Micro VCs find solid ground as the venture landscape reshapes

Aviral Bhatnagar, who earlier led enterprise software and artificial intelligence investments for Venture Highway (now merged with US-based General Catalyst), has launched a Rs 100 crore fund to back early-stage Indian startups. The fund, launched by the new venture capital (VC) firm AJVC, will focus purely on pre-seed stage investments while being sector agnostic, he told ET.

The development comes at a time when several new domestic funds and micro venture capital (VC) firms have come up in India. These investors back startups at a very early stage and write smaller cheques than established VC firms. The emergence of the micro VC funds, which are usually smaller and are single partner focused, have added to the diversity of risk capital investing in Indian startups.

Other established micro VC firms include Vaibhav Domkundwar's Better Capital, deeptech-focused firm Java Capital, Delhi-based Sauce VC, which makes consumer sector investments, and $25 million enterprise software-focused Neon Fund.

AJVC is fashioned after A Junior VC, a platform that Bhatnagar launched in 2018 to offer insights into the Indian startup and venture investing ecosystem.

“The firm is focused on pre-seed investments exclusively. We see an opportunity for an institution to be built (that invests) at the pre-seed stage, and will be a fast, approachable, technology-driven firm,” he said.

He said as larger venture capital firms take a safer approach at investing in startups, opportunities to take riskier bets are opening up for younger investment firms.

“Some of the larger VC firms have started to look at more private equity-style investments and that creates an opportunity for some of the newer firms to take riskier bets… I don’t think the innovation is going away,” Bhatnagar said.

In June, the newly appointed venture capital council of the Indian Venture and Alternate Capital Association (IVCA) laid down the growth of micro VCs as one of its targeted focus areas.

Prashanth Prakash, co-chair of VC Council, IVCA, had said at the time, “The VC landscape has also proliferated, with a new generation of micro VCs emerging to steer the growth of India’s entrepreneurial ecosystem. By empowering first-time fund managers with knowledge of key strategies in fundraising, capital deployment, portfolio supervision, governance and reporting, we can take India’s startups to new heights.”

Bhatnagar said AJVC has raised capital from family offices, high-net-worth individuals and founders of large Indian startups. An alumnus of Indian Institute of Technology Bombay and Indian Institute of Management Ahmedabad, Bhatnagar said he will run the firm as its solo partner for now but added that he will start building a team eventually.

The VC firm, which has received a nod from the Securities and Exchange Board of India as a category II alternative fund, will look at making investments in over 30 startups over the next three-four years. While AJVC will solely make pre-seed investments to begin with, Bhatnagar did not rule out follow on investments at later stages if the startup becomes successful.

“We see a much larger opportunity for Indian startups…and the speed of scaling up for companies to unicorns will be much faster as the market becomes larger. Other positive signs are emerging from large M&As and IPOs, which show a path to exit,” Bhatnagar said.

Six new-age companies have tapped the public markets this year – Go Digit, Awfis, Ixigo, Ola Electric, FirstCry and Unicommerce.

“The rationalisation of long-term capital gains tax to 12.5% for unlisted securities and removal of angel tax will make startups more attractive as an asset,” Bhatnagar said.