Bharat Innovation Fund focuses on early-stage IP-led Indian deeptech start-ups that have global potential. It has invested 70 per cent of its ₹500-crore fund in 14 start-ups in the domains of healthcare, agritech, fintech and mobility. Shyam Menon, a co-founder of the company, spoke with businessline about the investment scenario, the fund’s investment strategy, and what start-ups should do to continue attracting venture capital (VC) funding in a not-so-bullish scenario. Edited excerpts from the interview.
What’s the mood in the VC community given the current geopolitical situation and macroeconomic conditions?
Very cautious, for sure. You can’t blame anybody. People are generally bullish about India’s prospects globally, because we are a country of one billion people with room to grow. Whereas in China, for example, a lot of things are already in place. They’ve built infrastructure (and many other) things. Whereas in India that is still happening.
The per capita income is moving towards $3,000. Disposable incomes are growing.
Slowly we are getting to a point where we can become a sizeable market. And that is why international capital is looking to come in, more and more. We are where China was 10-20 years ago. The US, the UK and China have reached saturation for many things. India becomes the driver for global growth.
Why are VCs attracting mostly global capital and not enough domestic funds?
Yes, 90-95 per cent of VC money is international or US-based endowments, pensions and other funds. All the new businesses of tomorrow are being built by this asset class, which is considered high-risk. It gives far higher returns than traditional instruments like FDs [fixed deposits] and mutual funds. So if the country doesn’t support this asset class, that’s an issue. I mean, that has to happen. It is steadily increasing, though. The Union Government has two fund-of-funds. But we expect to see a lot more Indian institutions, banks, insurers, asset managers, and wealth managers allocating more capital to this asset.
What should founders do to attract investors in such tough situations?
If they have, for example, spent a lot of money or hired a huge team in the post-Covid phase, when massive capital was coming in, perhaps it’s time for a relook — how to right-size the business (and find) a pathway to profitability.
If you can make revenues and become profitable but are still just spending to create new opportunities, then this is the time to cut down and focus (on the core) because of the macro scenario.
What’s your current fund size and how much have you invested? At what stage do you invest?
We have made 14 investments in deeptech startups from the ₹500-crore Innovation Fund. Another fund, called Inclusion Fund, has equity of ₹100 crore and a ₹100-crore grant component, too. The Inclusion Seed Fund looks at India stack stories, with a focus on consumers here. While investments in the inclusion funds go up to $1 million, in the main fund it goes up to $4-5 million. We have invested 70 per cent of the total fund. We will use the rest for follow-up investments. We invest in the pre-Series A to Series B stage.
Have you made any exits so far?
No, not yet. All the investments were done over the last four to five years. The companies have to grow. There is no point in trying to exit too early. Hopefully, we are looking at exits in 2-3 years.
Are you working on your third fund?
In another year or so we’ll kick it off in the $100-million range. It will also depend on the existing macro, conversations with our existing investors.