StartupXseed Ventures to deploy bulk of second fund by FY23 end

StartupXseed Ventures has so far invested about $12 million, around ₹98 crore, or over 40% of the Aaruha Technology Fund II’s corpus. It has funded about 12 companies, including three approvals, with average cheque sizes in the range of $1 million to $1.5 million, managing partner BV Naidu told VCCircle in an interaction.

“By March 2023 we will invest more than 55% of the second fund”, Naidu said.

Setting aside about 40% of the ₹243 crore corpus for follow-on investments, Naidu expects the second deeptech fund to be fully-deployed by the end of 2023, with investments in 15-18 firms.

“By end of next year, that is, in the third and fourth quarter of FY23, (we) will be completing the investment,” he said. StartupXseed marked the final close of the fund in September with an oversubscription of 20%.

The early-stage investment management firm, which has invested in unicorns such as Darwinbox, was founded by tech stalwarts including Naidu, chairman of Karnataka Digital Economy Mission; veteran investor Mohandas Pai; Ravi Thakur, co-founder of healthcare startup drugsupdate.com; and V Ramakrishna, former chief delivery officer at HCL Technologies.

It launched operations in 2015 with the Aaruha Technology Fund I, a ₹100-crore deeptech and SaaS-focused fund. The company made five investments from this corpus, of which it has fully exited four and partially exited one.

The first fund’s portfolio included names like Siliconch Systems, Kaalbi Technologies, Steradian Semiconductors and Anlyz Cybersecure Pvt Ltd. It has partially exited from HR tech solutions unicorn Darwinbox Digital Solutions.

The investment management firm is also laying the groundwork to float its third deeptech and SaaS-based fund, which is likely to be launched by the first half of FY24, according to Naidu.

“All our first fund investors have returned for the second one with larger ticket sizes. They liked the performance of fund one. We are hoping we’ll do a much larger fund size for the third fund,” he said, commenting on the likely corpus, however, not disclosing an exact figure.

He added that like its previous fund, the next will also see participation from domestic and overseas limited partners.

Signalling a possible rise in its cheque sizes, he said, “We started our journey with the seed investments and then (we have) slowly grown to the seed series level. Now we call ourselves at the pre-Series A, maybe in the next fund will be just focusing in the series A and above (investments).”

Commenting on deeptech space in India, Naidu said there is rising investor optimism about its growth across sectors including aerospace, cybersecurity, and healthcare, among others, compared to few years ago.

He believes the key catalysts enabling this change are two-fold. Firstly, while deeptech companies may not be large in their operations compared to business-to-consumer (B2C) unicorns, but may have robust technology useful for other players, allowing a quicker exit to investors through acquisitions.

He added, “because of the size of the market that India has, any technology that becomes successful in India market can become successful anywhere in the world,” a factor offering an edge to deeptech players in India.

In October, VCCircle reported that Baring Private Equity India and Inflection Point Ventures (IPV)-backed fundraising and support platform, SanchiConnect was looking to invest $50 million in 100 Indian deeptech startups over the next year.

According to an August 2022 Nasscom report, Indian deeptech startups raised about $2.7 billion in funding 2021, while over 30 startups underwent mergers or acquisitions during the year.