In 2006, Vani Kola returned to India after a successful career as an entrepreneur in Silicon Valley and started Indo-US Venture Partners, which was re-named six years later as Kalaari Capital Advisors. The re-branded firm started operations as a $150-million fund in 2012, and has made more than 30 investments across e-commerce, gaming, digital content and healthcare sectors and its success is synonymous with names such as Dream11, Myntra and Snapdeal among others.

A proponent for India’s digital opportunity to create next-generation large-scale companies, Kola’s investment philosophy is derived from her entrepreneurial ventures. In an interview with BusinessLine , Kola, the Founder and Managing Director of Kalaari Capital, equates start-ups with extreme sports that are prone to failures, and talks about the new ₹1,700-crore fund. Excerpts:-

To begin with, how has Covid-19 impacted the industry on the funding front?

The pandemic has accelerated the digital signature, and companies dependent on the digital economy have significantly benefited. In the first few months of this year itself, we have seen about $6.5 billion of growth investments come into these firms. The digital acceleration favours the start-up community because they are the ‘disruption economy’.

The new companies focused on technology ‘enablement’ can get Seed and Series-A funding, as those two volumes on the barbell have stayed strong. The middle-child problem is for companies scouting for Series B and C funding, while that in Seed and Series A space are vibrant, and the digital-first firms are also doing fine. The crisis is also sometimes an opportunity, as the startup ecosystem has been vibrant in the first quarter, with close to 300 companies getting funds. There is definitely sunshine on this industry.

On the start-up front, we are only seeing the bright side of the story like India already has 40 Unicorns? What about the failures?

A start-up is like an extreme sport. You should expect significant failures, which is the name of the game, not just in India but globally. Idea-to-execution, and founder-to-leader are journeys, and the fascination is because it is a great story - a David and Goliath story. It is about human triumph and human vulnerability. At least 50 per cent of the companies will not even get any funding, and of the remaining that get funding, maybe 25 per cent will reach a meaningful scale, of which only 10 per cent will hit home-runs.

Also Read: Indian companies raise ₹31,265 cr through 30 IPOs this financial year

The IPO market was vibrant, with Indian companies raising over ₹31,000 crore in FY21, while M&A deals at 161 in April, was the highest in the last decade. Comments?

I wish we were in this place five years ago. I think companies have achieved a particular scale, and there is also maturity in the market to embrace these firms; a better understanding of what these companies are and how to value them. As a country, we have been used to asset-heavy industries at one level. We are also a country that has claimed its place in IT services, which is a knowledge economy, where assets were human resources. We haven’t focused on how these knowledge economy companies should be evaluated.

What is Kalaari Capital’s strategy on investments going forward?

We are passionate about early-stage investing and the early-stage economy. For us, the privilege is discovering that founder who has a great idea, potential and needs to be supported and then deliver extraordinary value. We want to be the lead investor in those companies with first-time founders looking to raise risk capital, who have great ideas and who want to build great companies. That hasn’t changed in the last 15 years.

So new markets keep emerging, and we will continue to build to those themes, but being a lead investor in Seed or Series-A from technology-leveraged opportunities with the right founders will not change in the next decade for Kalaari. Typically, we invest in about ten companies a year.

Kalaari Capital is believed to have roped in Jio Platforms as an LP for its fourth fund?

I am proud of the returns we have generated to date, and even in Fund-I (2006), we returned 2.7 times, which is high even by global standards. We have already returned all the invested capital from our Fund II and our opportunity fund, and both those funds are tracking to four times return.

With the fourth fund, we want to do better than that in the past. This is a ₹1,700-crore fund, of which we have closed about ₹800 crore. The rest we are not actively raising funds due to the pandemic, but it will be raised within the stipulated time.

You invested in companies that were almost written off and turned them around. How would you explain that?

Maybe, we see something that others don’t see when it comes to investment. We spend a lot of time understanding a company, and if we develop the conviction for the company and the person, then we invest in them and stay invested for a long time. We also look at all other stuff that might have happened before, not just the Cinderella becoming the princess story.

Why hasn’t India developed a strong Limited Partners (LP) base?

The first cycle of Venture Capital exits were relatively slow, hence returns were quite low and LPs had a lot of concern. A group of North American LPs had invested along with the first wave of fund-raising. India has a vibrant domestic market from a startup perspective but no domestic investors. So developing a strong Indian LP base is not happening because capital doesn’t exist in India. Having LPs that are domestic LPs supporting domestic funds is just a smart strategy from a country perspective, which is growing now.