Why NY fund Falcon is encircling India’s startup space

Falcon Edge Capital is emerging as one of the most active investors in India’s startup’s space. The New York-based fund is on course to close about half a dozen deals in areas ranging from artificial intelligence (AI) to urban mobility to financial technology, over half a dozen entrepreneurs and venture capital executives told TOI.

While known as a hedge fund, Falcon Edge makes long-term bets through its venture capital and private equity funds in India and may increase its exposure nearly four times in the next 2-3 years to $2 billion, according to the sources cited earlier.

For starters, it is in talks to lead a $70-80 million round in dockless two-wheeler rental platform Bounce, which is also backed by top investors like Accel and Sequoia Capital, said the sources mentioned above.

It is also investing in AI startups Vue.ai (whose parent company is Mad Street Den), which has focused on the retail space, and Locus, which is focused on using the technology in supply chain. Falcon Edge is expected to invest in the range of $5-10 million each in both the companies, according to sources.

These three are among the 9-10 new investments Falcon Edge, which has over $4 billion in assets under management, has closed in the private market since last year, which also includes stakes in the National Stock Exchange and non-banking finance unit of JM Financial. The bullishness of a firm like Falcon Edge is interesting as hedge funds have the option to invest in both public and private markets, across the world.

“A lot of their of investments are panning out and now they are doubling down,” said an investor who has been tracking the firm, adding that Falcon Edge has become the most active in terms of the number of deals among its peers like Tiger Global and Steadview Capital.

This comes at a time when startups in India raised $10.5 billion in funding in 2018, little more than $10.4 billion in 2017, according to data from Tracxn. The pace over the last two years has significantly picked up from 2016 when they just raised $4.3 billion. The rush to back startups is only expected to further pick up in 2019.

While Falcon Edge has been active in India’s digital space since 2014, it’s investment strategy is now evolving — going more early stage and also betting on areas like AI and startups solving environmental issues, makes its strategy unique among firms operating in India.

For instance, it has closed very early-stage investments, participating in $2-3 million rounds in startups like social commerce startup DealShare and CreditVidya, which provides alternate data-based credit scores. In both these companies, Falcon Edge’s co-founders Rick Gerson and Navroz D Udwadia have personally invested given the size of the investments.

“We think we are different across a few vectors—our capital, while long term and focused on specific spaces that we map out rigorously, is entirely flexible, and can be deployed from seed stage to pre-IPO stage. We bring global public market perspective and relationships to the table,” said Udwadia in a rare interview to TOI while declining to comment on specific deals. “But above all, our passion is proactively helping the entrepreneurs we invest in to grow their businesses and fulfil their potential.”

Udwadia, a Harvard MBA and a Rhodes Scholar, who led the men’s tennis team at Oxford, has been investing in India for over a decade, starting with hedge fund Eton Park Capital. In 2011, Udwadia, along with Gerson, who was founding member of another large hedge fund Blue Ridge Capital, set up Falcon Edge.

Those who have interacted with Falcon Edge say the depth of their research is what differentiates them. “The kind of homework that they did was very extensive. They went super deep into even which vehicle we use, which I had never seen before,” said Vivekananda Hallekere, co-founder & CEO of Bounce, who added that the firm has also introduced him to various lenders to finance vehicles that the startup is buying.

Venture capital investors and entrepreneurs who have co-investments with the firm say that Falcon Edge has not operated like a fly-by-night operator, backing portfolio companies through multiple rounds.

One example is vernacular language application Dailyhunt, where it first invested in early 2015 and has co-led internal funding rounds over the last couple of years. “They entered India along with several others, didn’t leave and have been all-weather partners to founders through ups and downs. They have also started investing earlier into the companies,” said Vikram Vaidyanathan, MD at Matrix Partners India, which has several common investments with Falcon Edge like Ola, Mswipe and OfBusiness.