California-based Tandem Capital has raised most of the capital for its third fund of $100 million from Indian businessmen and corporates. It plans to invest the capital in Indian startups and expose them to company building culture in Silicon Valley.
The fund, Tandem III, completed its fundraising in January, according to its officials. The investors in the fund include Laksh Vaaman Sehgal, scion of the auto parts group Motherson Sumi; Russell Mehta, MD of diamond producer Rosy Blue; media group HT Media and Aarin Capital, the venture capital firm founded by Manipal group head Ranjan Pai and former Infosys board member TV Mohandas Pai.
Indian HNIs may have backed Tandem with the hope that Silicon Valley's mature startup ecosystem can help startups scale globally and thus earn exits relatively easily.
Tandem, founded in 2007 by IIT Madras and Stanford-educated Oracle veteran Sunil Bhargava and another former Oracle executive Doug Renert, has had investors for its first two funds—$10 million Tandem I and $33 million Tandem II—mostly from Silicon Valley.
For the $100-million third fund, Tandem has got investors from across the world, besides the Indian HNIs.
Bhargava said the first fund of $10 million had given Tandem 44 per cent internal rate of return. The $33 million second fund has already returned more capital than the firm has invested while it still remains invested in many of the companies from this batch.
While its portfolio companies are predominantly based in the US, it has also funded startups from Portugal, Mexico, Israel and Canada.
Armed with the new fund, Tandem is now drawing up a strategy to select a few Indian startups every year, take them to the Valley, help them find a product-market fit and fine-tune their go-to-market strategy.
"We are talking to three or four companies and will finalise soon," said Bhargava, who visits India at least once every quarter.
"With open source and cloud technologies, we believe building international companies out of India is very much possible and attractive," said Bhargava. "We will back Indian teams and help them grow, especially if they want to build internationally. They will come over to the Valley, spend a few months with us and figure out ways to scale," he said.
Of more than 20 startups Tandem has invested in the last eight years, only two are based in India. Bangalore-based Bash Gaming, the first Indian company to be part of its accelerator programme (the firm later moved to California), has given Tandem over 100x returns in two years.
The gaming startup, which raised $1 million from Tandem and other investors in April 2012, was acquired by US-based entertainment company Game Show Network LLC for $165 million in March 2014.
"The only money that went into it (Bash Gaming) was $1 million," Bhargava said.
Shoptimize.in, the Pune-headquartered social commerce company seed-funded by Tandem, is currently in the middle of fundraising.
According to Bhargava, the number of Indian companies in Tandem's portfolio is poised to grow with the Indian startup ecosystem maturing.
Mobile is an area where the fund is particularly keen on backing companies. "In India, you don't need to be rich to own a computer. Everyone has a smartphone," said Bhargava, hinting at opportunities mobile will offer in the country.
Bhargava said Tandem's model is to have a deep engagement with the companies it chooses for the accelerator programme with its team of 15 people involving with the founders for six months to one year helping them find right "product-market fit".
Discarding the time-bound approach usually followed by accelerators, Tandem accepts startups anytime into their accelerator programme and desists from pushing companies to a 'demo date'.
"Tandem helps them fundraise when they are ready," co-founder Renert wrote on the blog on the company website.
In the new $100 million fund, Tandem has decided to initially invest $200,000 to $300,000 in each startup and has reserved "a few million dollars" per startup for follow-on investment.
For the latest batch, it has expanded the domain to include startups working on Internet of Things (IoT) and connected devices besides mobile technology companies.
With its corpus tripling from its previous fund, Tandem is also now in a position to partner with startups beyond the acceleration phase, Bhargava said.
Even as Tandem finalises investment in a few more Indian startups, it is charting out a light engagement programme to help Indian startups connect with investors, mentors and customers in the US.
"We want to do a light engagement programme for early stage companies who want a sounding board in Silicon Valley. We will put in $20,000-25000 in each company and let the startups spend some time in the Valley. We will connect them with investors there. We will select 15-20 startups for this programme," said Bhargava.
(Edited by Joby Puthuparampil Johnson)