VCCircle | After record deal run through pandemic, Vertex Ventures revs up for a busy 2021

In February last year, Vertex Ventures, the venture capital firm backed by Singapore state investment firm Temasek Holdings, held a webinar with its portfolio firms to caution them on the year ahead. The world was just waking up to the Covid-19 outbreak and the firm advised founders from its portfolio companies to start thinking of providing for cash runways for the next 18 months.

The pandemic that subsequently led to a prolonged lockdown across the world, however, didn’t stymie the venture capital firm's dealmaking in India. Rather, it ended 2020 as one of its best years in this market in terms of dealmaking -- five new deals were struck during1     the year -- and accelerated growth for some of its portfolio companies.

The icing on the cake was the exit from logistics company Xpressbees, which picked up a $110 million investment round led by Bahrain-based alternative investment firm lnvestcorp.

"Three managing partners in Vertex have been through two downturns before -- the dotcom bubble bust in 2001 and the financial meltdown in 2008-09,'' Vertex SEA and India managing partner Ben Mathias, told VCCircle in a recent interview. That experience, he added, held the firm in good stead through the pandemic.

Mathias, who launched the lndia operations of Silicon Valley based venture capital firm New Enterprises Associates, has been with Vertex Ventures since 2015 and leads its investments here across sectors.

The firm, said partner Piyush Kharbanda, expects the dealmaking momentum from 2020 to continue well into this year. "We will do 4- 6 deals this year (in India) and a similar number in the next coup le of years,” he said. Including Southeast Asia, the firm intends to close 12-15 deals this year and while it will broadly continue to focus on early stage deals, it will look at Series B investments "opportunistically”, he added.

Kharbanda joined Vertex Ventures in 2016 from Mumbai based private equity firm Multiples Alternate Asset Management and focuses on India investments.

Vertex Ventures is currently making investments from its $305 million fourth fund, which achieved its target corpus in September last year. The firm typically makes 3-4 new bets in India each year across the seed, Series A and Series B stages.

Early this year, the firm made a seed stage investment in B28 on­ demand manufacturing platform Karkhana.io.

Pandemic deal run and tail1winds

During 2020, its investments included healthtech firm IVF Access, fintech startup Recko and backend automation startup Signzy. It also led a Series B investment round in consumer brand Kapiva.

Kharbanda said that it helped that some of the conversations for the deals closed in 2020 started ahead of the pandemic. “While Recko closed before the pandemic began, we had been in touch with Signzy for some time,” he said. He added that the founding team at Karkhana.io were known to some of the team. members at the fund as were founders at IVF Access.

“In the case of Kapiva, we ordered the· products and consumed them,” said Mathias though the fund did not get to meet the team ahead of the deal.

Mathias added that Vertex Ventures has had an evolving thesis on D2C (direct to consumer) companies and its investment in Kapiva was guided by that thesis. The healthcare and wellness thesis of Vertex Ventures also warmed it towards Kapiva.

Mathias and Kharbanda also pointed out that despite the initial concerns about 2020, some of its portfolio firms benefited from tailwinds on account of the pandemic.

For instance, ecommerce solutions and consultancy startup Ace Turtle initially faced headwinds and even saw its business drop to zero in April last year. But, the company managed to turn around its business quickly as it struck a deal to power the online business of clothing brands Lee and Wrangler. "Fashion had got badly impacted but it was the maturity of the founders which turned it around," said Kharbanda1   adding that online will continue to be strong even after the world comes out of Covid-19.

Kharbanda also said that the pandemic has brought massive equalisation to enterprise investments. "It doesn't matter whether you are sitting in India or Europe -- the client wants to see you on Zoom and your product rather than how you wine and dine. So that has really helped the enterprise companies that have been able to build sales processes,” he said.

Another portfolio company that received significant tailwinds during the pandemic was fresh meat delivery platform [Licious](Another portfolio company that received significant tailwinds during the pandemic was fresh meat delivery platform Licious. According to an Economic Times report last month, Licious is looking to raise an $80 million funding round at a valuation of $800 mil.lion. The Vertex executives declined to comment on the reported deal.). According to an Economic Times report last month, Licious is looking to raise an $80 million funding round at a valuation of $800 million.  The Vertex executives declined to comment on the reported deal.

Mathias said players such as Licious and rival Freshtohome are organising a largely unorganised sector. The consumer adoption for these companies have been very high particularly during Covid-19. However, there is still a Iong way to go because the infrastructure, cold storage and supply chain need to be made more robust in the country, he added.

Attractive investment themes

''Healthcare and wellness is obviously one of the themes in which we are seeing a lot of tailwinds,” said Mathias.

Within this segment the fund will look at startups that seek to address issues in hospital management. It will also evaluate startups that have an insurance and remote diagnostics play.

New age ecommerce, D2C and social commerce are other themes that are exciting for the venture capital firm. It will also continue to look into SaaS and enterprise technology companies that initially start with the India market but also have a global play, said Mathias.

He added that the fund will evaluate deals in digital entertainment, digital financial services and tech-enabled B2B platforms. Another area of interest will be agriculture though the firm hasn't made any agritech bets in India yet.

However, one sector in which the fund hasn't found the right fit is edtech, which attracted significant investor attention last year as schools and colleges remained shut. “We evaluated at least 30 edtech companies last year but did not end up investing in any one of them,” said Mathias adding that the fund is still looking for a startup with the right mix of scale and business model.

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