ETMarkets Fund Manager Talk: This $85 million money manager sees deal activity picking up strongly in 2023

In an interview with ETMarkets, Chachra, said: “We anticipate that deal activity in the seed and early stages will pick up strongly in 2023, as valuations have become more reasonable” Edited excerpts:

Help us understand the journey of 8i Ventures so far in the year 2022? What is an early-stage venture capital firm?
Early-stage venture capital firms play a vital role in the start-up ecosystem by providing the capital and support that young companies need to develop and grow.

8i Ventures focuses on providing the first round of funding for the most promising fintech and commerce ventures.

2022 has been a banner year for our firm. We recorded a phenomenal 36x return on a two-year-old seed investment in our portfolio company, M2P.

We finished investing from our debut fund which is up 260% over 3 years. And we launched a $50MM second fund which has been very well received.

We typically lead 4-6 new seed investments per year, and this year we made four such investments.

How much AUM are you managing? What is the kind of funding raised in 2022?
We currently manage $85 million across our two funds and co-investment pools. At the first close of our second fund, we raised $25 million from India’s leading family offices and institutional investors.

Additionally, the companies we seeded in our first fund have raised $99 million from top investors including Insight Partners, Tiger Global, Alphawave Global, and Sequoia.

What is the outlook for PE/ VC deals for the year 2023?
We are at the end of a cycle for the start-up ecosystem when category winners emerge, and the rest get consolidated away. Currently, there is $290 billion of venture capital dry powder, with approximately 5% allocated to India.

At the macro level, we expect to see an increased allocation to India from this global venture capital pool. At the portfolio level, capital will likely gravitate towards profitable category leaders, making them even more dominant.

We anticipate that deal activity in the seed and early stages will pick up strongly in 2023, as valuations have become more reasonable.

In 2022, start-up valuations have undergone a painful recalibration as they have come more in line with public market comparisons.

Even though venture capitalists from the boom era have slowed their pace of investments, traditional private equity investors are stepping up to take advantage of affordable valuations and invest in well-run and profitable category leaders.

Companies that you have invested in the year 2022?
We have a strong preference for start-ups that are creating foundational technology infrastructure for consumers and small and medium-sized businesses.

Some examples of the companies we have invested in include Creditail (an embedded supply chain finance platform for SMBs), Revise (a programmable NFT infrastructure provider), BharatX (an embedded buy now, pay later credit provider for merchants), and Triple-A (a Southeast Asian crypto payment gateway licensed by the Monetary Authority of Singapore).

How do you shortlist startups for investment? What are the parameters you look at and the time frame?

We invest in founders who are passionate about eliminating friction from specific consumer and small business experiences. Our portfolio companies often take an unconventional approach to solving problems and tend to be unexpected winners from the outset.

We have found that our best investments have been those where we led or co-led the seed round in the company, and the opportunity came to us through a referral from within our existing founder and investor community.

We invest early in a venture’s lifecycle, when the founders have a clear understanding of the key pain points their early adopters are experiencing. At the seed stage, we do not place a lot of emphasis on market size.

Small niches are often overlooked by established players, allowing start-ups to gain a foothold and eventually expand into larger adjacent markets.

Our typical seed investment is $1.5 million in a round of $2 million to $4 million, providing the founding team with a 2.5 to 3 year runway to achieve early product-market fit and annual revenues of $1 million to $3 million.

What are the opportunities in the Venture capital space in India and globally?

We like to invest in areas that are likely to benefit from strong digital tailwinds, and we use data to identify early trends in the economy.

For example, in 2018 we noticed non-linear growth in consumer adoption of digital payments and credit, which provided us with the key investment insight for our debut fund launched in 2019.

The COVID-19 pandemic further accelerated these trends, delivering strong growth for our portfolio companies. Currently, the data shows that India’s retail economy has gone from 80% cash to 80% digital, which indicates that the MSME sector is becoming more formalized across the supply chain.

This insight is driving our focus on SMB adoption of technology that addresses collections, compliance, and credit across multiple sectors.

Globally, we are at the beginning of a shift in technology leadership. Artificial intelligence has reached a tipping point and is starting to disrupt multiple industries and drive meaningful research advances.

We expect to see a lot of innovation and venture capital activity in this area. It’s possible that some of the FAANG companies will be disrupted by AI-based start-ups in the coming years.

For example, a query like “Which is the single most important contribution by a Nobel Prize winner to humanity” elicits a well-researched answer from ChatbotGPT, while Google simply points to a general Wikipedia page about the Nobel Prize.

Some of their early investments include Carwale, Ezetap, Signzy and Moneytap. How is that coming along?

We are fortunate to have invested in these ventures at their inception, and they have all become category leaders. Carwale, EzeTap, and Signzy have provided fantastic exits for us.

Carwale went public at a billion-dollar valuation last year, while EzeTap was acquired by Razorpay this year at a significant multiple to our cost basis.


How do you map the lifecycle of the product and when to exit?

As an early-stage fund, we invest in start-ups at inception and provide additional support as they reach key inflection points.

Our goal is to provide capital and support to founders at the inception of their start-ups, helping them achieve a 1% market share in their target market.

This is a critical inflection point for start-ups, as it puts them on a path to take 10% of the market and become a credible challenger to incumbent companies.

During the COVID-19 pandemic, many of our portfolio companies experienced accelerated growth, which also shortened their exit timelines.

As we return to more normal market conditions, we expect to exit our portfolio companies around the fourth or fifth year of the fund, after they have passed the inflection point and are well on their way to becoming market leaders.

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