularly, how do you compare SEA with India? Also, within these segments, what business models would you be specifically looking at in SEA?
India is way ahead in SaaS and B2B in terms of the number of companies and opportunities. The focus areas in India and SEA would include software, mobile technology, healthcare technologies, aggregators for businesses like B2B markeplace. So, basically anything which sells to a business and not the consumer – it can also be supply chain optimisation, can be aggregation of goods for instance, helping them discover prices and become more efficient.
Apart from the revenue, what are the other shortlisting criteria for these startups?
So that’s it. We have to sell to a business with at least $15 million in recurring revenue. Other than that there’s no restriction.
You have worked with Norwest for a while. Any learnings at Norwest that you would apply here?
The key learning is that we have to go global. We can’t restrict the companies to geographies. Secondly, you need a lot more operating partners, which means a lot more people who are hands-on, who can help companies in multiple areas. Somebody who has done sales in the US is important. Besides, people who have board-level experience and have worked with CXOs, because they are the decision-makers, are also important. So, there are people like consultants and partners in Mckinsey that help drive such businesses.
The deep-diving insight into the company that we have can help in sales development and product management processes. If you don’t have people in all these areas, you are leaving a big chance. At the same time, you cannot work with too many companies. We can do maybe 8 to 10 companies. Beyond that, it will be a stretch. If you do, you will get into the same problem of not giving enough time and attention. Focus on operating vendor mind, and work with your companies. First $5-10 million can take three years or even 10 years. Question is, what after that? That’s a highly risky phase. That’s the phase where a lot of companies struggle. At that stage, you need more bandwidth to help them. They might be having one partner doing five different areas.
Your take on the overall slowdown in VC investment activity?
We have to separate the early-stage VC investments from that of late-stage. VC investments are agnostic of what is happening today because normally investments have a life-span of 3 to 5 years or even 10 years. So, venture investment cycle may not be directly related to the current economic situation. But valuation, yes, could be linked to some extent. What price one offers is kind of co-related, and it may be high in one quarter and low in the other. Investors might want to wait for a quarter and then come back.