Seed investor Blume Ventures has been one of the more prolific early-stage VC firms in India figuring in the top charts for two year running (click here and here ). However, it was virtually absent in terms of fresh investments last year, as its maiden fund of under $30 million neared exhaustion and it got into the fundraising mode for the new fund. The firm has tweaked the investment strategy for the new fund, deciding to do away with syndicated investments and instead lead or co-lead most of the deals with larger cheques. It recently raised over $30 million for its second fund to touch the first fundraising milestone, half-way mark to its overall target. As it begins the second leg of its investment journey, Sanjay Nath, co-founder and managing partner of Blume Ventures, shares the firm's strategy and outlook for 2016.
What is your take on the current funding slowdown in the Indian startup ecosystem?
The Indian startup ecosystem is still not mature, although we are far more mature than where we were four years ago. It is true that there is a funding squeeze. However, a mid-market correction is healthy—it forces companies to build value.
As a result, we will see a lot more exits and oversees money coming to India. Exists are important—to create a self sustainable system, you need money coming out so that more money goes back in. When an angel exists, he/she will invest more money back into the system. Today, we have a lot of paper value. Companies like Flipkart and Snapdeal are going to provide many other firms exits before they get an exit themselves.
Therefore, money coming out will be healthy. Also, we will see a lot of foreign investment coming to the country because Silicon Valley is overvalued. We are also going to see a lot of Asian money (like Alibaba investing in Paytm and Snapdeal) coming to India.
I would not use the word bubble, but I would like to call it an 'oversupply of capital' at early stages. Everybody is an angel investor today. Therefore, some tightening or mid-market correction is actually healthy.
What's your investment outlook for 2016?
The outliers will come from companies that are focused on the consumer internet around mobile. The last wave was for e-commerce; now the winners will come from enablers or the facilitators of the ecosystem such as players from the payments and delivery sectors because whoever wins or loses, these companies are going to win. They will win as they are going to be servicing every other internet company—you have to have payment gateways, logistic chains and delivery networks to function.
However, the fundamentals of our ecosystem are strong though there is a slowdown; 2016 is going to be the year of level-setting or right-sizing.
For the full interview including investment strategy for the new fund, click here.