India’s two esteemed colleges, IIT (Indian Institute of Technology) and IIM (Indian Institute of Management), are intrinsic parts of the world’s third largest startup ecosystem. Since many startup founders in the country are alumni of either college, there is a deep bond between them and these educational institutions.
Mumbai-based venture capital firm IvyCap Ventures has capitalized on this bonhomie to source quality deals. The nine-year-old fund was founded by Vikram Gupta, an IIT Delhi graduate. It started investing in startups in 2013 from its first fund of USD 33 million and exhausted the corpus by 2015. IvyCap raised USD 75 million for its second fund, and has backed more than 30 startups.
Recently, it sold a part of its stake in a direct-to-consumer (D2C) beauty and cosmetics brand Purplle, gaining a 22x return on an investment of USD 2 million, its largest exit so far.
We spoke with Vikram Gupta, managing director and founder of IvyCap Ventures, to learn more about the fund and its investment strategy. Gupta told KrASIA that IvyCap is in the process of raising USD 200 million for its third fund, from which it will invest in Southeast Asian startups as well.
The following interview has been edited for brevity and clarity.
KrASIA (Kr): With the partial exit in Purplle, IvyCap is already having a great year. How does 2021’s deal flow look for you?
Vikram Gupta (VG): Our investment of USD 2 million from a USD 33 million fund has reaped us a return of USD 45 million. We are quite excited about this exit, which we think is fairly healthy and exhibits a sign of maturation in India’s ecosystem.
Although we mostly do Series A and B investments, we recently floated an angel fund, from which we will be making bets in 30–40 early-stage companies. We are in the process of completing a couple investments as we speak. We recently announced our investment in online apparel company Bewakoof. We will do at least eight more investments this year.
Kr: IvyCap had a special focus on D2C startups even before that became a buzzword. What has been your strategy?
VG: We are quite different from other investment firms. Our reliance on IIT alumni, and them being our sponsors and anchors to source deals, is our defining strategy. The IIT alumni ecosystem has opened up the right opportunities for us from day one.
When we evaluate startups, our first bet is always on the entrepreneur and the team. Even if we are not convinced about the idea, as long as we are convinced about the founders, we would make a bet on them. Later, if need be, we help them identify the right business model.
Our initial bets in the D2C segment include Purplle, online jewelry startup Bluestone, women’s apparel company Clovia, and food tech company BiryaniByKilo.
Kr: We have seen a handful of major exits in the last few years. There is also abundant capital available in the market. How do you see these two developments affecting India’s startup ecosystem?
VG: The venture capital ecosystem in the country is relatively new, so most of the investors who have put their money in VC funds in India have not necessarily seen exits, and thus have not gone through the full cycle of their investment. Therefore, these exits give a lot of confidence to domestic investors to invest in Indian funds, leading to more options for entrepreneurs to choose from.
Both developments are healthy signs for the ecosystem. Now, Indian entrepreneurs can choose which investor they would go with. It’s not just a matter of raising money, but to make a selection based on who is going to add more value to their company.
If you look at it from an entrepreneur’s perspective, they are looking at two to three things. One is to enhance their revenue stream, so can the investor give them access to new markets, or different kinds of customers? Then, they are also looking for help with enhancing their product and improving their pricing. They also look for avenues to reduce cost. All of this requires access to a network of people. That’s what our network of IIT alumni, which has a global presence, brings to the table.
Kr: Does IvyCap plan to invest in Southeast Asia too?
VG: We are in the middle of raising USD 200 million for fund three, in which our existing LPs are going to participate. We will invest in startups from Singapore, Indonesia, Malaysia, and maybe Hong Kong. A few of our portfolio companies are based out of Singapore, and a couple of them earn 70% of their revenue from Southeast Asia.
This is a good time to invest in Southeast Asia. We are hearing a lot of good things about founders from this region. Lots of companies from Southeast Asia have reached that stage where they have established a product-market fit.
We will primarily look at consumer tech, deep tech, health tech, and edtech in Southeast Asia.
Much like our Indian investments, our deal flow there would also be sourced from IIT alumni. Singapore has more than 5,000 alumni of IIT and we would be leveraging our connection with them to find good deals and invest in early-stage as well as Series A and B startups.