A new venture capital firm co-founded by Rathi Group scion and former CEO of NDTV’s ethnic apparel e-commerce venture, Scale Ventures, has struck a rare secondaries buyout deal in Indian venture capital space. Scale Ventures, which was floated early this year, has inked an agreement to acquire the portfolio of Delhi-based Guerrilla Ventures, it said on Thursday.
Guerrilla Ventures, which is run by Ritesh Malik, founder of Y Combinator backed co-working space Innov8 in Delhi, has funded 28 startups to date including Asimov Robotics, Radix Healthcare, Harvin Academy, Fin and Innov8. The firm that invested around Rs 40 lakh in each startup, has clocked exits from seven startups to date.
Scale Ventures was floated by IIM Calcutta batchmates Nilesh Rathi and Rahul Narvekar. Rathi is part of Rathi Group of companies while Narvekar is former CEO, IndianRoots, the ethnic apparel and accessories e-commerce venture floated by media firm NDTV Ltd.
The firm is looking to get registered with capital market regulator SEBI to operate as a venture capital firm under its AIF norms aiming to raise Rs 100 crore ($15 million) in its maiden fund.
The deal with Guerrilla will give it a ready portfolio to begin its operations.
However, Rathi has been in the venture capital space with the group’s investment unit. He currently serves as chairman and managing director of Rathi Strategic Ventures and has invested in a few small firms in Pune in the last two years.
Rathi is one of the anchor investors to the maiden fund for which the firm expects to get a SEBI registration in 2-3 weeks. Scale Ventures is already sitting on investment commitment of around Rs 70 crore, mostly from friends, family and other HNIs. It expects final close to the fundraising process in the next three months.
Narvekar said, "This acquisition with Guerrilla Ventures will open up attractive, fast growing market and new growth platform to Scale Ventures and will also accelerate its effort to not just innovate but grow together.â€
Terms of the transaction were not disclosed but Narvekar told VCCircle that it is a combination of cash and equity. Guerrilla Ventures' Malik will join Scale Ventures as one of the directors.
Scale Ventures is positioned as a sector agnostic early stage investor that will invest in over 30 early stage startups by the end of the year. The investment will be between Rs 30 lakh and Rs 3.5 crore.
It will also be launching an accelerator programme in the future which will involve a physical campus focusing on startups in the tier II, III and IV cities.
Scale Ventures counts Sanjeev Sinha (president of Suns and Sands Group based in Japan) and Sumit Ranka (founder of Thinkpot and co-founder at Innov8) as advisors. The promoters are looking to bring new entrepreneur investors on board.
Another secondaries deal
Meanwhile, this comes across as a rare ‘secondaries’ deal in the private equity (PE) and venture space (VC) in India. A ‘secondary’ deal, where a PE or VC firm sells its stake in a single portfolio company to another peer group investor, is quite common route to exit in India.
Secondaries transactions that represent acquisition of all or majority portfolio of a VC or PE firm, are pretty common in mature markets but there have been just a handful of such deals in India.
Interestingly, all the three recent secondaries buyouts in the business in India in the last couple of years have happened in the VC space. In 2014, Lightbox bought out Sherpalo and KPCB’s India portfolio while JP Morgan acquired Canaan Partners’ India investments last year.
While the latter was a pure secondaries direct deal, the former represented a spinout or synthetic secondaries transaction.
Sandeep Murthy, who previously headed local operations of veteran India-born American venture capitalist Ram Shriram’s VC firm Sherpalo Ventures and also oversaw activities of Kleiner Perkins Caufield & Byers (KPCB), another American VC firm, floated his own VC firm Lightbox.
Lightbox started with two funds, one of which picked stakes in some half a dozen firms by buying existing investments of Sherpalo and KPCB. It later raised $100 million in its own VC fund.
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