Leo Capital targets India’s thriving startup community

Rajul Garg and Shwetank Verma believe India is at a “turning point.” The entrepreneurs who became investors who founded an early venture firm Leo Capital in 2017 will today unveil plans for a new fund aimed at raising $ 125 million to invest in Indian companies in the early stages. “I think all the stars are in line with Indian startups,” Garg says. “The entire Indian ecosystem has really matured over the last 20 years over successive investment waves, and the phenomenal penetration of mobile internet devices is transforming.”

“When we started Leo Capital, we typically received 100 inquiries each month from startups looking for capital, but today it’s more than 250,” adds Verma. “And the quality of these companies is stronger than ever – they are growing much faster.”

Investors are definitely waking up to the opportunity. Data from Crunchbase suggest that Indian startups attracted $ 16.2 billion in capital in the third quarter of 2021 alone; by contrast, their counterparts in China raised only $ 12 billion. It was the second time in the last six quarters that India had surpassed China – and over 2021 as a whole, Indian startups aim to raise well over $ 35 billion, comfortably surpassing last year’s record total of $ 22.8 billion.

Leo Capital’s fund, scheduled to close early in 2022, will not add to these totals, but Garg and Verma have played their part in India’s venture capital boom. This will be their third fund, with two former vehicles raising $ 106 million between them; this money has been used for no less than 32 growing Indian companies. It’s early, but Garg says the two funds are “performing well” so far.

Their investors, including a leading state wealth fund and a number of international institutions, certainly seem to have an appetite to make further commitments. The new fund raising reflects wishes from existing limited partners for additional opportunities as well as demand from new investors.

Like its predecessors, the new fund will focus on two investment themes that Leo Capital has highlighted. First, both Garg and Verma are excited about the potential of technology-based startups targeting the Indian consumer in areas such as e-commerce, edtech, fintech and insurance. In addition, they point to the growing reputation of Indian technology companies on the global stage and such companies will also be included in the portfolio.

With so much capital flowing into the country, it becomes a challenge to ensure access to the most exciting opportunities. But Leo Capital believes that the background of its founders offers a crucial competitive advantage. Both men have a long experience of building their own companies as well as investing in other people’s ventures, which means that they are well equipped to offer portfolio companies practical support and advice as well as investment capital.

Garg, for example, founded Pine Labs, GlobalLogic and Sunstone Education, all of which grew to become multi-billion dollar valuations. Verma is best known in entrepreneurial circles as the founder of MyHealthMate, but also has extensive experience from staying with institutional investors who support growing companies; it leaves him well placed to advise management teams on how to work with investors.

“We’ve gone from being players to coaches,” says Verma, who claims that this is what many Indian startups need – and what is missing from many investors. “Our background as entrepreneurs gives a sense of empathy with founders,” he says. “We want to build intimate relationships.”

It takes some patience, both Verma and Garg accept. Clearly, over time, their own investors will look for them to achieve successful exits from companies that have invested in, but they insist that they will not be rushed. “This is patient capital,” Garg says. “We want to invest in companies that become big and meaningful, and that will take time.”

The impressive record of Indian startups in recent years suggests that investors can be rewarded for their patience. About 68 startup companies have achieved unicorn status – with a valuation of $ 1 billion – in India since 2014, and that number is set to reach 100 by 2023. Together, these companies are valued at $ 210 billion.

Exit opportunities are also wide, especially given the rapid growth of the Indian stock market. “India’s public market can grow to a capitalization of more than $ 5 trillion, making it the fifth largest in the world within three years,” Verma points out. “There are 150 private companies waiting behind the scenes that could potentially take to the market within the next three years.”

Whether Leo Capital’s portfolio companies will be among these IPOs is still unknown, but the two founders are unsure of their potential. “We’re looking for companies with a vision and a business model that can be scaled to become lasting, effective large companies,” adds Garg. “We remain true to technology-centric companies with a firm belief that technology creates exponential power and value.”

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