How VC fund Stellaris upped its fund size | Economic Times

Early-stage investor Stellaris Venture Partners said it has raised $225 million for its second India-dedicated fund, coinciding with an unprecedented funding environment fuelling the domestic startup and technology sector. The corpus mopped up by Stellaris is almost three times the size of its $90 million maiden fund, launched four years ago. This makes the four-year-old Bengaluru firm among the largest in the seed-to-series A stage funds in India, a segment which has seen heightened interest over the past few years.Founded in 2017 by three former Helion Venture Partners executives, Ritesh Banglani, Alok Goyal and Rahul Chowdhri, Stellaris is part of a new breed of funds that emerged after the first bull cycle in India’s startup ecosystem. The trio had together exited Helion, one of the oldest homegrown venture capital firms, in December 2015 to focus solely on technology investments.Stellaris, which has backed startups such as consumer brand Mamaearth, software-as-a-service (SaaS) firm Whatfix, and health tech platform Mfine, has snagged 80% of the capital from global limited partners (LPs) for Fund-II, with the rest of the dry powder coming from Indian entrepreneurs, family offices and others. Stellaris became one of the first VCs to raise from around 50 startup entrepreneurs and business professionals in Fund-I.While the previous fund had secured almost 50% of the commitments in rupee capital, this has reduced significantly as more international investors pitch in. The second fund has upped its foreign institutional exposure and now boasts of 75% US dollar denominated capital. As for its Founder Network, its members include the likes of Hari Menon of BigBasket, Pankaj Chaddha of Zomato, Sahil Barua of Delhivery, Deep Kalra of Makemytrip, and Gaurav Munjal of Unacademy. 85228081Talking to ET about the fundraise, Banglani said that with the number of investable opportunities going up, Stellaris will back more startups going forward. While Fund-I had invested in 19 firms, it is now expected to plough capital into 25-30 startups. “We needed this size to make larger upfront investments, to back our conviction with dollars. It also allows us to support founders for longer. Now, if we enter at the seed stage, we can back companies for four funding rounds and that requires capital. It helps the entrepreneur as they have the support to go on and execute for next 18 months, while also protecting our ownership in good companies for an extended period of time.”The fund had earlier set out to raise $160 million but decided to increase the amount by more than $50 million.Hyperactivity in seed-stage investing With an increased pool of capital chasing fledgling startups, Stellaris will look to participate in bigger early-stage financing rounds, which have been growing in number as valuations have become steeper even at the idea stage.ET reported in its March 18 edition about the funding frenzy in early rounds, which has further picked up speed since then. Goyal said, “The raw deal flow has gone up 5X in the past 10 years while the investable deal flow or opportunities have increased 10X as companies raise more money. Our own execution capacity has also kept pace as we have increased our team.” Stellaris has typically made investments in seed and Series A companies which have been valued around $10 million, Banglani said. “That may have become $15 million but it has not become $25 million. We feel this is still the best bang for our buck and the return potential weighted with risk is in seed and Series A. We are not seeing a massive increase in those stages. That major valuation uptick happens when the company gets built,” he added. 85228087On larger VCs becoming active at the seed stage, Chowdhri said India is still a capital-starved country and that more funds and funding will help build larger companies. “Our preference has been to collaborate with funds and we will continue to do that,” he added.The competition in this space has led to smaller investors racking up so-called ‘opportunities funds’ to preserve their shareholding in high-growth portfolio companies amid cut throat dealmaking. Orios Venture Partners, Blume Ventures and India Quotient are some of the seed-stage funds that have taken this route. What’s also led to this intense battle is the advent of the blue chip VCs such as Sequoia Capital launching specialised programmes like Surge to back seed-stage startups. Then there’s Silicon Valley’s Y Combinator and a multitude of micro VCs that have sprung up to get their foot in the door as early as possible.As for exits, Stellaris executed a secondary sale of shares in Mamaearth, which recently picked up $50 million in a round led by Belgian investment fund Sofina, as ET reported, valuing the direct-to-consumer (D2C) personal care brand at $730 million. Goyal said, “At the fund level we have returned a good amount of capital to our investors for Fund-I, while retaining a bulk of our ownership in winning companies. Even in the companies where we have sold secondaries, we hold the vast majority of our [initial] stake and will remain invested till the eventual exit." What’s worked for Stellaris?When Banglani, Goyal and Chowdhri got together to start Stellaris, they had already spent time at Helion, having invested across a dozen companies including BigBasket, Livspace, Shopclues, Truly Madly, Housing and Toppr. But it wasn’t easy for them to launch a brand new fund as first-time founder-investors focussed on technology. After more than a year of leaving Helion, when they finally pulled in $50 million as a first close, a big chunk of it (almost half) was not institutional money. Individuals, entrepreneurs, family offices along with Infosys’s Innovation Fund and Small Industries Development Bank of India (SIDBI), had backed the fund in the initial phase. Over the next year, it added the likes of Cisco Investments, an arm of technology conglomerate Cisco, and SAP, to bulk up its LP base. A venture capital investor said what helped Stellaris was that the three partners have stayed together for a long period of time. “They have been investing together for many years and have seen cycles which is what is required for good decision making.” He said that their sector focus, a small team, and pacing out investments are factors that differentiated them from the rest of the pack.While Stellaris stayed away from cash-guzzling consumer internet startups with the first fund, it may now look to deploy cash in some of these high-burn companies. “In our first fund, we focussed on product businesses, whether it was SaaS or direct-to-consumer brands. These either become profitable early on or consume less capital even if they grow exponentially. Then there are platform businesses, which need more cash but the outcomes and exits are also larger,” Banglani said. “Stellaris, with a bigger fund size, will now have the ability to participate in these platform businesses and support these companies for longer,” he added.Varun Alagh, cofounder and CEO of Mamaearth, said they have gained from the skills of the partners and the team, and their execution at the fund level. “They know where they can add value and where they can't, which is when they let others lead," Alagh said. Stellaris first invested in the direct-to-consumer brand in 2018 when it was valued around $10 million. Chowdhri sits on Mamaearth's board.