India's Avataar raises $100m top-up fund

Mohan Kumar, who previously spent eight years with Norwest, won support from HarbourVest Partners for a $300 million fund that acquired six assets from the Norwest India portfolio. There was additional capital for follow-ons and some new deals. His goal was to fill a perceived gap in the market for a growth-stage investor in the B2B and software-as-a-service [SaaS] space.

Avataar seeks to differentiate itself from other GPs by focusing not only on in-demand, top-tier companies, but also those with slower growth and a need for operational support. To this end, Nishant Rao, formerly of global COO of India-founded SaaS giant Freshworks, joined as a founding partner.

“The fact that our new LPs have trusted us with additional capital less than a year-and-a-half of being live with Fund I, despite purely remote interactions during the pandemic, is inspiring,” Kumar said of the top-up fund, in a statement. New LPs include institutional players from Europe and the US.

In the past 18 months, Avataar has also made three new investments and recruited two senior US-based operating executives. It claims to have helped each of the three new portfolio companies achieve profitability. Half of the overall portfolio is now profitable.

The investments acquired from Norwest were Appnomic Systems, Capillary Technologies, CRMNext, ElasticRun, Manthan Systems, and Zenoti. The latter – a software provider for spas and salons – became a unicorn last December following a $160 million Series D led by Advent International. The US accounts for 60% of Zenoti’s revenue, but when Kumar first backed it in 2016, India was its biggest market.

“We talked to the founder about the size of the addressable market in Asia and it was double that of India alone. No one expects to get into China, at least not to begin with, but we figured that Asia and the Middle East would be 2-3x India. And then the US, Western Europe and Latin America is a huge market. After the fundraise they moved aggressively in the US,” Kumar recently told AVCJ.

The Avataar strategy is to make investments of $10-30 million in B2B and SaaS start-ups with at least $15 million in annual recurring revenue (ARR) and the ambition to scale globally.

The new investments include lead roles in a Series C for SenseHQ, a talent engagement platform for companies focused on high-volume hiring, and a Series B for RateGain, which claims to be the world’s leading travel and hospitality SaaS provider. The third company, Heal, is a new build that has acquired assets from Appnomic to create an artificial intelligence-enabled infrastructure operations platform.

Bain & Company estimates that India’s SaaS industry will generate $18-20 billion in ARR in 2022 for a global market share of 7-9%. This compares to $5-6 billion, or 3-4%, in 2019. Most of the money will come from companies that were founded by Indians and retain substantial teams in India – taking advantage of a high-quality, low-cost workforce – but are US-domiciled and mainly serve US clients.

PE and VC investment in India SaaS hit $1.3 billion in 2019, taking the total number of funded companies to around 1,200. Around 40 have raised Series C rounds or above. As recently as five years ago, 500 had received VC backing and 10 had reached Series C.

The recent jump in activity is consistent with global trends in the SaaS space as well as several strong exits for Indian companies that serve US markets. However, some investors also see strong growth potential in Asia as corporates that were previously unwilling to pay for software review their habits.

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• Topics
• South Asia
• Growth
• Technology
• Fundraising
• India
• Avataar Venture Partners
• enterprise software