3one4 raises $200m for early-stage India fund

The LP base features the three Indian banks deemed systemically important – State Bank of India, ICICI Bank, and HDFC Bank – five of the country’s largest listed banks, eight domestic mutual fund houses, leading corporations, and assorted Indian family offices. Overseas participants include US endowments, sovereign wealth funds, corporations, and insurance companies.

Institutional investors account for 90% of the corpus, 3one4 said in a statement, adding that there was sufficient demand to raise USD 250m. Pranav Pai, the firm’s co-founder and CEO, said last month that he expected a near 50-50 split between foreign and domestic investors. Previous funds, all of which are rupee-denominated, have tended to be at least two-thirds domestic.

For Fund IV, 3one4 has established a structure in Gujarat International Finance Tec-City (GIFT City) to accommodate overseas LPs. The GIFT City entity works in tandem with the onshore alternative investment fund (AIF) structure; there is no master-feeder arrangement.

GIFT City is intended to replicate much of what is offered by Singapore and Mauritius in terms of taxation and other regulations but weaves in advantages tied to being treated as local capital. 3one4 has never used Singapore or Mauritius, rather it asked overseas LPs to convert their commitments into rupee and go directly into the AIF.

“GIFT came at the right time for us. We were always an AIF and that came at a cost; some LPs weren’t comfortable with it and so they couldn’t work with us,” said Pai. “We’ve never believed in pooling, it’s a hackneyed solution rather than a permanent solution.”

Pai founded the firm with his brother Siddarth (pictured, left to right). Their father is T.V. Mohandas Pai, formerly a senior executive at Infosys. The firm is barely eight years old, but claims to be one of India’s largest homegrown VCs, with more than INR 60bn (USD 750m) in assets under management. Its portfolio companies have a combined market capitalisation of USD 7.5bn.

3one4 raised INR 1bn for its debut fund in 2016 and INR 2.5bn for its sophomore vehicle two years later. Fund III closed on INR 10bn in 2020. The firm has also raised a USD 60m top-up vehicle to support companies in Funds I and II as well as a USD 7m seed fund.

The early-stage strategy is unchanged. 3one4 will target opportunities in consumer internet, software-as-a-service (SaaS), financial technology, enterprise-level and small business digitalisation while increasing exposure to newer areas such as digital health and climate technology. It will participate in pre-seed through Series A rounds, writing cheques of USD 500,000 to USD 5m.

Pai told Mergermarket, AVCJ’s sister publication, earlier this year that about 50% of the corpus will be earmarked for follow-on investments in existing portfolio companies. Co-investors could add another USD 5m-USD 25m to each deal, he added, noting that 3one4 had delivered USD 130m in co-investment to date.

The Pai brothers have elevated two investment professionals to serve alongside them at partner level. Anurag Ramdasan made the jump in 2021 and Nruthya Madappa followed suit last month. The firm has also built out a range of functions intended to support start-ups. These include in-house teams covering finance, governance and business integrity, growth and capital development, and research.

"We will double down on India-specific businesses, given our lessons from market leaders such as Licious, WeRize, and KukuFM, and will remain bullish on India's consumption patterns. We also plan to continue deploying more capital into cross-border SaaS investments, given our positive experience partnering with leaders like DarwinBox, BetterPlace, and others,” Ramdasan said in a statement.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• South Asia
• Fundraising
• Venture
• Technology
• GPs
• India
• 3one4 Capital
• Fundraising
• TMT