Helping deeptech ventures to blossom

It was their experience in running SeedX, a boutique consulting firm, that gave them the confidence and the desire to do something bigger. At SeedX, Arun says, they took on nearly 20 mandates in nearly three years and helped raise money for nine, with SeedX having “thin equity in most of these companies.” Some of them went on to raise subsequent rounds of funding.

After three years of running SeedX, says Arun, the question was how to scale up. They had two options before them. One was to become a bigger investment banker or advisory firm and the other was to become a fund. Arun and Rajiv chose the latter, forming Arali Ventures in late 2017. The seed-stage venture capital firm got SEBI approval in July 2018. The fund has raised nearly 70 per cent of its planned $10 million corpus.

According to Arun and Rajiv, a majority of the investors in the fund are domestic with a few people from abroad. Both of them tapped into their wide network of corporate contacts and roped in individual corporate professionals at a senior level as investors in their fund. Their aim was to invest in deeptech plays focussed on the enterprise segment. “Our backgrounds are enterprise focussed and we can come in and add much more value than in a consumer kind of company,” says Arun. He adds, “we intend to be a slightly more active investor because deals at that stage don’t come with all the boxes checked. The promoters are something you need to shape.” They are also confident that they can tap into their limited partners pool for advice.

According to Arun, their cheque sizes will be between $250,000 and $300,000 (₹1.75 crore to ₹2.1 crore), depending upon the maturity of the company, with some money kept aside for follow-on investment. They would look at having a stake of between 7 per cent and 10-15 per cent, again depending on the maturity of the venture.

According to Rajiv, the deal pipeline looks good. “Enterprise tech in general has been a lot more sensible pipeline with less volatility,” he says.

Momentum in tech start-ups

Arun says the seed investment space is looking good with a lot of interesting start-ups in the tech space coming up. An interesting development is that in institutions such as the IITs, the professors are getting involved and the industry connect is starting to happen. Corporate venture arms are seriously looking at investing in tech start-ups.

“ABB Ventures did an investment for the first time in India last year. Cisco has made a couple of investments. All of these corporate venture arms are looking at India seriously. To that extent, the space is emerging,” he adds.

Rajiv points out that the boundaries between seed and venture investing are blurring. “Actually, there are no boundary lines. Everyone is out there doing everything. If a big fund likes a promoter or likes a business, they will cut a $300,000 cheque,” he says.

According to him, thanks to their learnings from the SeedX days, they have focussed on building a relationship with the promoter. “When you have a relationship with the promoters, even though you don’t have a big brand, they still choose to stick with us. We don’t behave like a fund. We behave like an enterprise advisory team that is out there on how to build the business, what are the other angles you should try, what are the mitigation strategies and stuff like that,” he adds.

Understanding the enterprises

In the last 3-4 months of active investing, they have realised that entrepreneurs building enterprise-tech need to be of a slightly different bent of mind; they should have an intuitive understanding that enterprises don’t buy technology for tech sake, but they buy solutions to specific problems. The entrepreneurs need to have a good understanding of how the enterprise world works. Building enterprise tech businesses is slower compared with consumer tech plays; it takes at least 2-3 years before they can scale rapidly, because of which exit expectations and aspirations should be in line. According to them, it is also important for entrepreneurs in the enterprise-tech space to focus on solving for one core problem than expanding product portfolio to other areas.

They feel their hypothesis that enterprise-tech is an investible sector is playing out because the quality of entrepreneurs and ideas in that space are good and there is a much better ecosystem of enterprise-tech focussed seed and early-stage funds now compared with four years ago.

True to their venture’s name, Arun and Rajiv hope to make their portfolio companies blossom, which is the meaning of the word ‘arali’ in Kannada. Arun says when they were looking around for a name for their yet-to-be-formed venture in 2017, they realised that a number of VCs were named after trees. They were not able to find one that they liked and so, they decided to look for Kannada words. Arali – to blossom – fit their requirement perfectly, he says.

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