Nexus Venture Partners has taken the wraps off its seed funding plan and is targeting investments in up to 50 companies in five years. It has already opened its account having seed funded seven companies so far in the past three years including Sedemac, Aryaka, Dlight and Magicrooms and most recently an unnamed Pune-based entrepreneur.
In a chat with VCCircle, Nexus Venture Partners' partner Suvir Sujan talks about the triggers and the need for such an initiative. Here are some quick takeaways:-
Why the need for a seed fund: "We have always been into early stage funding for three years and have only now taken it public as we noted that people in the community were unaware of this aspect of our business. The reason we entered seed funding is that today an entrepreneur gets completely lost while trying to raise that first seed funding as angels dont understand the concept. Especially in the emerging technology domains, there is little understanding in the market for new concepts," he said.
Nothing new about VC firms moving into seed stage: Sujan offers that venture capital firms entering into seed funding is not a new trend and other VCs including Index Ventures are also offering it.
Seed stage funds operating in India include Mumbai Angels, Seedfund, Accel India, Indian Angels Network, TiE Entrepreneurship Acceleration Program and Chennai Fund. Besides these, there are a large number of high net-worth individuals who are into angel investing through both organised and informal networks.
Does it require a different mindset, patience level and risk appetite?: Sujan says, "At an early stage, we are only backing a person, no business. So we spend a lot of time with an individual, judge if he can scale it into a large business and then invest."
Startups will not automatically be guaranteed follow-on funding: "We will evaluate the company and take an independent call. We do not guarantee the next stage, but will get you off the ground," he said.
No rampup to the team: Nexus will not appoint a separate team of advisors, mentors and
investment managers to manage this part of the asset, said Sujan, explaining, "We have four partners in the firm doing a couple of seed investments each per year and we will continue to do so."
Startup pipeline: The fund has seen considerable interest already and expects to peruse through 100-200 plans this year, of which only 5-10% will be accepted. "In the past 2-3 we have looked at a couple of hundred and selected ten, this year we will select 8-10 companies. In the next five years we hope to be doing around 50 overall. 50 would be wonderful," he said.
No change in exit profile: The fund will not cut short its exit, and Sujan said exit profiles will be the same, maybe longer, adding that Nexus is a 10-year fund.
On how the seeded companies are doing: "Three are generating decent revenues - Sedemac, Dlight and Magicrooms; Aryaka has launched its product recently with good early signs of traction and two still at product development stage.