Exclusive | Sixth Sense Ventures to close Rs 2,500-crore fund from domestic investors amid epic boom

Nikhil Vora.

Sixth Sense Ventures, which wanted to raise a Rs 900-crore fund six months ago, is planning to close it down at nearly three times that amount, that too from only domestic investors, reflecting the unprecedented startup funding boom in India

Sixth Sense, founded by former IDFC executive Nikhil Vora, plans to close the fund—its third—at about Rs 2,500 crore, and is finalising commitments from large institutions, including listed pharma and consumer companies and insurers, sources said. Vora confirmed the development and said the fund will be closed soon.

“We would be the largest domestic fund raised in India. I really didn’t expect this kind of response and fundraising environment,” Vora said. Moneycontrol had first reported about the fundraising talks on August 10.

Sixth Sense backs early-to-growth-stage consumer companies, its portfolio comprising Bombay Shaving Company, beer-maker Bira, sauce-maker Veeba Foods and Sachin Tendular-backed entertainment arena Smaaash. It is a uniquely structured fund with strategies and incentives vastly different from most other venture firms.

From the new fund, it plans to make about 35 investments, with an initial cheque size of Rs 40-50 crore, which can go over Rs 100 crore, including follow-on rounds.

Compared to investing Rs 500 crore over three years from its previous fund, Sixth Sense has committed Rs 500 crore in the last three months, Vora said.

Unlike traditional venture funds, Sixth Sense invests in offline and online consumer firms, not always technology led, the way VCs prefer. Sixth Sense is also taking a more calibrated approach than typical VCs, for whom a couple of investments will become multi-billion-dollar companies and give the investors nearly all their returns, while some companies will fall by the wayside—shut down or be acquired for a lower valuation.

Sixth Sense is betting that most, if not all its companies will scale, and even if they don’t become multi-billion-dollar companies, a portfolio full of companies valued at $400-500 million could still net massive returns for an investor if there are no failures, said people familiar with the fund. The strategy is similar to private equity funds, although Vora insists Sixth Sense is a venture firm, given that it comes early into a company’s journey, and some of these companies may not be profitable.

Vora had filed with market regulator Sebi earlier this year to raise Rs 900 crore, with an option to garner up to Rs 1,500 crore, if demand overshot his expectations— the so-called greenshoe option. The fund still overshot his wildest expectations.

“Demand for domestic VC funds is crazy. The age-old institutions— listed companies and corporates —really want to tap into the new economy,” said a fund manager, requesting anonymity.

“Top VCs— Sequoia and Accel, and PE funds, say Kedaara or ChrysCapital — raise money only from foreign investors. So if a domestic LP (limited partner, who backs funds) wants exposure to the new economy, this is the ideal vehicle,” the person said.

Sixth Sense also recently hired Ketki Paranjpe from L Catterton as a partner in its investment team.

Startups have raised over $25 billion in a little over nine months of 2021, nearly doubling the previous annual funding record of $13 billion in 2019.

Sixth Sense, founded by Vora and his IDFC colleague Japan Vyas, raised its debut fund of Rs 118 crore in 2016, followed by a Rs 515 crore fund in 2018. Vyas left the firm in 2018 to launch his own consumer-focused VC fund, Roots Ventures.

In its first fund, Sixth Sense is sitting on returns of 2.5 times the invested capital, while its second fund has 1.9 times the invested capital, as per its website. Its funds are relatively young and could see more portfolio markups — companies raising money at a higher valuation — making its fund outcomes even better, people tracking the space said.

Vora recently said in a LinkedIn post that both of Sixth Sense's funds are among India's top-performing funds from 2010-18, citing numbers from financial data platform Preqin.

However, whether similar returns can be made from a much larger third fund remains to be seen, more so in India, where 70 percent of funds have not returned money to investors in the scheduled time period of 7-1o years, as per Vora. Vora is betting on the Indian consumer market expanding rapidly and companies growing faster than they were earlier.

Another investor— venture debt firm Alteria Capital — recently raised an Rs 1800-crore venture debt fund, also entirely from domestic LPs, resulting from similar unprecedented demand.