As India continues to witness a new unicorn every 10 days, the fund size of venture capital firms are also growing. Announced earlier this week, the $105 million first close of Blume Ventures’ Fund IV was bigger than the firm’s $102 million fund III.
The historic AUM at Blume was about $300 million and is expected to grow to over $500 million by March 2022, as Blume achieves the final close of Fund IV.
Some of the portfolio companies of Blume include Unacademy, Spinny, Slice, GreyOrange, Purplle, Dunzo, Servify, Turtlemint, Classplus, and Exotel among others. BusinessLine spoke to Blume Ventures’ managing partner, Karthik Reddy on the company’s recently announced fund IV and the investment strategy going forward. Excerpts:
Blume Ventures’ fund III was $102 million, and the fund IV is expected to close at $180-$200 million. Did the rising valuations in start-up ecosystem push you to plan a larger fund?
If you look at sectoral coverage in the market, sectors have become deeper and each sub-sector has become stronger. In response, our team has moved on from a three-partner structure to a quasi-five partner structure with each focussing on a sub-sector. We have expanded 25-30 per cent by the virtue of giving more capital for five of us to do more within our sub-sectors. We are going from writing 25-30 cheques to 30-35 cheques.
Second, our investment ticket size also has also grown in response to the market. If we were paying $1 million for 15 per cent ownership earlier, now we have to pay $1.5 -$2 million for the same deal. While this feels like small inflation, it adds about 25-30 per cent inflation on the capital that one requires to just keep the relationship going.
The funding rounds are getting bigger and the valuations are also getting bigger which means we have to deploy more capital.
Earlier, if we were putting $3 million in a $20 million round, now we are doing $4 million out of $20 million. So there’s inflation affecting the reserves also. It feels like if you want to stay competitive and back companies as much as you like, then you want to be able to have at least a $180-$200 million fund.
Has the growing number of start-up IPOs resulted in increased LP (limited partners) interest?
I would say there is an ‘increasing’ interest from LPs, most of the support that we have gotten so far is from the existing investors. By increasing, I mean LPs are more open to conversations now.
Are there any specific sectors that you are excited to invest in, with the new fund?
Because of the pandemic, our previous cycle felt a little curtailed. We feel that the thesis areas that we developed for our fund III, have not played out their journeys as yet. That cycle felt abrupt because it was largely impacted by Covid. Bulk of our domestic outlay was edtech combined with skilling of any kind, agritech, SaaS, B2B marketplaces, among others and we would continue to invest in those sectors.
For instance, we had done one investment in EV before and now out of the first five investments from fund IV, two will be in electric vehicle space. Also, two out of our first six investments will be SaaS companies.
What is the ‘Conviction capital’ philosophy of Blume?
Early stage venture capital is about founders and the market opportunity. And market opportunity is something you can’t wait for the founder to sell. Founder should do a good job at selling but as a VC one should have an inherent view on that market opportunity. That’s why you would bet on something radical as farm automation, or argi-credit. We have become very thesis/research-oriented. One is to build conviction that something massive is going to happen in this space, then it has to be corroborative with the great set of founders coming in, that’s when the magic happens.
