Axilor Ventures, launched and backed by Indian tech pioneers including Infosys co-founders Kris Gopalakrishnan and SD Shibulal, plans to float its second seed fund that seeks to raise $100 million (Rs 770 crore), higher than the $26 million raised for its first vehicle in 2018.
Ganapathy Venugopal, co-founder and chief executive officer, Axilor, told VCCircle in an interview that the new seed fund - Axilor Technology Fund-II - is awaiting approval from markets regulator, Securities and Exchange Board of India (Sebi).
Similar to its first fund, the founders of Axilor and their family offices will pool in the entire targeted capital in the second fund as well.
"So, we don't have to go out in the market looking for Limited Partners (LPs), (or investors in the fund). It is just a question of getting regulatory approval," said Venugopal.
"We have always had a platform aspiration and our first fund demonstrated that it was possible to help startups on our own. If we had wanted to get capital from external LPs we could. But we are in a lucky position to pool in all the capital ourselves," explained Venugopal.
Apart from Gopalakrishnan, Shibulal and Venugopal, the other co-founders of Axilor are former Infosys executive Srinath Batni and Tarun Khanna, a Jorge Paulo Lemann Professor at Harvard Business School.
With the second fund, Axilor aims to reinforce its brand and position as an active seed investor in the country, said Venugopal. Its first seed fund of $26 million has been nearly fully deployed across 54 companies with a majority of the investments made in the past 24 months, he added.
He also said that the follow-on ratio for its first fund portfolio of 54 companies is 77%, which means that 77% of its total companies have been able to at least raise one additional round of capital after it invested. He added that 21 of its companies have already crossed Series A and beyond stages since its first investment. In more than 90% of its investments, Axilor has been the first institutional investor.
Venugopal underlined that the second fund will continue to focus on seed and Series A investments with an average initial ticket size of $750,000-$1 million, higher from $200,000-$500,000 for its first fund. It will also reserve more capital for follow-on with a ratio of 1:2 versus 1:1.5 from its previous fund. The follow on ratio for good companies could go up to 1:6 as well.
Notably, 30% of the second fund will be used to invest in the winning portfolio firms from its first fund, added Venugopal.
The fund's sector focus will also be an extension of its first fund. It will largely invest in business-to-business (B2B) commerce, global enterprises and vertical software-as-a-service (SaaS), healthcare, agriculture and consumer. Venugopal added that the fund also expects to be active in the fintech space.
"We have not done much on the fintech side but we will continue to accelerate in our second fund. I expect fintech to be 20% of our deployment from the new fund," he said. In the fintech space, it expects to look for startups engaged in embedded financing and business-to-consumer (B2C) new models coming up on the asset creation side, he explained. He added that the fund will also look to invest in companies at the intersection of insurance and healthcare.
Axilor's fintech investments include business accounting startup Vyapar and B2B payments platform EnKash.
He explained that Axilor has evolved a model to go after spaces where demand already exists and businesses are capital efficient. Further, the fund goes on to evaluate if technology can play a role in enhancing those businesses. For instance, it built its thesis for the global enterprise SaaS space after seeing considerable success in companies with enterprise SaaS models built for larger global verticals such as BFSI, oil and gas and pharma.
"Most of these companies are building products for these verticals where the annual contract value per client can be as high as over $100,000 dollar and can go up to $500,000, which means a $100 million company can be potentially built with about 150-300 clients. That is a model we have already built a playbook. We have already invested in six companies and we will double down on that," added Venugopal.
He said that it also built a thesis for the B2B commerce in a similar way and said it sees a $1-1.5 trillion digital opportunity in the segment.
He also said that the fund had not invested in the agriculture space until last year when it bet on B2B silk startup ReshaMandi. Last month, it invested in B2B supplier of fish and meat products FreshR in the agri space.
On the emerging themes like Web3 and crypto, Venugopal observed that these are still in the first phase of their development and a lot of capital is going into figuring out what kind of valuable business models can be built as of now. "Once there are clear templates on what kind of businesses can be built in these spaces then we will see," said Venugopal.
Venugopal also noted that getting capital back from its investments as a proprietary fund is very important and the fund is currently running at a healthy DPI (distribution to paid-in-capital) and has got or is in the process of getting cash exits worth 20% of its fund.
Several other large and small venture capital firms have either raised or have started the process to launch their new funds in the past months despite fears of a prolonged funding winter in the ecosystem. In June, Sequoia Capital India raised $2.85 billion (Rs 22,240 crore) across a set of funds to continue financing entrepreneurs to invest in Southeast Asia and India. Other marquee venture capital firms, Accel and Elevation Capital, also raised larger new funds this year.