About four years ago, Mukul Singhal and Rohit Jain, then fund managers with private equity firm SAIF Partners, started experimenting with a new investing model. Every time they invested in young start-ups, they would try to bring angel investors with specific domain expertise on board as co-investors. The idea was to build an enabling ecosystem that extended beyond capital around the start-ups they backed. That experiment is now the core operating strategy at Pravega Ventures, the venture capital firm Singhal and Jain founded early last year after they quit SAIF.
Headquarters: New Delhi
Target fund size: $30 million
“At SAIF, capital was obviously not a constraint. But we still got angels involved so that founders could get the help they needed at different stages,” says Singhal, who led seed- and early-stage investments at the Gurgaon-based private equity firm before starting Pravega.
Examples of deals at SAIF that took the ecosystem approach include mobile analytics platform Appiterate and Industrybuying, an online marketplace for industrial products. In Appiterate, SAIF co-invested in a $500,000 seed round with a number of angels, including Greg Badros—former vice-president of engineering at social network Facebook. The start-up was acquired by Bengaluru-based e-commerce firm Flipkart in early 2015. It entered Industrybuying with a $2-million seed investment in February 2015. A few months later, the company raised an undisclosed sum from the Chennai-based Murugappa Group’s family office and other angels.
While Singhal and Jain had a fairly successful run at SAIF, they soon realized that in order to seriously pursue their passion for early-stage investing they would have to venture out on their own. SAIF is largely a growth- and later-stage investor and early-stage investments are at best an opportunistic strategy. For instance, before India’s start-up market slipped into a downturn in late 2015, SAIF was one of the most prolific early-stage investors in this market, especially at the seed stage. Like many of its peers, it pulled back from early-stage investing when the downturn rendered valuations in growth-stage companies more attractive.
The downturn, however, spelled an opportunity for Singhal and Jain. Since large firms such as SAIF, Sequoia Capital and others had started to cut back on seed-stage investments, there was suddenly a gap in the market that needed to be plugged. “With Pravega, we are continuing with the ecosystem strategy we had pursued at SAIF,” Singhal says. Jain and he are currently on the road to raise their $30 million debut fund. He declined comment on when they expect to shore up the initial tranche of commitments, commonly known as the first close. However, he expects about 30% of the first close to come from friends and HNIs (high networth individuals). The remainder is being tied up from corporate investors and family offices. The fund is also in line for an allocation from the government’s $1.5 billion Fund-of-Funds for start-ups. About 30-40% of the first-close corpus, he says, will come from domestic investors.
The fund plans to target start-ups at the seed- and pre-Series A stages and will invest anywhere between $250,000 and $1 million in each start-up. It has already closed a few deals. The ones that are known include agri-tech firm Crofarm, artificial intelligence start-up Innoveaccer and expense management software start-up Fyle Technologies. Given the early stage and small ticket sizes planned, getting the ecosystem strategy of investing into play becomes extremely important for Pravega. Start-ups at the seed and pre-Series A stages will invariably require follow-on rounds of capital fairly quickly. While that isn’t a problem when capital is available in abundance, things can get difficult even for the best start-ups during a downturn such as the one currently underway.
Despite those challenges, which both Singhal and Jain expect to weather without much difficulty, Pravega has no ambitions of becoming a large, multi-stage venture capital firm down the road. “The dream, in 10 years, is to become a venture capital firm that is the first investor into any new idea. We’d like to remain a concept-stage investor,” says Singhal.