What we see today is appropriate level of investment

This is adapted from Business Standard

At a time when venture capital (VC) firms have been shying away from making investments, BEN MATHIAS, managing partner of Vertex Ventures Southeast Asia & India, says that it is a great time for capital deployment. The company has backed FirstCry and Licious, and in a video interview with Peerzada Abrar, Mathias says there is a correction taking place in the ecosystem compared to three years ago when companies were given money unjustifiably. Edited excerpts:

How do you see the investment scenario amid funding winter and macroeconomic uncertainty?

Our strategy is to invest early, generally at the Series A stage; we also participate in Series B and sometimes even before Series A. We closed our most recent fund, Fund 5, in September last year, raising $541 million. The previous fund was $305 million, which we closed in early 2020.

Industry reports say that after a decline of 35 per cent in 2023, Indian private equity and VC dealmaking are expected to remain tempered in 2024. What we see today is what we think is normal. We believe this is the right level of investment that needs to happen, and it is the right pace. What happened in 2022 was not normal. There was too much investment in 2021 and 2022. If a company is growing, has good margins, and has strong unit economics, there is plenty of investment available. Many investors are ready to deploy capital. I think what we are witnessing is a correction from a period three years ago when companies that should not have raised that kind of capital and were being given money unjustifiably. What we see today is an appropriate level of investment.

What are the investment opportunities that you are looking at in India?

Firstly, we are very excited about the rise of digital consumer brands in India. We have been investing in this sector, with recent investments in Pilgrim, Kapiva, and Licious. Secondly, we are excited about the Make in India strategy, which encompasses everything from toys to semiconductors. Thirdly, we see startups building all types of software, especially vertical software-as-a-service for various businesses. Fourthly, the whole electric vehicle (EV) infrastructure in India is very exciting. Rolling out EVs is just one part of the ecosystem. There is also the need for charging infrastructure and battery infrastructure. The fifth area here is what we call the next- generation business process outsourcing. By this, I mean leveraging India’s large white- collar services talent to provide services globally and utilising artificial intelligence.

Has there been any change in your investment model at a time when many top startups have been facing various issues?

We have always been very disciplined in our investing. You will never find us on any list of the highest number of investments in a year. We focus on the most successful investments. We avoid high-valuation companies and do not chase expensive firms raising excessive capital. Our strategy remains the same: we focus on company performance, metrics, gross margins, and team quality, and it is not about vanity metrics.

How do you view the declining valuations of unicorns and business losses there?

"I DON’T KNOW WHY AN INDIAN COMPANY WOULD NEED TO RAISE A BILLION DOLLARS... WHEN INVESTORS THROW TOO MUCH MONEY AT A SMALL COMPANY AND EXPECT EXPONENTIAL GROWTH, THEY SET THE COMPANY UP FOR FAILURE”

Yes, some companies got caught up in the hype. I don’t know why an Indian company would need to raise a billion dollars. It’s completely unnecessary. Such companies become victims of their own hype. When investors throw too much money at a small company and expect exponential growth, they set the company up for failure. This isn't the entrepreneurs’ fault; it’s the investors setting unrealistic expectations. You won't find us doing that.

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