Young VC Brigade Gains Ground in Indian Startup Ecosystem

From the amount of funds invested to the creation of new unicorns, 2021 has been record-breaking in many ways for the Indian startup ecosystem. A trend spotted over the past year, which hasn’t been talked about much, is the role played by young venture capitalists.

Venture capitalists usually have more than two decades of professional experience and are equipped with elaborate structures. However, over the past two years, a new breed of young venture capitalists has emerged. These VCs have smaller teams and are also agile in their approach which usually comes in at an early stage.

The LetsVenture Startup Outlook report on the trends it observed in 2021 notes: “An interesting trend that emerged this year was a younger group of investors and an older age group of founders. In previous years, the startup ecosystem has largely seen seasoned investors and young founders dominate the industry. However, due to a plethora of factors in the startup landscape such as Zomato’s IPO and the accelerated pace of ESOP takeovers which have created a new set of founders and investors, the roles have changed. .

LetsVenture further notes that year over year it has witnessed a 75% increase in new angel investors with no prior experience in the field signing up on the platform, while the same figure for experienced investors stood at 77%. For the report, LetsVenture analyzed data from over 7,000 startups and investors who registered on the platform in 2021.

Venture capital start-ups are usually formed by founders who have gone down the angel funding route.

Adith Podhar, founder of Inasmuch asCapital GembaInasmuch as, a micro-venture capital fund, tells Yourstory: “The experience of angel investing has given us the confidence to start our own fund and we are now able to land good deals because we can relate businesses of the new era.”

In addition to Gemba Capital, Rockstud Capital, Sparrow Capital and Speciale Invest, among others, are venture capital micro-funds managed by people under 40 years of age.

Gemba Capital has made 33 seed investments across the four sectors since 2017 with a typical funding value of around $200,000 per company. It typically gets involved in the pre-seed and seed stages while Bengaluru-based Sparrow Capital bets up to $100,000 per company and has made around nine investments since its inception in July 2020.

These young VCs believe there is so much action in the Indian startup ecosystem that it is possible for them to carve out a place for themselves.

Abhishek Agarwal, founder of Inasmuch asCapital RockstudInasmuch assays: “We are very comfortable with the risky model of these new-age companies and patient enough to see them mature. This is what sets us apart. »

With a ticket size between Rs 1 and 2 crore, Mumbai-based Rockstud Capital has invested in nearly 10 startups and plans to close the fund size at around Rs 50 crore. It typically invests in sectors such as edtech, healthcare, consumer internet, among others.

A new approach

Young VCs also have a different approach to connecting with startup founders. They don’t bury entrepreneurs with excel sheets, but rather try to connect with them on a personal level.

Moreover, they are also very accessible which may not be the case with a conventional venture capital firm.

Adith says, “We treat startup founders as our friends and they can be vulnerable to us, which might not be the case with a traditional venture capital firm.

There have been instances where startup founders have been unable to secure commitments from a large venture capital firm as they have to follow certain processes while micro venture capital funds have been able to quickly invest in the capital.

Abhishek, who comes from an entrepreneurial background, says he relates to the pressure a startup founder typically faces when building a business.

“We don’t focus on an excel sheet, but try to understand what the founders want to build. We bring comfort rather than chaos,” he remarks.

Today, the aspiration of any startup founder is to have three significant constituencies on their capitalization table – a large venture capital firm, a micro venture capital firm, and a top angel investor.

A large venture capital firm gives the startup the opportunity to raise the next round of funding while the micro venture capital firm steps in during urgent needs while an angel investor acts as a mentor or active collaborator .

Madhur Singhal, managing partner and CEO of Praxis Global Alliance, believes that this breed of young venture capitalists plays an important role in India’s growing startup ecosystem.

“These type of investors actually lean into the whole structure because there are a variety of businesses that require different types of capital,” Madhur says.

According to Madhur, many companies don’t promise or show the 100x level of growth that conventional venture capital firms seek. However, many of these startups have a respectable annual growth rate of 25-30% and need capital.

It is in this type of space that this new breed of investor plays an active role.

Family offices bet big

Recent years have also seen family offices keen to put their money into startups. These bets are usually handled by the younger Scions.

Adith says, “Today there are many more opportunities to raise capital from HNIs and family offices.” He adds that it is not easy to manage your own fund unless you consider it very seriously as a career path.

There have been instances where founders of successful startups have launched their own investment funds, but there is also a caveat that this may not be the path to guaranteed success.

As one VC put it, “The mindset of a startup founder is very different from that of an investor. It’s hard to make that transition. »

The current environment for the emergence of new-age types of venture capital may also be the function of available capital in the ecosystem.

Abhishek says, “During any funding boom phase, especially now in the startup segment, we see a lot of new investors coming in, but you have to look at how things are going where there is a correction although there is no there are no such signs yet.”

Right now there is momentum across the whole startup ecosystem with new innovative companies emerging and different breeds of investors willing to back such ventures and there is unlikely to be any. have a change.

“With the growing awareness and popularity of startups, LetsVenture expects that in 2022, new angel investors will overtake experienced investors,” states the investor platform.

Edited by Affirunisa Kankudti

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