Avataar Venture Partners, floated by former executives of Norwest Venture Partners and Freshworks Inc., has launched a new venture capital fund with a target corpus of $350 million (about ₹2,800 crore).
The fund will invest in 12-15 growth-stage startups that operate on business-to-business (B2B) and software-as-a-service (SaaS) models.
“The new fund’s size may bump up to $400 million. The investment cheque size will range between $15 million and $50 million. We have already closed one deal with this new fund, which was $15 million. Two more investments are in pipelines,” Mohan Kumar, founder and managing partner at Avataar, said in an interview.
With an average ticket size of $35 million, Bengaluru-based Avataar looks to support up to 15 companies through the new fund from Series B to D stages for an average period of at least seven years.
The investment will comprise 60-70% in SaaS and 20-25% in B2B marketplaces across healthtech, agritech and deeptech sectors, Kumar said.
He added that Avataar is not bullish on investing in the business-to-consumer (B2C) space.
“We see a big opportunity in clocking with about maximum 15 companies in a fund and we don’t require more than $400 million deployment. The B2B market is more predictable in terms of revenues and is not cash-guzzling. The exits are much easier in SaaS, B2B and deeptech,” he said.
Avataar was founded by former executive director at Norwest Venture Partners, Kumar and former chief operating officer at Freshworks, Nishant Rao. In February last year, it had announced the final close of its $100 million Opportunities Fund for top-up investments in select portfolio firms as well as new investments.
The fund has seen participation from large institutional limited partners (LP) across Europe and US. It follows Avataar’s maiden fund of $300 million announced in September 2019 which had Boston-headquartered fund of funds Harbourvest, as its sole LP.
Its first fund had invested in 10 startups including wellness and fitness SaaS unicorn Zenoti, media and fast SaaS firm Amagi, travel and hospitality SaaS firm RateGain, B2B rural commerce platform ElasticRun and BFSI SaaS CRMNext, among others.
“In the next 18-24 months, the rate of unicorns will come down apparently by 50%. A unicorn is all about valuations and doesn’t talk about the fundamentals of the company. It is not a metrics of how good a company is,” Kumar said.
While investing in the companies via its new fund, Avataar tends to follow key three metrics – annual recurring revenue (ARR), gross margin and net revenue retention (NRR).
“For Series B investment, we will look at an ARR between $7 and $10 million, for Series C, $15-$25 million and for Series D, we will look at $40-$50 million. For SaaS company, we will look for its gross margin,” Kumar added.
“For the next ten years, every business in the world will be buying technology software and it’s a trillion dollar opportunity and that is our goal in India to create at least 10 profitable companies in every fund more than $100 million in ARR and greater than 15% EBITDA.
In the next ten years, we aim to have at least 50 companies in our portfolio across five funds who will be greater than $100 million and profitable,” he said.
Avataar has so far made two partial exits, which includes spa and salon software provider Zenoti and ElasticRun.
