Cactus Partners, a Bengaluru-based venture capital firm, funds startups in the growth phase. Founded in 2021 by Rajeev Kalambi, Anurag Goel, and Amit Sharma, the firm says it focuses on an underserved segment of startups that have experienced early growth but require additional support to progress from a Series A to Series C stage. In a conversation with businessline, Kalambi, General Partner, says the firm targets building a high-conviction portfolio rather than relying on a power-law approach to investing. Edited excerpts.

Q

What is your fund thesis?

We aim to support startups in their fast-growth phase as they transition from Series A to Series C, typically stepping in with investments between $5 million and $10 million at the late Series A to early Series B stages. Our focus is largely sector-agnostic, though we prioritise investments in three key areas — clean- and climate-tech, which we view as imperative; the health sector, which remains perennial; and enterprise software and tech manufacturing.

Q

What is your fund size? How many startups have you invested in so far?

We are currently investing from our first fund, which we launched in 2021 and completed in December 2023, raising a total of ₹630 crore. We currently have six companies in our portfolio. Furthermore, we plan to build a portfolio of 12-15 investments. We expect to fully deploy three to four remaining investments by mid-2025.

Q

What is your criteria when selecting ventures for investment?

The selection criteria broadly involves a three-pronged strategy. Firstly, we invest in companies that have established product-market fit, meaning there must be a product, service, or offering already performing well. We aim to guide them through their growth journey, helping them reach the next stage.

Secondly, we look at companies and their initial revenue traction, and strong month-on-month growth.We also primarily focus on business-to-business (B2B) rather than business-to-consumer (B2C) companies, as B2B allows us to better assess client renewal rates and track attrition.

Finally, we examine pricing to see if clients are paying a rate that allows for high gross margins. High margins enable sustainable scaling and a path toward EBITDA-positive status. Most companies we invest in are not EBITDA-positive at the outset, but strong unit economics reassure us that our capital goes toward growth rather than merely keeping operations running.

Q

What kind of handholding do you offer? Do you take up a role on the board?

We prefer to take board seats and work closely with founders on their growth journey. Our goal is to bridge the gap between a company’s potential and its actual performance over a four- to five-year period. Our support includes guiding companies in leveraging technology to drive growth, strengthening branding and marketing, refining organisational design, and providing resources through specialists and professionals who collaborate with the founders to create a strategic roadmap.

Q

What is your preferred exit strategy?

We have successfully achieved one early exit to date. Our preferred exit strategies encompass strategic acquisitions by corporations seeking high-value assets that align with their long-term objectives; sale of stakes to private equity funds; and IPOs [initial public offering]. While IPOs represent the most desirable outcome, not every company may scale to the level required for a public offering. In such instances, we explore opportunities with private equity funds that identify significant growth potential, positioning them as strong prospective buyers.

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