Fund focus: A91 scouts overlooked VC opportunities

Over more than a decade at Sequoia Capital India, Abhay Pandey had noticed a pattern. The firm’s international reputation meant it was always on the shortlist for entrepreneurs seeking venture capital investors to help grow their start-ups. 

However, some of the GP’s best-performing portfolio companies were the ones that never approached a single investor. These businesses, which included Vini Cosmetics and Prataap Snacks, had bootstrapped themselves through the early stages, with Sequoia joining for a Series B or C-sized investment of up to $25 million. They had little interest in adding more investor roster afterwards.

“Often these companies go unnoticed, because their founders aren’t seeking the limelight. But they’re building good businesses, and there’s always an opportunity to back them,” says Pandey, who left Sequoia last year with fellow managing directors Gautam Mago and V.T. Bharadwaj to form A91 Partners. “They aren’t in a hurry to raise capital and dilute their own holdings, so they’ll keep a majority for themselves, and just one round of funding will be enough.” 

This type of deal is expected to represent up to 50% of the transactions from A91’s debut fund, which recently closed at $351 million. The rest will comprise more traditional Series B and C investments in companies returning to the market for follow-on rounds.

Investing in overlooked start-ups poses unique challenges. These companies are not interested in attracting venture investors. A91 must therefore identify entrepreneurs through a systematic cold-calling process targeting companies in its focus areas of consumer goods and services, financial services, healthcare, and technology. It then spends time building relationships with a select few and makes the case for a partnership.

“Some of them may not want any investors, and some of them may not be investible for a variety of reasons,” Pandey says. “But you might get one or two companies that are interesting, and if you stay in touch with them for a few months you can create an opportunity to convince them you’re a good partner and you may get an investment.”

A91’s deal to date include a INR700 million ($10.2 million) commitment to Mumbai-based makeup brand Sugar Cosmetics, representing the company’s first venture investment. 

For Pandey and his colleagues, it marks an early success of the firm’s target on under-the-radar entrepreneurs, although they also see no shortage of challenges ahead.

“The job will get harder over time since more and more capital is coming into India and VC firms are reaching out in places they may not have gone to before,” Pandey says. “But we think there will still be enough companies that don’t get the attention and go undiscovered. This is a good opportunity for us.”   

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• Topics
• South Asia
• Fundraising
• Venture
• GPs
• India
• Growth capital
• Consumer