Avataar hits first close on second India growth-stage tech fund

The firm said it had received commitments from institutional investors in the US, Europe, and the Middle East, but declined to comment on the size of the first close. That information was shared with AVCJ by a source close to the situation.

Avataar was formed in 2019 when Mohan Kumar spun out from Norwest Venture Partners and won support from HarbourVest Partners for a USD 300m fund that acquired six assets from Norwest’s India portfolio. There was additional capital for follow-ons and some new investments. Two years later, Avataar raised a top-up fund of USD 100m.

The six assets were Appnomic Systems, Capillary Technologies, CRMNext, ElasticRun, Zenoti, and Manthan Systems. Zenoti, a software provider for spas and salons, achieved unicorn status in 2021 and B2B e-commerce marketplace ElasticRun followed suit earlier this year. Meanwhile, Capillary, a customer relationship management software-as-a-service (SaaS) platform, filed for an IPO in December 2021.

Avataar backed RateGain, a travel and hospitality-focused software provider, in 2020 and saw the company raise INR 13.4bn (USD 162m) through a domestic offering towards the end of last year. In September 2021, the firm participated in a USD 100m round for Amagi, SaaS platform aimed at TV broadcasters. Seven months ago, it closed a follow-on round at a valuation of USD 1bn.

“The earlier funds are one of the top performing funds globally as per Cambridge Associates benchmarks,” Avataar said in a statement. The source close to the situation added that the HarbourVest-backed secondary portfolio is marked at 3x.

Kumar’s objective with Avataar was to fill a perceived gap in the growth-stage B2B and SaaS space, and then to offer a degree of operational support. To that end, he brought in Nishant Rao, formerly COO of SaaS giant Freshworks, as a founding partner. There are also dedicated operating partners.

The firm constructs deliberately concentrated portfolios of only about a dozen companies per fund. It writes equity cheques of USD 10m-USD 50m for businesses with annual recurring revenue (ARR) of USD 10m-USD 30m and looks to help them scale beyond USD 100m.

Rao said that three of the nine current portfolio companies have achieved USD 100m in ARR or USD 1bn in gross merchandise value (GMV). He added that three or four more are on track to reach one of these milestones – ARR is the accepted metric for SaaS – in the next couple of years.

Avataar noted that B2B technology and SaaS have proved relatively resilient despite a decline in overall growth-stage investment in India over the course of 2022. Fund II has already entered the deployment phase and negotiations are underway with several companies.

“This is a great vintage to invest in SaaS – the unrealistic hype in the market is done favouring founders with superior execution and profitable business models,” Kumar said. “In general, we’re proud to see that Indian SaaS companies are able to build global businesses far more efficiently – they spend less than half the amount of money for every dollar of ARR earned compared to global peers."

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• Topics
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• enterprise software
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• Avataar Venture Partners