Kalaari bets on founders to ride e-commerce wave

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At a time when several venture capital (VC) funds are being questioned for their investments in the Indian e-commerce sector, Bengaluru-headquartered Kalaari Capital is among the few who have managed to make money from the sector, exiting 15 of its 75 investments. It is also among the few who have two unicorns (companies valued at $1 billion or more) in its portfolio - Flipkart and Snapdeal.

For founders Vani Kola and Rajesh Raju, it's not so much the idea, but the people they are betting on. "You can have a great idea and great business model but you will need the drive and passion of an entrepreneur to make it success. For instance, Kunal Bahl had the stamina, vision and the will to pursue and, hence, we have Snapdeal. He has gone through some really tough times," says Raju.

The bets taken by Kalaari also reflect India's digital story. The first fund, then known as NEA IndoUS Venture Partners, bet on early e-commerce models, with a focus on large category horizontal models. This is the time they invested in e-commerce firms such as Myntra and Snapdeal. "The focus to invest in product firms then was more compared to our other two funds. We operated as any other Valley VC firm would with equal focus on B2B and B2C consumers," Raju adds.

The first fund was in partnership with Vinod Dham and Silicon VC firm New Enterprise Associates and was called NEA IndoUS Venture Partners. By the time they launched the second fund, the founders were confident that e-commerce would thrive. They started investing in vertically focused e-commerce start-ups such as UrbanLadder, Bluestone and Zivame. It also realised early that mobile would be big in India.

NEA IndoUS Venture Partners moved on to become IndoUS Venture Partners after NEA decided to invest in India directly. The firm was rechristened as Kalaari in 2012 and raised its third fund last year with a corpus of $285 million. While $210 million will be used for early-stage Series-A investing like its previous funds, around $75 million is part of Opportunity Fund, for late-stage funding of portfolio firms.

"At Kalaari, we have been fortunate in having front row seats to the start-up revolution that has gone down over the past decade. We have been witnesses to entrepreneurship becoming a mainstream career option. We have experimented with our own branding to have a more local positioning," says Kola. After a decade of its operations in supporting the Indian start-up ecosystem, Kalaari this year announced the launch of K-Start, which will help in building a very early-stage ecosystem in India.

"What is different about K-start is we invest in early-stage start-ups as well. We'll invest start-ups, give them access to mentors, partnerships, market expertise and investment."

K-Start has a corpus of $10 million, which can go up to 20-25 million with other investors joining in. It receives 250 applications every week of which 10 are selected and only two get funded. So far, it has invested in six start-ups.

Exits
Since 2006. the VC firm has invested in 75 firms, out of which it exited 15. The biggest exit was when it sold Myntra to Flipkart. Over a period of time, it sold some stake in Snapdeal, too. According to reports, Kalaari has made about $150 million by selling partial stake in these two e-commerce players.

When asked if it would have been better to have sold back stake in these unicorns much before, he disagrees. "The answer is no. I agree liquidity is not going to be easy this year. But, if you look at the valuations of these firms, they have improved. If we had sold our stake last year, we would have got half the money. But, then, we have not really tried hard to sell it either."

Kola, on the other hand, believes exits in India still need to mature. "We are committed to our entrepreneurs for the long run and we believe these companies are yet to achieve their full potential. Exits are not a common phenomenon in our industry. Exits are also a function of prevailing market sentiments, which are currently not euphoric," says Kola.

Despite all the upheaval in the Indian e-commerce sector, Kalaari founders believe there is huge growth potential and that the role of VCs in India will be crucial. "Our core belief is that VCs have to be an integral part in building new India. We believe in that thesis and many of us have returned to India. But, it is very difficult to sustain. We believe India is a large enough country and we can create $1 billion worth of companies. India is the only market that has the size and scope like China and the US. It is the only country where you can create companies similar to these two markets," says Raju.

FUNDS RAISED SO FAR
Fund I
$190 mn

Fund II
$163 mn

Fund III
$285 mn*
*Approx.