Niche funds step up, backing STEM cos to prop-tech

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.