Early-stage VC Rainmaker Ventures says ‘every dollar will be under the lens for the next 12 months’
Mumbai-based Rainmaker Ventures, which backs early-stage startups, is turning ‘cautious’ in a post-pandemic world. It is also scouting for investment opportunities in Southeast Asia and the UAE.
The Oxford dictionary describes ‘rainmaker’ as someone who attempts to bring about rain, either by rituals or through scientific techniques like seeding clouds with crystals.
When Atul Hegde and Sudhir Menon set up their VC fund in 2015, they envisioned themselves to be rainmakers for digital businesses.
Both co-founders had built and scaled businesses in the real world for nearly two decades before launching Rainmaker Ventures — a $50 million fund for early-stage startups, many of which were fledgling in the Indian internet ecosystem that suddenly got very competitive.
Rainmaker Ventures Co-founders Atul Hegde (right) and Sudhir Menon
Atul Hegde, Co-founder, Rainmaker Ventures, tells YourStory,
“There was a lot of activity around startups between 2015 and 2017. Money was chasing startups and India was the market to be. There were mostly two kinds of money: large houses funding growth stories with big-ticket investments, and angels and HNIs investing in 20-30 companies with small-ticket rounds of under Rs 1 crore. It was pure money, and there was a way to work with entrepreneurs to build the company. We decided to invest in companies where we could play an active role. So, we started looking at projects where we could add money and value, and that philosophy continues till today.”
Rainmaker Ventures adopted a two-pronged approach: capital and mentorship. The VC realised that the biggest thing startups needed was new business development and people with experience who could set up processes.
“Startups didn’t just want money, they wanted pedigree investors. So, we became their salesperson, and put them in touch with as many potential clients as possible. We play the role of the chief door opener,” Atul explains.
When it launched, the fund was open to investing across sectors like FMCG, healthcare, fintech, education, transportation, logistics, digital content, and services. However, over the years, the Mumbai-based VC has “narrowed” its focus, and gone after depth instead of width.
Infographic: Rainmaker Ventures
The co-founder says, “We were category-agnostic, and wanted to back a great set of entrepreneurs. But in 2017, as valuations started changing, we started focusing on core areas like digital services, content, branding, analytics. The goal was to back businesses that can blend creative and tech.”
Rainmaker Ventures has backed about 10 startups, mostly in B2B. It has even acquired some companies and merged them with similar businesses in its portfolio. The average capital it invests is about $2 million. The VC’s only criteria is that it looks at companies that are at least a year old.
“Till now, we have not invested in a green-shoot entrepreneur,” Atul reveals.
Fund’s growth and major investments
In four years, Rainmaker Ventures has grown its assets under management (AUM) to Rs 200 crore, with investments cutting across sectors like transportation, specialised online retail, fintech, real estate marketing, digital content, influencer marketing, programmatic media, branding, and design.
Without divulging specifics, the co-founder shares, “Our revenue growth rate is significantly higher in terms of returns compared to other four-year funds.”
Rainmaker Ventures made its first investment in June 2016, when it put $1 million in Mumbai-based startup Raftaar Technologies that operates bus aggregator platform Limo.
“Mass transit is one of the most crucial aspects of daily city travel. Not only does this segment have tremendous growth potential, it is immensely scalable. We feel that given the scope of the bus-services industry and its need, this is something we want to nurture and take to another level," Atul said at the time of funding.
A month later, the fund invested $5 million in YAAP, a super-specialty digital content company that focuses on the design, discovery, and distribution of digital businesses. The investment was later extended to Brand Planet Consultants, a brand positioning and portfolio management advisory, which was acquired by YAAP in late 2016.
Nikhil Bapat and Manan Kapur, Partners at YAAP said in a joint statement, “We are happy to find a partner like Rainmaker Ventures that is so bullish on the digital content sector and is going beyond infusion of capital into the company, with active mentoring of the management team.”
In 2017, Rainmaker Ventures backed Singapore-headquartered Oplifi — a data-driven programmatic media buying platform for enterprises — with an investment of $750,000. It also marked the fund’s first investment in Southeast Asia, a market it is actively targeting for expansion.
Atul shares, “We’ve consolidated some of our portfolio in content creation, analytics and digital marketplaces, and are actively looking for opportunities in Indonesia, Singapore, and even the UAE and Saudi Arabia. Currently, India contributes 60-70 percent to our revenues; the rest is from overseas markets.”
Rainmaker Ventures’ last investment came in October 2019, when it backed online jewellery platform Melorra along with a bunch of other investors. Its other notable investments include Oro Wealth in fintech and wealth management, Andarakis in real estate marketing in the UAE, and others.
“There are more cash-generating businesses in our portfolio, and in three years, we look to build a Rs 1,000-crore plus company. We are the majority shareholders in our core companies, and all are long-term investments,” Atul says. “There is no time-frame on a second fund now,” he adds.
Investing in a post-pandemic world
With COVID-19 crushing the global economy and drying up funding across sectors and geographies, Rainmaker — like most VCs — is exercising caution.
Industry insiders say that early-stage deals (angel/seed/Series A) have been the worst hit so far, and are likely to get tougher. The bar for investments will go up, and VCs will focus on unit economics than growth at all costs.
Nitish Poddar, Partner and National Leader - Private Equity, KPMG in India, says,
“VC investors are already starting to ask the question, ‘How will your business be impacted by COVID-19?’ This is a question everyone will be asking for the next few quarters. Over the next quarter, while the pipeline will likely remain strong, deal flow is expected to slow down. A lot of deals will probably get deferred to the latter half of the year.”
In line with the industry sentiment, Rainmaker Ventures, which is mostly involved in the seed or pre-Series A stages of funding, plans to hold back its investments for three to four months.
Atul elaborates,
“Everybody is extremely cautious now. It is not even a quarter-on-quarter approach, it’s month on month. Our own investments have slowed down. Nothing in six months. April was disastrous. May has been a bit better. Our priority now is to ensure that existing companies survive and thrive in this scenario. A completely fresh category is not something we will look at. And a quarter from now, we will be out in the market again.”
“Typically, Q2 [Sept quarter] is very important from the Indian POV, and we’ll wait till then to understand where we stand in the business cycle,” he adds.
To the young startups they mentor, what is the best possible advice a VC could offer at this point? “Conserve cash, that’s the first philosophy. The product and value standpoint will improve in a few months from now,” Atul says.
Rainmaker Ventures also highlights that digital services, its core playground, have not been “as badly hit” as some of the other sectors.
Yes, spends are down by almost 30 percent, but that is “manageable” in one quarter, according to the VC. “But in B2B, every dollar will be under the lens for the next 12 months. Customer retention and loyalty will be the top-most driving factor for a long-term sustainable business now,” Atul states.
(Edited by Teja Lele Desai)
