Fund focus: Chiratae eyes global growth
Chiratae Ventures has raised a growth-stage fund to participate in later-stage rounds for Indian portfolio companies that are becoming ever larger and ever more international in their outlook
Indian eyewear retailer Lenskart, one of eight unicorns to emerge from the Chiratae Ventures portfolio, received USD 500m from Abu Dhabi Investment Authority (ADIA) in March. The company has raised more than USD 750m in the past 12 months and cemented its status as the world’s largest eyewear manufacturer with the USD 300m all-cash acquisition of Japan-based Owndays.
Chiratae participated in the most recent round through its debut growth-stage fund, which reached a final close of INR 10bn (USD 122m) last month. Lenskart’s rapid ascent to global prominence underscores why Chiratae moved quickly in introducing growth equity alongside its existing early-stage VC strategy.
“Our portfolio now has a market capitalisation of USD 20bn and USD 3bn in revenue. The largest companies are growing faster than the rest, while burning little or no money. We needed to support them for the next 5-6 years as they go through up-rounds,” said Sudhir Sethi (pictured), the firm’s co-founder and chairman.
“It was opportunistic. We had pro rata rights to participate in funding rounds for these companies and we wanted to exercise them, but our venture capital funds do not have enough capital.”
He described the fundraising process for Chiratae Growth Fund (CGF-I) as the firm’s fastest ever. A first close of INR 7.6bn came in October, four months after launch. By January, the fund was closed to new commitments, having come in 34% oversubscribed against a INR 7.5bn target. The final close was delayed because overseas investors needed additional time to complete administrative duties.
Chiratae opted for a simple structure. Most of the firm’s USD 1.1bn in assets under management are held in five early-stage funds, which comprise an onshore fund and an offshore feeder. CGF-I is entirely onshore, and overseas LP access was limited – only 57 Stars and Middle East family office NB Ventures participated. The split is 80-20 in favour of local LPs; the most recent early-stage fund was 50-50.
Normal service will resume for Chiratae’s fifth flagship VC vehicle, which is expected to launch imminently with a target of USD 350m and the option to go up to USD 500m. Fund IV closed on USD 337m in 2021. CGF-I is expected to be the first in a similar series of progressively larger funds that operate in parallel, ultimately under a dedicated team.
“To do a growth fund, we needed a critical mass of growth-stage investments to shape up. This has been a 16-year journey for us. We were already doing some crossover investments, backing some of the larger assets where we still held board positions,” said Anoop Menon, a principal at Chiratae. “In 2021 and 2022, USD 1bn in primary capital [from all investors] went into our existing portfolio companies.”
CGF-I will accumulate a portfolio of 12-15 positions over the next two to three years, writing cheques of USD 5m-USD 15m. It has the scope to back existing portfolio companies and make new investments. The fund cannot lead rounds for existing portfolio companies to avoid potential conflicts of interest around price-setting and facilitating exits for older funds.
Menon noted that the “bigger picture has been stressed” for India’s start-up community, with investors becoming far more scrutinising in terms of business models, valuation multiples, and performance metrics. However, he believes there is no shortage of global investor demand for the strongest companies and these players will take advantage of the opportunity to scale faster.
More generally, Chiratae emphasises India’s compelling long-term fundamentals as a digital powerhouse. The firm estimates that as India matures into a USD 5trn economy over the next three years, digital will account for USD 1trn, which includes a start-up ecosystem of USD 250bn.
For CGF-I, most of the returns are expected to come from exiting positions to larger investors in later-stage rounds. Sethi projects that no more than five companies will take the domestic IPO route. “For technology companies, secondaries will be dominant, IPOs will be second, and sales to strategics third, because these businesses have scaled to a level where few strategics can buy them,” he added.
The opportunity set is illustrated by several big-picture trends. These include the foundations India is building for the digital economy such as India Stack, a unified digital infrastructure encompassing identification, documentation, data security, and payments. At present, 300m people are using it to make payments at negligible cost and the total is set to reach 800m within seven years.
There are plans to bring the same accessibility to e-commerce through the Online Open Network for Digital Commerce (ONDC), which is already being used to facilitate food deliveries that cut out intermediaries. The application scenarios are much broader, with Sethi suggesting that Amazon will have to plug into ONDC to survive once the targeted 70m-plus small businesses are brought online.
Another trend visible in the Chiratae portfolio – and exemplified by Lenskart – is the internationalisation of Indian start-ups. The VC firm’s investee companies currently generate 20% of their revenue overseas, but that share is growing rapidly, and the footprint now extends to 19 countries.
Software-as-a-service (SaaS) is an established international phenomenon. Sethi now sees e-commerce and digital health start-ups that have achieved dominant positions in India venturing overseas. In addition to Lenskart, Chiratae is a longstanding backer of mother-and-baby retailer FirstCry, which is nearing USD 1bn in annual revenue and has entered Southeast Asia and the Middle East.
Increasingly, commerce companies are looking to take their own brands into new markets rather than sell on behalf of third parties. “Lenskart produces 110,000 units per day in India, more than any other eyewear company globally,” Sethi said. “Our portfolio companies have 15 manufacturing units doing the same thing for international and domestic markets. We have been working on this for the last six years.”
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