Micro funds fill a niche in India's startup ecosystem
Micro funds fill a niche in India's startup ecosystem.
Delhi-based small fund Quarizon is in the last leg of closing its second round of capital raise of Rs 20 crore to give startups a fillip to their humble beginnings, reports Times of India. Quarizon has just finished deploying its first fund of Rs 12 crore across eight startups in need for seed investments. The funding squeeze in the tip of the startup pyramid this year, may have slowed sentiment at the bottom too, but a new wave of investors, such as Quarizon, are slowly rising to fill the gaps. According to data from Venture Intelligence, Q3 2016 has seen a dip in early-stage investments with a mere 27 deals worth $22 million as against $33 million raised by early-stage startups in Q2. It is this problem that is being inadvertently addressed by the wave of small or micro funds such as Quarizon. The funds, with a corpus of anything between Rs 15 crore to Rs 100 crore, typically look at investments ranging from Rs 75 lakh-1.2 crore per startup.
But apart from funding, these firms also don the accelerator's hat. "We also guide them through the intricate business environment and statutory regulations and then take them (forward until) Series A or Pre series A after which we will exit," explains Rajiv Semwal, Principal Advisor at Quarizon. Micro funds such as Quarizon, LetsVenture, Venture Catalysts and Hyderabad Angels don't follow a set pattern when it comes to sectors and prefer to deploy investments across different areas such as QSR, Fintech, Media, Edutech, etc. But established early-stage investors believe a sector-agnostic investment mantra may actually be the best way to go, in this market.
"All VC funds -large or mid-size -invest across sectors; mainly technology but across sectors. In India, it may be too early for a fund to invest only in one sector," says Sasha Mirchandani, founder of early-stage investment firm Kae Capital. Experts believe the creation of micro funds is a result of the funding slowdown in larger stages that has forced traditional early-stage companies to write larger cheques, therefore leaving startups looking for smaller amounts of seed funding in a lurch. Rehan Yar Khan of Orios Venture Partners explains that when traditional early-stage firms are pushed to do larger rounds, someone needs to take up the mandate of writing the smaller cheques.
"At the end of the day, we can do only a fixed number of companies. Even if my fund gets larger, my bandwidth doesn't expand. I can't do more companies, I can do bigger investments," reasons Khan. But even with a small corpus, these micro funds are expecting significant returns at the end of 2-3 years. "24-36 months is a pretty reasonable time frame to expect to exit. In an average period of 24-36 months, and taking into account laggards as well as performers, (Quarizon) might just land up at a multiple of 2.5-3x when it comes to returns," says Semwal.