Driven by growing demographics and expanding opportunities, the state of Indian venture capital (VC) is set to evolve. This is paving the way for the creation of special funds and a growing pool of internal capital for later-stage investments, according to the investment team. .
The early-stage venture capital firm, founded in 2017 by Alok Goyal, Rahul Chaudhary and Ritesh Banglani, recently announced the final close of its third funding round at $300 million. The company also announced the promotion of Naman Lahoti from vice president to partner. Before joining Stellaris in 2019, serial entrepreneur Helico was the co-founder of Foodlabs.
With this fresh capital, the firm is bullish on exit opportunities in the Indian market as the timeline for successful exits continues to shorten, creating favorable conditions for investment and returns.
“I think of India as a late-stage company – we’ve done PMF (product-market fit), we’ve done Series B, we’re probably somewhere around the D or E stage where it’s all about execution,” Choudhary said. your story Founder and CEO Shraddha Sharma in an interview.
“It is our job to score in the next two decades. The potential of the digital economy, the GDP is very high, if we continue to implement it in the right way,” he added.
Having a ringside view of the growth of the Indian startup ecosystem over the past decade, Stellaris and its partners believe that as the quality of startups matures, Indian venture capital is moving towards creating specialized funds, both in terms of stage and sector.
Outlook for India’s Venture Capital Ecosystem
Stellaris, which typically leads seed and Series A rounds, has seen a timeline for good exit compression over the years.
The firm invested in a Series A round of omni-channel personal care company Honasa, which owns and operates And its home of brands, in 2018, saw a remarkable return on its investment. The firm has cashed in Rs 800 crore from its initial investment of Rs 25 crore, and continues to hold an unsold stake in the company.
“The first wave of companies took 15 years to launch or do an IPO. We invested in MamaEarth in mid-2018 and it went public in 2023. So, in five years, from our Series A. That timeline is being compressed and, hopefully, five to seven years is about the right time for good results to be published. But if you are a venture firm, there remains a 10-year window from entry to exit,” Chaudhary added.
While Stellaris itself has been a sector-agnostic early-stage firm, Chaudhary added that there was a need for experts.
“We’ve seen the amount of capital increase, and with that, the number of more specialized strategy funds will come. They need to operate with specific stages or sectors that are coming, as opposed to generalists,” said Lahoti.
As the number of funds increases, the next five years will also see the rise of more India-specific late-stage funds for Series D and subsequent investments.
Factors Shaping Strategy
Opportunities for investors have also expanded in proportion to the depth of the Indian market, leading to changes in venture strategies. As the ecosystem matures, venture firms are focusing on specific investment strategies tailored to specific sectors, stages of growth and quality entrepreneurs, says Ritesh Banglani, partner at Stellaris.
“When we started in 2017, we were only able to focus on technology-led investments at the seed and Series A stage in India because the opportunities in the space are substantial,” Banglani said.
He added that Stellaris’ strategy is based on the principles of focus, discipline and depth. “The advantage of doing one thing is that you can do it well. It allows us to be disciplined in our portfolio, consistently doing seven to eight deals a year, with a high in 2021 and a relatively low in 2023 – because the quality of entrepreneurs that come in each year has improved. ,” Banglani added.
Stellaris has been able to build regional expertise in key sectors of the economy over the years as deal flow remains steady.
Indigenous capital and the India opportunity
With the increase in opportunity, the share of domestic capital has increased in new asset classes beyond real estate and gold. Apart from domestic capital playing a key role in investing in private companies, the appetite for India as an investment destination for global capital is growing.
“We have been actively pitching to LPs (limited partners) investing in venture capital funds for 10-11 years and outside the US, India is the only viable venture market. China was great, but it has retreated. India is the only option for people looking to diversify away from the US market,” said Goyal. He added that a stable policy framework, growth in the underlying economy, work on Digital Public Infrastructure (DPI), and a young demographic make India an ideal destination for investment.
As the Indian startup ecosystem matures, bold bets are being made to build global businesses outside India, Goyal said.
Stellaris Investments A Gen AI-led content creation platform, and The AI platform for UI developers, both based out of San Francisco, points to a growing focus on global markets.
With these new businesses, the risk appetite is increasing when it comes to startup ideas as well as the capital to support these concepts.
“When we invest, 80% to 90% of bets don’t work. Ours is a high risk bet. With the advent of repeat entrepreneurs in India, growing product orientation, democratization of technology globally and late stage capital, bold bets are being made,” added Goyal.
With these factors at play, India’s future as a recurring market capable of returning capital through meaningful exits remains stable in the times ahead.