‘ The bar to reach mid-stage and get funded has gone up a few notches’

Iron Pillar, a new venture capital entity that invests at Series-B and Series-C levels in start-ups, closed its maiden fund at $90 million (~6.7 billion). Managing partner ANAND PRASANNA tells Ranju Sarkar why he's targeting this segment and the investors' outlook towards India. Edited excerpts:

How is the current deal flow in the mid-stage market in India that you are targeting?

We are positively surprised by the steady increase in high quality of management teams, scalable business models and sound unit economics we see. The relatively tight fund-raising environment in India (except for late stage, $50 million-plus deals) ensured that the bar to reach mid-stage and successfully get funded was raised a few notches in the past two-three years. Despite that, more companies reaching there means the eco-system is evolving in quality at a very rapid pace.

Why did you decide to focus on this segment?

Our team’s background and experience is in helping companies with a

real business to scale up from the current size to its next few levels. We do this using our local and global networks, both in the West and East. Our team also has significant experience in helping founders and management teams find long-term financial partners, through private or public markets and strategic acquisitions. This skill set is also more relevant at mid-stage.

PE (private equity investor) firms are also investing in start-ups & e-commerce. Is there a gap in mid-market?

This is true in late-stage tech deals and profitable Ebitda (operating earnings) tech businesses with up to 30-40 per cent growth. But, the vast majority of mid-stage companies are still growing over 100 per cent year-on-year and are re-investing profits on growth. This makes it attractive for PE firms to invest in them only in a very late stage. In over 200 deals we evaluated in the past two years for our fund, we have never come across a PE fund evaluating a deal we liked against us. So, the gap is wide and probably increasing, with more good companies coming for capital raise.

Is there any change in LPs' (Limited Partners') outlook towards India? Any of your LPs investing first-time in India?

LPs are cautiously optimistic about India in general, with a better sentiment than three-four years earlier. Those with a long-term positive view of the market are more open to investing now with trusted fund managers. We have multiple LPs investing for the first time in an India fund. Seventy-five per cent of our capital is from global investors.

What types of companies are you looking to invest in? What do you look for?

We are more focused on truly innovative businesses, with solid management teams and execution track record to back. Our mantra is innovation plus performance. If one builds these key moats around solving difficult business problems, very valuable and long-lasting businesses can be built. We tend to dislike businesses where capital is the key moat.

“THE RELATIVELY TIGHT FUNDRAISING ENVIRONMENT IN INDIA (EXCEPT FOR LATE STAGE, $50 MILLION-PLUS DEALS) ENSURED THAT THE BAR TO REACH MID-STAGE AND SUCCESSFULLY GET FUNDED WAS RAISED A FEW NOTCHES IN THE PAST TWO-THREE YEARS”