Home-grown venture capital (VC) fund Zodius Capital is raising a follow-on fund of $35-40 million (approximately Rs.233-266 crore) to invest in niche e-commerce, financial technology (fintech) and business services start-ups, a senior executive told Mint.
According to Gautam Patel, managing director at Zodius Capital, the firm has already made a first close of $30 million for the new fund, called Zodius Technology Opportunities Fund.
A fund-raising firm announces a first close of its funds so it can release the fund and start investing. It will continue to seek funding commitments till the final close.
The new fund is an extension of the $110 million Zodius Technology Fund, which it raised last year. Zodius has invested in nine start-ups from that fund. It is an investor in grocery start-up Big Basket, online furniture seller PepperFry, online lingerie store Zivame and media start-up Culture Machine.
The fund-raising comes at a time when India’s start-up ecosystem is facing a slowdown in funding and a pickup in consolidation activity. Since January, 13 consumer Internet firms have already been acquired by peers, show data from VCCEdge, the financial research platform of VCCircle. Such deals saw a surge last year with 53 transactions reported, according to the data.
“We still feel that there is a very good opportunity in the market right now to continue investing growth capital in digital, technology and business services companies,” said Patel.
The current slowdown in the market is a big opportunity for investors, Patel said. “The quick capital has left the market. Valuations are becoming more realistic and promoter expectations too are becoming more realistic. Companies are focusing on stronger and better financial metrics and there is less clutter in the market,” he said.
While Zodius will make fresh investments from the fund, part of the new fund will also go towards meeting the capital needs of its existing companies.
“We feel that there are companies in our portfolio where we would like to put more money in the next 12 months and our deal pipeline is quite deep right now where we can invest in three new companies,” he said, adding that Zodius is looking at a total of six investments from the fund.
The follow-on fund has been raised from both domestic and foreign investors, with domestic investors putting in $22 million by the first close. Most of the domestic investors are existing family offices and high-net-worth individuals.
“We try to differentiate ourselves by giving our investors the opportunity to co-invest in our portfolio,” said Patel.
The fund is looking to invest in sectors such as media technology, education, fintech and niche e-commerce.
“Within fintech, there is a significant amount of opportunity for disruption in areas such as payments, remittances and credit scoring. Credit scoring with mobile phones, given the data you have access to on a mobile phone, along with a social layer on top that, gives a very unique view on credit score as opposed to the traditional credit scoring,” said Patel.
According to Vishal Pereira, managing director at financial advisory firm CreedCap Asia Advisors, there are much better deals available in the market today for investors. “Last two years were an aberration where a lot of unviable models and ideas got funded. Over the next 12-24 months, we will see much better business models emerge. Profitability or a vision of profitability has become important for investors,” he said.