Amid the ongoing global pandemic, venture capital firm Inflexor Ventures managed to raise about $31 million (Rs230 crore), marking the first close of Inflexor Technology Fund, from investors such as SBICap Ventures, SIDBI, family offices and ultra-rich individuals.
Talking to DealStreetAsia on the fundraising experience especially when investors are treading cautiously and reassessing their portfolios, Inflexor Ventures partner Pratip Mazumdar said, after initial teething issues, the firm was able to convince its investors over multiple investment calls and manage to provide them with all the relevant information they [LPs] needed.
According to Mazumdar, limited partners (LPs) are showing interest in considering new primary investment opportunities. COVID-19 has accelerated digitization, technology-based automation and innovation, which is exactly the theme of the Fund-II, he added.
Edited excerpts of the interview:-
How difficult was it to raise funds for the technology fund amid the global pandemic?
Inflexor Ventures (Fund–II) is our second technology-focused fund. Our first technology-focused fund was called Parampara Capital (Fund–I), which started in 2015. The VC ecosystem, just like several other sectors, was impacted by COVID-19. Though we had some teething issues initially with the fundraising becoming completely virtual, things started to pick up around June with many new investors showing interest in our fund’s theme. With the continued support of our Fund – I investors and the new investors backing the fund’s vision, we marked our first close at Rs 230 crore (approx. $32 million), despite the current crisis.
What were the challenges that you faced when approaching LPs for funding, keeping in mind the weak investment sentiments? What measures did you take to convince them?
The first couple of months of COVID-19 threw the entire world into a bit of a tailspin with investors becoming extremely cautious. The mantra became wait and watch for new investment decisions, especially towards high-risk/high-reward investment products such as venture capital. Also, face to face meetings was not possible, which added to the problem. We realized that we will have to be a bit patient while potential investors digest the current crisis. We stayed in touch with them, got into multiple rounds of investment calls, and gave them as much information as they needed to help them make their investment decision. In the end, it worked out well for us, and we started getting commitments from both institutional investors and family offices & HNIs.
What are LPs expecting from their GPs in the current context? Has there been a change in their approach, and are they happy to close deals over virtual due-diligence meetings?
LPs expectations from GPs have not changed much – at the end of the day, they want GPs to make good investment decisions (albeit with some caution in the current environment). After initial hiccups, LPs around the country have adapted themselves well to the “new normal”. All our initial, as well as follow-on, fundraise meetings in the last six months have been virtual, including the LP due diligence process.
How did you convince LPs about your investment strategy?
The investment strategy of our Fund–II is similar to Fund–I, which is to back companies leveraging deep technology/IP and innovation as a differentiator. The overall performance of our Fund–I (including a couple of exits) and also our portfolio companies’ performance pre & during COVID-19 provided a good validation of our portfolio company selection. Out of 12 portfolio companies, seven have had a mark-up in their valuations in subsequent rounds. One of our cleantech companies is well on its way to achieving its target revenue for FY21, which is almost double of its FY20 revenues. One of our portfolio companies in the edtech space has a YTD revenue that is almost 4X of its revenue in last year’s equivalent period.
Are LPs still open to considering new primary investment opportunities, or are they fully engaged in assessing their existing portfolios?
In our experience, LPs are open and are showing interest in considering new primary investment opportunities. COVID-19 has accelerated digitization, technology-based automation and innovation, which is exactly the theme of our Fund. So that helped the cause, including the performance of the technology sector in global markets.
Which LPs are showing interest in investing in India these days – domestic or foreign?
Domestic LPs – institutional investors, family offices and HNIs – are all looking at the right and relevant opportunities during and post COVID-19 world to invest. Though foreign LPs seemed to pause a bit at the onset of COVID-19, lately we have seen renewed interest from their end as well.
Inflexor Ventures is yet to raise the full amount targeted for the new fund. How is the rest of 2020 going to be from a capital-raising perspective and when are you targeting the final close?
Since we have achieved a good first close, we are using our network to connect with various domestic as well as foreign institutional investors that are looking to back funds with a differentiated theme like ours in the India context. There has been continued active interest from family offices and HNIs like we saw in the first close. We expect that to continue as well.
While the closing of documentation may spill over post the commitments, we are looking at the next one or two quarters for the final close, if all goes well.
What are the other options for GPs that need additional capital for their portfolio companies?
For companies with decent traction and equity, venture debt has opened up quite a bit now in India and will become an important part of the funding options for portfolio companies. Outside of that, LPs are also stepping up to do bridge and follow-on rounds for portfolio companies.
What are the best practices to follow for startup founders at this point in time?
The focus should be on conserving cash and sustenance for as long as required, and they can get back on to the growth trajectory once they tide over this crisis. It is imperative that the founders be flexible, learn from the transformed customer/market dynamics, adapt to these changes as quickly as possible and go the extra mile for their customers.
Employees’ safety and morale should also be a priority in such unprecedented times. They should do whatever possible remotely and efficiently until things normalize.
What’s your outlook for 2021?
We are cautiously optimistic for the rest of 2020 to mid-2021. Post which, we expect a gradual return to normalcy of the pre-COVID business environment, but with some learnings from the current crisis and some changes on how things will get done – like accelerated automation, digitization and innovation.