Highlights
SUMMARY
In India, one of the earliest venture capital firms was ICICI Ventures, known for investing in Info Edge. In the mid-2000s, global platforms began entering the Indian market as capital started to globalise.
I began my journey in angel investing in 2011 and in 2014 earned recognition as one of the top 10 angels in India, alongside the late Sh. Ratan Tata.
The venture capital landscape is evolving rapidly, with capital becoming increasingly commoditised.
The Evolution of Venture Capital
When venture capital emerged as an asset class in the early 1970s in the United States, it aimed to provide patient capital. At that time, emerging technologies, such as microchips, required substantial capital expenditure (capex) and had the potential to commercialise over several years. This approach was an innovation within the financial sector.
As venture capital developed and began delivering results, it attracted a growing amount of capital. This trend paralleled the continuously evolving technological landscape, including developments in desktops, mobile phones, the internet, cloud computing, and currently, artificial intelligence. Investment sources expanded beyond affluent individuals and family offices to include third-party funds with access to institutional capital, significantly increasing the asset class throughout the 1980s and 1990s.
Venture Capital in India
In India, ICICI Ventures was one of the earliest players in the venture capital field. By the mid-2000s, various global platforms entered the Indian market as capital became more globalised. Throughout the 2010s, local platforms emerged, with ventures like Kae and Orios evolving from the Bombay style of angel investing in the 2000s. Many of these investors were part of Mumbai Angels or had achieved success in early internet ventures in India.
Growth of Operator Seed Funds
For operator seed funds to emerge, two conditions need to be met:
- Successes within the entrepreneurial ecosystem must occur.
- Capital must become more accessible for this asset class.
This shift started in the US during the 2000s and has become more prominent in India over the last 7-8 years.
My own journey in angel investing began in 2011, and by 2014, I had been recognised as one of the top ten angels in India, despite having made only 7-8 investments that year. The landscape for angel investment underwent a significant transformation in subsequent years, with many successful entrepreneurs entering the field. Some investors made hundreds of investments, while others opted for dozens. I witnessed numerous individuals, such as Kunal Shah (Cred), Ramakant (Livspace), and Abhishek (Tracxn), making several investments.
Some of us transitioned into institutional investing and established funds. Info Edge began investing from its balance sheet before evolving into a fund. I initiated my own fund in 2018, and over time, additional operator-led funds have since emerged. One of my motivations for starting the fund was to expand my impact as an angel investor. The companies I backed quickly outgrew my initial investment, and I wanted to align my objectives with the long-term success of these companies.
Micro VC Funds
Another segment of operator funds consists of micro VC funds, which bridge the gap between angels and seed funds. Many successful angels realised that other investors wished to collaborate with them, leading to the creation of micro VC funds.
This evolution has spurred the growth of operator-led funds. However, the later-stage operator-led funds remain limited, indicating that the market must further develop.
Market Dynamics and Operator Experience
The above overview illustrates how capital has flowed, cultivating this sub-asset class. There is also a complementary bottom-up perspective on how market needs have evolved.
Operators turned investors possess firsthand experience in business development. I founded Pine Labs in 1998, gaining invaluable insights while collaborating with banks. Similarly, when I established GlobalLogic and developed it throughout the 2000s, I acquired significant experience operating within the India/US corridor.
Many of these experiences remain highly relevant for startups today, particularly in the fintech and global SaaS domains. While technology advances rapidly, market behaviours, especially within enterprises, do not change at the same rate. For example, large banks in India today are not significantly different from their operations two decades ago. The lessons learnt regarding the Go To Market strategies in the US and India continue to apply.
Insights from Angel Investing
During my time as an angel investor, I recognised that although I held a minor stake, some companies successfully secured substantial investments from large global investors. Observing the interactions between founders and investors, I found their conversations with me differed significantly from those with global investors. They often sought my advice on immediate concerns, such as:
- Strategies to secure the next round of funding
- Building and managing their teams
- Handling their own pressures and key decision-making points
The global platforms contributed top-down market knowledge and connections, while I provided contextual, bottom-up experience. This synergy proved beneficial.
I continue to witness this dynamic in the investments we make through the fund. We strive to deliver operator-type value, effectively collaborating with platform funds that excel in top-down and breadth-first approaches.
Even in companies valued at hundreds of millions of dollars with multiple funds invested, different investors and board members offer distinct value propositions.
For founders, this environment presents beneficial dynamics, as both first-time and seasoned entrepreneurs appreciate our involvement. Building a business is challenging; we understand this and endeavour to contribute meaningfully whenever possible.
The Future of Venture Capital
The venture capital landscape continues to evolve swiftly, with capital increasingly becoming commoditised. This shift generates pressure to innovate, both in strategic positioning and execution. Ultimately, these changes will positively influence the ecosystem, fostering innovation and creating value throughout various levels.
There is a place for all types of investment strategies, including platform funds, niche sector-focused funds, and stage-specific funds. Operators are now integral across the board, introducing a unique flavour to the investment landscape.
