Didn’t know Zomato, PolicyBazaar would become so big: InfoEdge Ventures partners on finding generational companies

You’ve seen many entrepreneurship waves in India, from classifieds and food delivery to fintech and now AI. How has your investment strategy evolved over the years?

Chinmaya Sharma: We have been a technology-first investor over the years. The primary sniff test that we deploy to be able to tell ourselves if there is an opportunity is that technology should be at the forefront of the product and offering of the company. We have been early-stage investors primarily, which means that very often we will find ourselves evaluating opportunities where it's three founders in a garage, or really early days of a company.

Also, one important point: our funds have a 12+2-year structure. That long horizon is intentional, because we’ve seen that it takes a very long time—often more than a decade—for real value to get built.

Info Edge has committed Rs 1,000 crore to your third fund. Are you looking to bring on more LPs or limited partners?

Sharma: We already have a commitment of Rs. 1000 crore from Info Edge. We are also speaking with two or three external LPs and we may increase it further. We are looking at around $180–200 million (Rs 1,500–1,700 crore) for this fund, eventually.

Compared to peers, your fund size is smaller. Why is that?

Kitty Agarwal: We feel $150–$200 million is the kind of size you want to have if you want to do pure early-stage and not play growth. Large funds are not conducive to early-stage investing and returning capital meaningfully to LPs. Once you’re over a certain size, you inevitably start drifting towards growth.

Will the third fund also focus primarily on early-stage investments?

Agarwal: Around 80-85 percent of our investments are in companies where we are the first or second institutional investor. We reserve a significant chunk—more than 50 percent—for follow-ons, and about 15-20 percent for late-stage, pre-IPO opportunities.

Many VC firms have raised funds this year after a pause in 2024. Is this the right time to be raising a new fund? Are LPs more bullish now?

Agarwal: On the contrary, LPs have become very selective. For us, we do not try to time the market when we are raising funds. It's more a question of whether the earlier fund has been deployed.

Sharma: Our fund cycles are structured for 12+2 years, so ups and downs in the macroeconomic environment are inevitable. Therefore, it doesn't really matter what the starting point is.

Has all the capital from your first two funds been deployed?

Agarwal: In first cheques, yes. There are reserves for follow-ons.

What cheque sizes are you targeting with Fund III?

Sharma: The first cheque could be as small as $500,000 to (as large as) $5 million. But the average cheque size would be around $2.5million.

We have seen cheque sizes increase over the years. Are you gravitating towards larger cheques as well?

Agarwal: Actually, it's been the other way around. Our first fund had a higher entry cheque size on average than the second. But we try to figure out the right amount of capital a company needs.

What are the key sectors you are bullish on with the new fund?

Sharma: Our traditional sectors are consumer internet, B2B platforms, AI, SaaS. We are also looking at emerging sectors like climate and sustainability, cybersecurity, defence tech.

Agarwal: It broadly stays the same for us, maybe a little more emphasis on AI and enterprise infra.

What kind of opportunities are you seeing in AI?

Sharma: AI will become a horizontal force multiplier. We’re seeing infrastructure offerings around data, semiconductors, algorithms, LLMs and applications across consumer and enterprise.

Are you seeing more opportunities pop up in areas like quick commerce?

Agarwal: We have been large investors in Zomato, so we were very early believers in this space. In the fund, we've got one company doing fashion quick commerce, some piloting beauty, and others doing B2B quick commerce with fruits, vegetables, apparel, footwear, etc. We are very bullish about it.

Are you seeing more demand come from Bharat?

Agarwal: We’re seeing traction in the Bharat segment. We have companies like BuyEazzy doing beauty commerce in tier 3 towns and beyond, and Gramophone in agritech.

In your next fund, where do you think the next Zomato or PB Fintech will come from?

Agarwal: We didn’t know that Zomato and PolicyBazaar (promoted by PB Fintech) would become so big. So any kind of crystal-ball-gazing when you are an early-stage investor is quite like shooting in the dark. Hopefully, a lot more will come out, because a lot of businesses are doing extremely well and have great momentum.

Out of those, one is a 16-year-old investment, and the other is 15 years old. So if you were to ask us this question maybe five years out, when the first fund is 10 years into its cycle, then we’ll be able to tell you which company becomes the next Zomato or PolicyBazaar. We have a lot of $1 billion outcomes in the pipeline, but it is very tough to say.

What goes into identifying these generational opportunities?

Agarwal: It all starts with the founder. When Zomato started, no one thought restaurants could pay so much. No one foresaw that food delivery could become such a big market. When PolicyBazaar started, there was no internal comparison in this country.

Even when Info Edge started, for example, it’s not like we could foresee that it could become so big. What’s key is to identify the right team. And second, do they have a very sharp customer insight that they are waiting for? And is the solution, the way they envision it, going to help solve that customer problem? And then, are you obsessively focusing on the consumer and just executing it? I think it just comes down to that.

Beyond capital, what kind of edge do you bring to founders?

Sharma: Because of our origins in Info Edge, we have an operating background. We try and help with real-world advice, connections and long-term strategy, including going public.

Agarwal: We’re patient. We’ve seen companies go through near-death experiences and come out stronger. So we panic less and help guide founders with a more rational head.