Deal focus: Avataar seeds India SaaS portfolio

Several of the handful of secondary restructuring opportunities to emerge in India have been driven by US investors looking to exit the market. The team responsible for the KPCB and Sherpalo Ventures joint venture rebranded as Lightbox Ventures and bought out the existing portfolio, while Canaan Partners offloaded its India assets to J.P. Morgan Asset Management.

In contrast, Norwest Venture Partners (NVP) still has a seven-strong local team and remains committed to the market. The secondary transaction that resulted in the formation of Avataar Venture Partners was born of NVP alumnus Mohan Kumar’s desire to pursue a specialist strategy and his recognition that a seeded portfolio was the best way to do it.

“There is a need in India for a late-stage investor in the B2B and software-as-a-service [SaaS] space,” says Kumar, who spent nine years with NVP. “I think it’s possible to build 100 companies of $100 million or more over the next five to 10 years.”

He identified six assets he wanted to spin out and won approval from NVP to pursue a deal. Then Kumar spoke to four or five investors capable of backing a secondary. HarbourVest Partners emerged as the preferred partner, agreeing to serve as the sole LP in a $300 million fund that would acquire the relevant positions from NVP and provide additional capital for follow-on rounds and some new investments.

The portfolio comprises Appnomic Systems, Capillary Technologies, CRMNext, ElasticRun, Manthan Systems, and Zenoti. Capillary has raised the most capital, with more than $100 million committed across at least four rounds. NVP first backed it in 2014. “Companies that have done well get the sales and marketing function right,” Kumar says. “They know how to qualify a lead, nurture a deal, and hand it over to the field salespeople. They can also do it globally and cost-effectively.”

New investments will be in the $10-30 million range. Companies must have at least $15 million in recurring revenue, the potential to scale up to $100-150 million within five years, and the ability to execute globally. Avataar plans to take a hands-on approach to portfolio management, and to this end, Kumar is working with Nishant Rao, formerly of software developer Freshworks. The team will grow from three to five, with an emphasis on operations rather than investment specialists.

Much effort will be directed towards building core capabilities in sales and marketing. Beyond that, Kumar says that some companies have product issues to fix – what works in one geography doesn’t necessarily work in another – and others need help with recruitment. US expansion is a priority for most businesses, based on Avataar’s belief that it is the only market capable of sustaining $100 million in annual revenue on its own.

“We are not trying to create ERP [enterprise resource planning] and CRM [customer relationship management] platforms that work for everyone. Those days are gone,” Kumar adds. “The trick is to find a space that is narrow enough but at the same time big enough to require specific product. The customers don’t want Salesforce or Microsoft.”

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• Topics
• South Asia
• Secondaries
• Technology
• Venture
• India
• Avataar Venture Partners
• HarbourVest Partners
• Secondaries