Within five years of launch, Fundamentum Partnership has become one of the top three funds in terms of total return in the country, said a senior executive of the VC firm. Co-founded by Nandan Nilekani, the investment firm has had limited bets focussing on what it calls an ‘ecosystem play.’

Launched in 2017 with a fund size of $100 million, the company has invested in six start-ups, of which two are yet to be announced. Post these announcements in the coming months, Fundamentum Partnership will be out in the market this year to raise its second fund which will be higher than the previous one.

“PharmEasy and Spinny have already returned the fund for us. We should be in the top two to three funds from total returns perspective in terms of IRR in the country,” Ashish Kumar, General Partner, Fundamentum Partnership told BusinessLine.

Fundamentum Partnership invests in Series B round and beyond of a start-up once it has sorted out its product-market fit. The average cheque size for the first investment is around $8-12 million followed by one or two more rounds to maintain ownership in the portfolio start-ups. The firm’s portfolio currently consists of PharmEasy, Spinny, FarEye and Travel Triangle.

With the upcoming fund raise this year whose details Kumar didn’t disclose, the firm will be writing slightly bigger cheques of around $10-15 million.

Kumar and his team of veteran investors and business leaders, want to build a concentrated portfolio of start-ups wherein they would not just bring in money, but also help the founders with their operational expertise. All the core team members including Nilekani, Kumar and co-founder Sanjeev Aggarwal of Helion Ventures among others, come from an experience background of being entrepreneurs and running their own companies.

Ecosystem play

Kumar said, “VCs spend 80-90 per cent of the time in selecting and then they manage those portfolio of say 30 start-ups. We wanted to find the market opportunities. The value addition we had to provide these companies is not just capital, but actual company building expertise. Most of the team members on our team are entrepreneurs. We want to build a concentrated portfolio. Concentration helps in focussing better and there little more data on the company when they have been around for two to three years.”

“Our thesis is to find a company, which has attained product-market fit and is valued between $75-200 million, and whether this business can be large and sustainable,” he added.

Ultimately, Fundamentum Partnership’s core investment rationale revolves around finding start-ups which have the opportunity to eventually diversify within its own sector and create an ecosystem play offering end-to-end services.

A similar strategy was used to invest in PharmEasy back in 2018.  Kumar said, “For PharmEasy, our investment was not on the fact that they will remain a pharma marketplace online, but that they will take over all the profit pool in the Out Patient Department (OPD). If you look at PharmEasy now, they are not just a marketplace, they do diagnostics, doctor consultation etc. It’s an entire ecosystem play. We had looked at 10 companies in the healthcare space before investing into PharmEasy. We had looked in pharmacy and healthcare services companies as well. And we know if a company would dominate the OPD space then, Pharma would be the right market to go after because primarily the opportunity is large and it is easy to digitise.”

PharmEasy’s parent API Holdings across various subsidiaries offer health tech services including hospital supplies procurement, EMR and Practice Management Software for Clinics and Doctors, online pharmacy marketplace, platform connecting pharmacies with wholesalers and diagnostics and tests through its recent acquisition of Thyrocare.

A similar strategy was used while investing in Spinny, a pre-owned cars marketplace.

“There are around four to five big companies in the used/pre-owned cars space even before Spinny started. However, no one was trying to solve this in a full stack manner, everyone was creating classifieds or creating a layer. Customer experience quality is still developing through younger start-ups have started redefining this. It is very difficult to solve that in a non-full stack manner,” Kumar said.

He added, “In Spinny, we saw customer net promoter score (NPS) is high and they are solving in a full stack manner. We don’t look at them as a transactional platform, but an OEM of pre-owned cars. We expect at some point they will get into car insurance and lending as well. And why not to expect that from them when offline dealers of a Maruti will also offer the same.”

Sectors to watch out

One of the upcoming investments of Fundamentum Partnership will be for in the health care inpatient department (IPD) segment. Kumar believes healthcare will see lot more action this year, followed by vertical software-as-a-service (SaaS) start-ups.

Among other interesting categories, blockchain and Bharat-focussed solutions will see growth.

“Blockchain space has picked up a lot of traction as the new internet is being created. There will be developer tools, exchanges and wallets to name a few in this space. India is now moving away from the speculative stage to working on policy for this sector,” Kumar said.

He added, “Also, a lot more action will be seen in the Bharat-focussed apps. This growth, people usually think this would be content driven, but there are a lot of opportunities on the transactional side. Content to transaction transition has happened, micro transactions will see growth.”