E-commerce, SaaS and AI promising sectors in India: StepStone’s Newhall

The group, which writes cheques of $1 million to $150 million, funds VCs, invests directly in companies and takes part in secondary transactions when an investor wants to exit.

Last week, Zepto raised $200 million at a valuation of $1.4 billion, a 55 percent jump from what it was valued at last year. The deal ended an 11-month unicorn drought and also marked the StepStone Group’s first direct investment in India.

Ashton Newhall, a partner at the US asset management firm, told Moneycontrol that StepStone is excited about opportunities in the world’s third-largest startup ecosystem and that its investing history in India goes back several years.

The StepStone Group manages over $140 billion in assets and has invested in Indian startups indirectly as a fund sponsor (a limited partner). The group, which has over 20 offices globally, backs marquee venture capital firms such as Nexus Venture Partners and Lightspeed.

In the past, Newhall has also held a position on Bessemer Venture Partners’ board. Along with Nexus, the StepStone Group is a limited partner in Lachy Groom and others – several of which back Zepto.

For StepStone – which writes cheques of $1 million to $150 million – startups in the areas of e-commerce, software-as-a-service (SaaS) and artificial intelligence are particularly important in India. The group funds VCs, invests directly in companies and takes part in secondary transactions when an investor wants to exit. The Indian startup ecosystem has plenty to offer.

“There's a unique cocktail that makes for special venture outcomes in India. One is obviously the people (founders). The second is the skills they possess. The third is the relevant financial capital to enable them to achieve their dreams – India has always had very unique elements across all of those dimensions. So, for many reasons, both micro and macro, we are very enthusiastic about the venture investment opportunity in India,” Newhall told Moneycontrol.

Direct relationships

Banking on StepStone’s relationship with VCs, “we are very hopeful that we can continue to build our direct investment relationships as well,” he said.

StepStone alone put in $75 million in Zepto last week. The bet comes even as Dunzo, a prominent quick-commerce company in India, reels under a severe cash crunch. The struggle was not unique to startups in India.

San Francisco-based Instacart, which was valued at $39 billion over two years ago, cut its valuation to $10 billion in December 2022, just as it geared up for a public market debut. These instances, both globally and in India, have not deterred StepStone from backing quick-commerce entities.

“The model that Zepto applies is a very unique opportunity and requires capital to achieve their objectives. We're happy to be a partner,” Newhall said.

Zepto, founded by Aadit Palicha and Kaivalya Vohra, both under 25, has roped in top executives from across the industry. In May, the Mumbai-based company revamped its top deck as it sought to achieve EBITDA-level profitability in 12 months and then go for an initial public offering in the first half of 2025.

“These markets can take a while to mature. Zepto’s management team includes former executives from Uber, Flipkart, Zilingo, Myntra… the management team is very special, we’re confident they will deliver the results,” Newhall said.

Not just India

StepStone is aware of governance lapses that have plagued Indian startups.

“That is occurring in all markets around the world all the time, to some degree,” Newhall said. “Unfortunately, bad things will happen everywhere. And we’ve got to try and find the right people, who at the end of the day are rare outliers and deliver outlier results.”

Many lapses were said to be due to investor pressure and the need to deliver results.

“In a culture where there's an intense desire to put up high growth figures, the reality is that not all businesses are linear as they try to get from A to B,” Newhall said. “The biggest thing that we see at times is just the lack of transparency about that reality.”