Now is the best time to be a mid-stage fund, says top exec of VC firm Fundamentum Partnership

A funding slowdown is an ideal time to scale-up funds as valuations have become more reasonable, aggressive late-stage investors are slowing down and the pipeline is quite healthy, says Prateek Jain, Principal, The Fundamentum Partnership.

A growth-capital fund floated by Infosys co-founder Nandan Nilekani and Helion Ventures co-founder Sanjeev Aggarwal, Fundamentum was launched in 2017 with a fund size of $100 million.

“When we launched the first fund, it was not an ideal time, 2016-17 was a downturn too. We have a similar situation now. Aggressive late-stage investors have slowed down, fly-by-night investors have gone, and valuations have come down. There is a very good pipeline because about 11,00- 12,00 companies have been funded in Seed and Series A stages in the last 18 months. Therefore, this is the best time for a Series B fund in this country,” Jain said.

On the pipeline, his thesis is that the Seed and Series A companies that raised capital during the high times would have used the money to figure out a business model, seeing early revenues and they understand that liquidity is not easily available in the market today.

“We can work closely with the funders, go deep into their businesses, ask hard questions, and invest. I believe we will repeat what we did in 2017-18 when we got some gems like PharmEasy, Spinny, etc. I don’t think a company we invested, one like PharmEasy at that stage, would have been available for us 18 months later at the valuation we paid for,” he said.

Fundamentum was one of the investors in drug delivery platform PharmEasy’s $50 million extended Series C round in September 2018.

A mid-stage growth equity fund, Fundamentum looks to back Series B and C stage companies that are at post product-market fit stage with proven unit economics and some early scale in at least one city or market they are in.

“Nandan and Sanjeev have realised that there is a lot of early-stage capital in this country, but scaling up capital, especially in the mid stage, is missing. We felt it was a very open space as there is not enough Seris B, C funds. It’s a stage where they can add a lot of value in building sustainable organisations. Companies in their growth journey are losing their structures and lack focus on governance. We feel that mid-stage is the right point to start doing these kinds of interventions, especially because Nandan and Sanjeev have built large organizations,” he said.

The Bengaluru-based fund’s portfolio includes PharmEasy, used car retailing platform Spinny, logistics software firm FarEye, online trading platform Probo, online travel portal Travel Triangle, and healthcare start-up Ayu Health Hospitals.

“At Series B, there was hardly any craziness. Series B guys have always been very conscious. They do not want to pay a very high price. Everybody is sitting on funds, they will deploy in good companies, rather than taking a key word approach. People will ask performance numbers, retention, customer NPS, etc., which is great for the whole ecosystem,” Jain said.