Niche funds step up, backing STEM cos to prop-tech
According to group executive Mark Whelan, time is very much appropriate to grow in India
Specialized venture funds focused on emerging niches are rising in India, competing with larger sectoragnostic peers and signalling growing maturity in the country’s startup funding ecosystem.
Over the past 6-12 months, specialized funds have sprung up in sectors such as prop-tech, supply chain, media-tech, STEM and climate-tech, several executives and fund managers told Mint.
According to a Bain Capital report released this March titled ‘India Venture Capital Report 2024’, even as fundraising slowed to $4 billion in 2023, domestic VCs stepped up, driving more than 90% of the amount and, significantly, launching several funds focused on emerging themes.
While sector-specific funds have existed for some time, it is only now that they are taking centre stage, as investors become more discerning and look to make targeted bets in sunrise industries to maximize returns on capital deployed.
Newer funds such as Synapses, Spyre and Cedar Capital have joined the likes of Audacity, Caret Capital, SenseAI, and Good Capital, among others, in driving this trend.
“Thematic funds tend to create an ecosystem and help portfolios leverage the fund from a go-to-market perspective, so capital is differentiated and valued more by entrepreneurs and investors (LPs),” Pankaj Bansal, co-founder and managing partner at Caret Capital said, adding that many LPs use thematic funds to back innovative ideas to their own ventures and even acquire if opportunities exist.
Gurugram-based Caret Capital, a $50-million sustainability fund established in 2020, focuses on mobility, distribution and employment. Its portfolio typically comprises startups that are working on three aspects of the value chain—goods and services supply chain; human capital supply chain; and assets and infrastructure supply chain. Some of its companies include Mooofarm, which operates in the dairy supply chain sector; Xindus, which simplifies exports for SMEs; and supply chain solution provider Celcius.
Australia and New Zealand Banking Group (ANZ) is ready to bring more capital into its India business, a top executive said, as confidence grows that the domestic economy will attract global investments and grow at a steady pace.
One of the 45 foreign banks operating in India, ANZ currently has capital of about AUD 600 million ($386 million) which has nearly doubled in the past two years. India allows foreign banks to operate either as a branch or wholly owned subsidiary of the parent. All except two—DBS Bank India and SBM Bank India—work as branches.
“The time is very much appropriate to grow here. If you look at the basics of the Indian economy and where its place is in the world, this is India’s century,” Mark Whelan, group executive, institutional, ANZ said in an interview. “We think there is significant upside here, and we will therefore be here, and grow with our customer base.”
The lender’s total exposure to India was at ₹23,813 crore as on 31 December, of which ₹4,020 crore was in loans and advances. ANZ, which re-entered India in 2011 after exiting the market a decade earlier, has one branch each in Mumbai, Gurugram and Bengaluru.
According to Whelan, any addition to capital would be determined by how quickly the bank signs up new customers. The ANZ veteran said that among all its markets, India is the only one where the bank has increased capital over the last two years.
“We have been moving capital around to try and get more capital-efficient in every country, and there is only one country in our network where
we’ve increased capital and that is India,” he said. “We do not want to go and put a lot (of capital) in and then try and search for the business. We are better off getting the business and then adding capital and more resources and more tech.”
Whelan joined ANZ in 2004 and is also a member of its executive committee responsible for the bank’s global institutional business across 15 Asian markets as well as Papua New Guinea, Europe, America and the Middle East. The executive, now on a four-day visit to India, said he saw significant improvement in the ease with which he could leave the airport after all formalities and reach his hotel, about 18 km from where he landed, an indicator of how things have improved in the world’s fifth-largest economy.
“It appears to me that it is easier to do business here in a whole range of ways. Whether you are transporting goods across the country, the infrastructure investments, the legal system,” said Whelan, who last came to India in 2017.
ANZ’s push for more clients come at a time corporate borrowers are somewhat reluctant to take on more debt. In the last few years, they have been repaying large quantities of debt, after years of a credit binge that left many in trouble and at the risk of losing control of their companies.
Asked if he is witnessing a revival of corporate demand, Whelan said the appetite for debt is building. This phenomenon of deleveraging, he said, is visible in other parts of the world, including many developed nations, where corporate balance sheets are in the best shape.
Global corporations see India’s young and educated working-age population as an opportunity, and banks are no exception.
Many multinationals employ a large number of people in their global capability centres (GCCs) in India for captive technology support. ANZ’s India GCC is spread across two locations in Bengaluru. The bank has about 80 bankers and 9,000 GCC employees in India, accounting for 20% of its global workforce. It plans to increase the India GCC headcount by another 10-20%.