Zomato’s first publicly traded stock in 2021 marked a pivotal time for Indian startups, as it was the first tech company on the internet to launch a stock market offer. After that, an increasing variety of late-stage companies have made a run for public markets.
The interest in late-stage startups as well as pre-IPO deals has increased after an elapse of two years the private equity companies have returned to the marketplace.
Global PE firms like Blackstone, KKR, Carlyle and TPG have always been actively investing in mid-to late-stage as well as some promising early-stage startups. However, in India, in the Indian diaspora PE money has historically avoided investing in Indian diaspora companies.
With more established companies finally obtaining their plans for listing on the public market put in place Indian PE fund managers are actively looking to find the next great betby investing in companies that have demonstrated their worth in the market.
The Mumbai-based True North is one of these PE firm.
Its initial venture into the startup market in terms of the amount of investment and funding, included PolicyBazaar during the year 2017 in which it invested approximately $50 million in total funds. It was able to sell a portion of the stake it held in an insurance company by 2021, however, not before establishing the company for its first public sale.
To increase its presence in the startup community, True North is putting together a seventh fund of investment with 25% of the funds will be invested in tech-driven, late-stage or pre-IPO companies.
The company is looking to invest in fintech, healthtech consumer tech, as well as other ventures in digital technology, Maninder Singh Juneja, the co-founder of True North Co, tells YourStory that the company is also exploring the personal care and seafood and meat sectors for possible investments.
Without naming particular names Maninder confirmed that his company was currently engaged in discussions with potential investment companiesand has entered the final stages of discussions with a handful.
However, True North is not your typical investment company.
In the beginning the investment evaluation requirements differ significantly than those found in the startup world in which the founder owns all things, even the product.
Most late-stage investors tend to focus less on the founder and their teams, and more on business fundamentals–and so it is at True North, which says it’s laser-focussed on investing in pre-IPO/post-growth-stage ventures.
The investment criteria of True North
Maninder states that in order for True North to get interested in a particular company that it must be an early-growth stage, perhaps an Series E or a Series F–venture.
The most important aspect, besides the funding stage is the size of the market that the startup is looking to target, its present value proposition, and the value proposition is it striving to create.
Other aspects True North considers include execution strategy — how the startup can achieve what it has planned to achieve using the right expertise and the procedures developed by the management to meet the requirements of the industry and how the startup differs from the competition and where it is positioned in the marketplace; and the potential impact of the startup.
Beyond the basics of the business as well as its revenue model True North also looks at the profitability indicators in detail.
In reality, during the last couple of months as a cold winter of funding has encroached over the ecosystem, investors smaller than True North — ones that usually invest in growth or early-stage companies–have asked founders to sketch out the path to profitability or at the very least, show positive unit economics. This wasn’t the case earlier.
When asked if the recent recession in funding affected the way the PE firm manages investment decisions, Maninder says bottom lines were always something True North had focussed on prior to the winter..
However, absolute profitability isn’t a measure of success.
Before it was the case that the PE firm was known to look for companies with the potential to become profitable within 4-5 years after the initial investment. Nowadays, however, factors like digital sourcing, how quickly an organization can benefit from automation, as well as the channels customers are using up with (i.e. paying traffic or unpaid traffic) are those that have more significance.
The typical investment timeframe for True North is 5 to 10 years.
Cash is King
As global markets are being squeezed, private investments have suffered a blow.
In the last few months startups have struggled to raise funds and have been laying off workers to reduce costs and expand their runway.
Investors are also sounding the siren to their investment portfolios.
The US-based investment company Y Combinator has advised its portfolio companies – including companies like Stripe, Dropbox as well as Razorpay–to plan in case of the unexpected’ as Sequoia Capital has said that the present times are an ‘episode.
“We are not convinced that this will be another correction that is steep, and then an equally quick recovery as we witnessed at the start of the pandemic” Sequoia said in a 52-slide presentation.
The general message is “brace yourself”.
To remain afloat and withstand the economic storm Startups must become more agile and keep a close watch over their reserve funds Maninder recommends.
If an organization finds itself in financial trouble and needs to raise funds, the CEO will do so even if it is at the lower value.
True North has so far invested in 61 companies which include Keya Foods, Fincare, ACT Fibrenet, Biocon Biologics as well as Manipal Hospitals.