Pavestone Capital is keen to back tech startups that cater to large enterprises
The VC firm believes India can come out with platforms and products of global scale that meet the requirements of large enterprises and is eager to support the right kind of entrepreneurs in this journey.
The Indian startup ecosystem has evolved over the years to create several thriving business segments—ecommerce, fintech, mobility, direct-to-consumer, and software-as-a-service, to name a few. The newest segment in the space are B2B technology startups that address the needs of large enterprises.
Hyderabad-headquartered venture capital firm Pavestone Capital is keen to back such tech startups that are creating products with global applicability.
“We decided to look at a space where the market is not focusing on — what we call as enterprise technologies,” Sridhar Rampalli, Managing Partner, Pavestone Capital, tells YourStory.
While SaaS startups in the country have software products that cater to the requirements of small and medium enterprises primarily, there aren’t too many product startups that address large enterprises. This is an exciting new and emerging market that Pavestone Capital is looking to put its money in.
Enterprise play
Enterprise technology startups are typically led by entrepreneurs who have deep domain expertise and the ability to build software and hardware products.
According to Rampalli, these entrepreneurs understand the needs and requirements of large enterprises, having spent more than a decade working in large technology companies.
This knowledge and experience is crucial as building a product for large enterprises requires stability, security and scalability and it comes with a lot of implementation challenges, he adds.
The building of the product itself would take about three to four years. And how it is sold in the market is different from how a SaaS product is sold.
While SaaS products can be sold via emails and calls, B2B tech startups have to be ready for the hard grind, which includes multiple meetings with enterprise clients who would scrutinise and test the product thoroughly before making a purchase decision.
Hence, technology ventures that support large enterprises require a different kind of approach from VC firms, says Rampalli.
“It needs very patient capital and strategic guidance,” he remarks.
“We understand the pain and nuances of building a large-scale, complex, and right-price platform business, both from the product and business perspective.”
Growth and funding
Pavestone Capital was founded in 2021 by Rampalli, Srikanth V J Tanikella, and Laxmikanth V, who come with considerable experience in the domains of technology, finance and scaling businesses.
The VC firm has so far made investments in four startups—, , and . They fit into Pavestone’s criteria as they have recurring revenue and serve large enterprise customers.
E42 is an NLP-based (natural language processing) AI platform that provides automation solutions for enterprises to reduce dependency on people-oriented processes and save on time and cost. It has around 70 enterprise customers.
NewSpace Research & Technologies is an aerospace and defence startup which builds drones that can perform complex and multiple tasks.
Pavestone Capital has raised Rs 700 crore so far and is in the final stages of closing a fund in which it expects to raise around Rs 750 crore.
The target focus of this fund is startups in Series A and stages beyond, at an investment of $5 million to $10 million per startup.
According to Rampalli, Pavestone is interested in only those startups that are clocking a revenue of $1 million to $1.5 million, as the firm’s expertise lies in scaling the business.
Pavestone Capital is very clear about its investment thesis: it wishes to invest in broad technology areas such as supply chain, drone tech, spacetech, and revenue lifecycle management, and is not restricted to AI, ML, and cloud technologies. The VC firm aims to invest in 10-12 B2B startups in these technology areas; they would account for 85% of its portfolio.
The remaining 15% of its portfolio would be reserved for firms engaged in “frontier technologies” such as 6G and material sciences, where the investment would be around $2 million each.
The firm is close to signing deals with material science startups and healthcare-focused machine learning ventures. It expects to have 7-8 such startups by March this year.
“We want to give concentrated attention rather than having a large portfolio,” Rampalli says.
Opportune time
The VC firm believes this is an opportune time to build technology ventures focused on large enterprises with India as a test market.
“If one is able to sell in India, which is the most complex and difficult market, then they are ready for the global stage,” says Rampalli.
Pavestone’s portfolio of startups addressed India first before venturing into the global market.
The advantage of such ventures is that, once value is created for their product, there is enormous stickiness to the product, says Rampalli.
Enterprises typically do not change their technology platform too often; so startups can expect a certain level of predictability in revenues and scalability in business, he adds.
Today, there are many VC firms focused on backing technology ventures. Notable names include Exfinity Ventures, Ideaspring Capital, and Speciale Invest.
Rampalli says Pavestone’s USP lies in working with founders who understand the space well and teams who have relevant experience in dealing with enterprise technologies.
Current environment and path ahead
Last year, capital inflow into Indian startups declined by more than 50%. Rampalli calls the current funding winter a “cycle”, which is quite normal for any ecosystem.
“Whatever is happening is very good for the ecosystem because people will be more disciplined in building businesses rather than (go after) valuations,” he says.
He also notes that there is no shortage of capital and it is only the fear of the unknown that’s hindering investors.
On Pavestone’s future plans, Rampalli says the firm would like to create the right kind of portfolio that would help build a large ecosystem of B2B tech startups and encourage more venture capitalists, technologists and enterprises to enter the fray.
“In the next 15-20 years, we strongly believe India can come out with global scale platforms, and we want to be part of the journey by supporting the right kind of entrepreneurs,” signs off Rampalli.
(The copy was updated to include the name of LivNSense.)
Edited by Swetha Kannan