From investing in a diverse range of sectors in its first fund, Unitus Ventures, an early-stage venture capital firm that backs start-ups with a social impact, has narrowed down the focus to three sectors – fintech, healthcare and jobtech – in its second fund. It is in advanced stages of closing its second fund at ₹300 crore, more than double the first fund of ₹140 crore, and has invested in over a dozen companies so far from the second fund. It expects to make at least half-a-dozen more investments from the fund.
The first fund was broader and looked at education, edtech, finance, fintech and healthcare, apart from other sectors such as mobile consumer, retail, e-commerce and agriculture. “The learning from fund one is that fund two is lot more focussed, which helps us build expertise and also creates synergies,” says Surya Mantha, Senior Partner, Unitus Ventures. Fund two is also lot more tech focussed, with technology either providing the IP or being used as a way of reaching the consumer.
Synergies among companies
According to him, 2019 was a good year with the portfolio shaping up quite well. The pipeline looks good in 2020 and Unitus is looking at greater synergies among its portfolio companies. For instance, Unitus has invested in a company from fund one called BetterPlace, which enables blue-collar workers to get access to jobs, skills and training in their local language. Unitus also has another company in its portfolio, Utter, which is a chatbot-based learning platform for digital blue-collar workers – those workers who are app-based cab drivers, e-commerce delivery persons and food delivery workers – providing them on-demand skills in their local language. So, says Surya, Utter can work with BetterPlace and get access to millions of blue-collar workers who use the platform. “We are pleased with the way synergies in our portfolio are developing,” he adds.
The pipeline of ventures for investing, says Surya, looks interesting. “We invest in less than one per cent of the companies we see.”
While fund one has been completely invested, with a few exits and partial exits, Unitus has started investing from the second fund. From the second fund, Unitus will make a mix of seed and pre-Series A investments. It will look at companies that have some revenue and have also established unit economics. The initial cheque sizes will be ₹3.5-7 crore ($500,000 to $1 million), with Unitus putting in more money in subsequent rounds in the better performing ones. It will go up ₹18-25 crore ($3-4 million). In the first fund, some of the cheques were much smaller because the ventures were still at an idea stage.
According to Surya, Unitus will stay invested in the ventures for 5-6 years, by which time the company ought to have reached a certain scale and be ready to raise Series C funds. It will look to pick up 18-20 per cent stake in the ventures it invests in.
What kind of returns can your investors expect? Market returns, replies Surya. “That is where the opportunity is. The going-in thesis is that it will generate benchmark returns for the asset class. In our thinking or the work or the practice, there is absolutely no compromise on returns,” he asserts. Unitus will look at a venture to see if it meets its impact and investment criteria and after that it is pure commercial consideration. There is absolutely no compromise whether it is on unit economics or pricing or scale or competitive moat or differentiation.
“It is no different from the way any other investor would evaluate or look at an opportunity. We believe that is important for more capital to come into this sector and support businesses that are making lives better for millions of people,” says Surya. “This is not about subsidised capital. This is about creating benchmarked returns,” he adds.
Being part of the Capria Network, a global fund-of-funds that has invested in over 20 fund managers looking at commercial impact investment, opens doors for Unitus and its portfolio companies. “We talk of ourselves as India scale global potential. We bring those capabilities and the network of over 20 fund managers with diverse experience to the table,” says Surya.
Tapping overseas market
Companies in the Unitus portfolio have started tapping the global market. For instance, UE Lifesciences, which provides affordable breast cancer screening services to enable early detection, is also present in countries such as Malaysia, Thailand, Indonesia, the Philippines, Vietnam, Oman, Nepal, Mexico, Botswana, Kenya and the US. It is a B2B2C company working with large pharmaceutical companies and governments for breast cancer screening at scale.
“A lot of our companies have significant potential outside India, particularly in healthcare,” he says. Healthcare need not be in just the developing economies, but even in east European markets because there is a lot of innovation, IP, use of artificial intelligence and machine learning. Likewise, those in the jobtech sector can tap markets with a large blue-collar workforce and a large gig economy.
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