Fund focus: 3one4’s governance gambit

India’s Capital has closed its fourth fund – and sixth overall – at USD 200m after 10 weeks in the market with institutional investors accounting for 90% of the corpus. But the venture capital firm still doesn’t feel like it’s hit its stride.

Co-founder and CEO Pranav Pai (pictured) observes that his firm is still about a year away from demonstrating its true returns potential. This is expected to come courtesy of two pending IPOs – online butcher Licious and HR software provider Darwinbox – expected to return hundreds of millions of dollars and realise a full fund cycle with 4-5x distributions to paid-in (DPI).

In the meantime, about 20 exits, mostly through M&A, have returned 3x-4x and there has been one respectably well-received IPO for start-up data platform Tracxn Technologies. Pai claims this has elevated 3one4 in the top quartile among its peers across all funds – but it was not the clinching factor for LPs in the latest fundraise.

Instead, he points to a culture of fund size discipline – demand was sufficient to raise USD 250m – as well as a youthful average age of 29-30 for a team with an operational background.

Perhaps most importantly, there is 3one4’s in-house governance and business integrity team for monitoring companies and the quality of reporting. This is led by the CFO, Pai’s brother Siddarth Pai, who is also a council member at the Securities & Exchange Board of India (SEBI).

“Our ground-up work in setting best-in-class standards in governance has really helped us win merit with LPs. They value that as much as performance. That’s very clear to us after doing this for nine years,” Pranav Pai said.

“We treat our governance team as a full part of the firm. They’re not a back-office sub-team. Their titles are the same as the rest of us. They get comped the same as the rest of us. I think that parity is important to LPs because it makes the reason that you’re doing it very clear.”

LPs in the new fund include HDFC Bank, ICICI Bank, State Bank of India, Catamaran, British International Investment, and International Finance Corporation. They were joined by two leading endowments from the US and two Japanese corporations, one of which is among the country’s largest banks.

Fund IV is notable in that it was 3one4’s first to employ the Gujarat International Finance Tec-City (GIFT City) structure, which replicates Singapore and Mauritius in terms of taxation regulations. The main benefits are simplifying reporting and accommodating overseas LPs. Historically, 3one4 has raised about 60% of its capital in India. Fund IV is just over 50% international.

Still, Pai points to local backing with pride, noting that eight of India’s 10 largest mutual fund operators are in the new fund. Part of the calculus here is based on an understanding that as the local IPO market for tech companies heats up, GPs will require more connections with domestic institutions and public market operators to fully seize the opportunity.

“It’s a very subtle shift, but every allocator I meet, from the largest pension and endowments to the fund-of-funds, they’re all thinking about a mix of homegrown and global,” he said. “If you’re just raising from Singapore, the Middle East, Europe, and the US, and saying you’ll play India, but there’s not Indian LP in the mix – that’s giving people a lot of concern now.”

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