Speciale Invest, a seed-stage investment firm that focuses on deep tech and enterprise software products, on April 6 announced the final close of its second fund at Rs 286 crore. The fund announced its first close at Rs 140 crore in April 2021.
Started in 2017 by Vishesh Rajaram and Arjun Rao, the firm raised its first fund of Rs 60 crore in 2018, through which it backed 18 companies with an average deal size of around $0.5 million and scored three early exits.
With a portfolio of firms that range from space technology to video creation, Speciale Invest founders think deep tech is just about getting started in the country and with their first-mover advantage, they have enough headroom to back innovation.
"(The new fund) will enable us to continue this journey of investing in disruptive innovations that are deeply rooted in multiple streams of science, engineering, technology and sustainability" said Rao.
Its portfolio firms include spacetech startups Agnikul and GalaxEye Space, urban aerial mobility service The ePlane Company, robotics firm CynLr, cybersecurity technology firm Qnu Labs, conversation intelligence platform Wingman, livestream audience engagement service StreamAlive, no-code analytics provider Airboxr, product video creation platform Trainn, and watertech startup Uravu Labs.
Through the new fund, the firm plans to invest in more than 20 early-stage companies through pre-seed and seed rounds with the average cheque sizes ranging from $100,000 to $1 million.
It will also have a large allocation for follow-on rounds with almost 60 percent of the fund reserved to double down on the potential winners of its portfolio firms, Rajaram told Moneycontrol.
"I think if there's one big takeaway from fund one and what we would do differently if we started again with hindsight learnings was to keep a little more reserved for follow-ons because what you don't want to be in a situation is having inadequate money when something is doing really well and you want to put more (money) into it," Rajaram said.
Among the fund's backers are family offices and promoters of large conglomerates, founders of SaaS companies and professionals in fast- growing companies and more than 90 percent of them are from India. The remaining are Indian-origin executives.
Early days for deep tech
Even as the country witnessed a funding frenzy in 2021 with more than $35 billion deployed in startups, it's still very early days for the startups in the nascent deep-tech sector, Rajaram said.
"Deep tech is where consumer (tech) was 10-15 years ago, which allows us to go and underwrite early risks, like we were the first investors in a company that was making 3D printed rockets to take satellites to space or a company that's building a two-seater electric plane" he said.
While these firms typically have a longer gestation period, the scale-up is quite rapid afterwards with a very non-linear growth, Rajaram said.
"These businesses also end up having very healthy margins, they're not a 5-15 percent margin businesses, but typically a 60-80 percent margin business and at those scales, you end up getting a lot of value for everybody involved, be it your partners, your employees, or your shareholders," he added.
Deep tech, or deep technology, startups are companies whose business model is based on cutting-edge technologies such as robotics, quantum computing, rocket engines, electric vehicles, and satellite technology among others.
Focus on climate
Another key focus area is climate tech.
Rajaram said they have backed startups in areas such as electric vehicles, bikes, planes and satellites due to which they have a lot of awareness on what's really going on with our planter, be it ways to capture carbon or progress towards decarbonisation at one end, and go towards green energy that's relevant for India at the other end.
"While lithium cells are good, it's not great but we clearly have water and electricity. So, if we could find a way to make green hydrogen affordable, that's very relevant for India. These are some of the areas where we're spending a lot more of our time" Rajaram said.
With most VC funds ramping up deals in the crypto and web3 space, Rao said they are also keeping a keen eye on the sector, especially on the infrastructure layers.
Web3 is touted to be the next iteration of the internet, where online services are built on blockchain technology."We are particularly quite interested in the fundamental infrastructure side, disruptions and changes that could come from the crypto side of the world as opposed to the end applications/the currency itself. However, we still feel it is very early, despite all the buzz and the activity, hence I don't want to say we'll do a certain percentage of the fund in web3" Rao said.