Artha Ventures believes in looking for opportunities in funding winter

The slowdown in startup funding activity hasn’t deterred Artha Group. If anything, the venture capital firm believes the ongoing “funding winter” is the best time to bet on startup founders.

Founder Anirudh A Damani says this confidence stems from the potential he sees in India as well as Artha’s history of making successful investments in startups under a similar funding lull.

“There is a lot of pent up demand and there is some real growth in India,” Damani tells YourStory. “We have been told that it’s the funding winter but we have only seen a lot of portfolio companies which have grown during this period."

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Case in point: fleet management startup Everest Fleet. Artha Venture Fund (AVF)—the Group’s seed venture capital arm—has received a 19X return on its investment. Its partial exit from the startup, in which it had invested Rs 10 crore in 2019, has led to an initial rate of return of over 100%.

The Artha Group has a portfolio of over 150 startups and has made exits in 31 companies. Damani says several of its portfolio companies have grown in the current funding crunch like sports content startup Kabaddi Adda, which was recently acquired by Sportzcraazy, and peer-to-peer lending platform LenDenClub.

“Our best vintages in terms of investment over the 10-11 years have been during these funding freezes,” says Damani.

Among its portfolio of startups, which also include exits, are the likes of hospitality chain OYO, beauty retailer Purplle, SaaS startup Exotel, and spacetech company AgniKul Cosmos.

For Damani, it has been a long progression into the startup investing world, having started as an angel investor after finishing his higher education in the US.

Started in 2012 as a venture capital firm, Artha Group is now a much more diversified company. It works across startup stages by being an accelerator via Artha Access; a seed stage investor via Artha Venture Capital; a growth investor through Artha Select Fund, and takes part in bridge rounds of late-stage funding via Continuum Fund.

The Artha Group has a cumulative asset under management of Rs 1,000 crore. It has raised Rs 225 crore in Artha Venture Fund. For Artha Select, it has launched a Rs 450 crore fund and has already raised Rs 250 crore.

Investment philosophy

The underlying investment philosophy across these investment vehicles for the Artha Group is to remain a valuable investor regardless of the stages.

Artha also operates as an investment house that has an interest in the energy sector besides participating in ventures across Africa, Israel and the US.

Damani says his experience has shown how the value of early-stage investors, especially the angel category, can get steadily diminished as the startup goes to the next round of funding. It is a similar situation when a startup goes into a growth round of funding.

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Artha believes its platforms can serve portfolio companies’ various needs. With its model, Artha can start off as an investor at a very early stage investing which is akin to incubation. Its investments run into a couple of lakh rupees going all the way up to multi-million dollars.

“We saw these companies that were doing fantastically well and the question was how do we participate in the Series B round,” says Damani.

The Artha Select Fund is focused on growth stage investment where it invests into the winners from its portfolio. This also gives them comfort as they know these companies well enough.

This also proves to be beneficial for both the founders and the investors. On the one hand, founders do not have to scout around for additional capital while the investors have got the comfort that these are proven companies.

“We have the ability to invest right up to $12 million across six to seven rounds from committed funds,” Damani says.

Artha says it has found investment opportunities in startups that are in the market for bridge funding at Series B,C,D stages. Its Continuum Fund, launched last month, acts as a syndicate for family offices and ultra-high net worth individuals (UHNI).

According to Damani, these family offices and UHNIs are interested in high-growth companies but do not have the resources or expertise.

The Continuum Fund looks to invest in around 8-10 startups every year with a cumulative investment of Rs 100 crore.

Advice to startups

Given the strides that Artha has made over the years, it looks for four things before making an investment: a startup’s problem statement, unit economics and scale, moat, and lastly, technology framework.

According to Damani, its portfolio of companies has strong revenue growth early on and the focus is always on running their operations through customers’ cash.

The Artha Group has undertaken a thematic approach to investment rather than being sector focused. Damani says when it invested in OYO and other startups like ticketing platform ConfirmTkt, SaaS startup for hotels Maximojo or cab service BookMyCab.com, the idea was that with increased penetration of the internet, organised travel would be the first beneficiary.

Similarly, it has been making investments in the SaaS space— 40% of the fund allocation — as it is optimistic about India’s growth in this segment given its vast technical talent pool.

Now it sees a big theme emerging in the fintech sector where it expects building infrastructure to be a focus for startups in the future.

As for the future, Damani says Artha is looking at launching its second seed fund in the next two to three months.

However, the core focus of Artha will be that of being a micro-VC fund. “The strategy of backing companies early and doubling down using follow-on rounds is not going to change. We are clear on that,” says Damani.

He has a few mantras for startups to survive in the present environment. He says the core focus of the startups should be on their customers and not on the investors.

“Chase the customer, the investor will chase you,” Damani adds.