Mumbai / March 05, 2021 / 17:04 IST
Blume Ventures has raised a Rs 350-crore fund to buy out its own holdings in older portfolio companies and double down on some of its existing investments, it said on March 5. It is giving older investors from its first fund an exit by selling their holdings to newer investors (limited partners). Such a structure is unique and solves a number of issues for the venture capital firm. Moneycontrol was the first to wrote about this fund- Fund 1x- on February 5.Six companies from Blume’s first fund in 2010 have been packaged into a portfolio and their positions are being acquired by the new fund, Fund 1x. The companies are GreyOrange, Purplle, and Turtlemint, and three growing B2B stars – Exotel, IDfy, and WebEngage. Venture funds generally have a lifecycle of seven-10 years during which they are supposed to invest and return profits to their LPs. The LP structure is key to this transaction working out. A new set of domestic LPs are replacing Blume’s old LPs. LPs, or limited partners, are high net worth individuals, family offices, university endowments, or pension funds that invest in venture funds.
“We believed that the capital markets were harsh to some of our best Fund I founders (pre-2015 era) and we wanted to back them further as they begin to shoot up to their true potential. In Avendus, we found a willing partner to structure this. We are excited and hope to see 4-5x growth in each of the portfolio companies from here in a short 4-5 year period.” said Karthik Reddy, founding partner at Blume.
A combination of primary and secondary investments is vital to Blume’s investment recast. With the new fund and new LPs investing in Blume’s 10-year-old investments, they are betting these companies can still grow significantly.This fund allows Blume’s Fund 1 and Fund 1A investors to see gross cash returns of over 2x while they can still expect an additional 1-2x from the residual positions that were not a part of this secondary portfolio.Adding some primary deals was like a sweetener from an LP perspective. As reported by MOneycontrol, in addition to some of the older companies, they would also get stakes in some of the newer companies and be part of their long-term growth.Fund 1x will have an investment period of two years and a five-year life cycle that can be extended to seven with the approval of LPs.It expects to generate an Internal Rate of Return (IRR) of 25 percent—the average rate of return adjusted for the time value of money—generally the yardstick for measuring VC returns. Because this fund will invest in established firms but at higher valuations, its risk is lower but so are the returns.“We are excited with this new fund and continue the journey with some of the best of our founders in Fund I and IA, whilst ensuring that we were able to deliver meaningful returns to our investors, net of all fees and expenses. We continue to be in further discussions for the select assets including global-first innovation businesses and those targeting the Indian consumer from the remainder of the portfolio to be part of another similar portfolio basket”, says Ashish Fafadia, Partner, Blume Ventures, who led this fundraise for Blume.
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