Anicut Capital: The 'dam' of funds that is helping SMEs drive growth

The firm handles two debt funds and an angel fund, and has assets under management of about Rs 1,500 crore

Thanjavur district in Tamil Nadu is home to the world's oldest functional check dam built 2,000 years ago across the River Cauvery. Built by Chola dynasty king Karikalan in 150 AD, the dam is known as Kallanai or the Grand Anicut, and is a matter of pride for the people from this part of the state. Anicut in Tamil means dam and when I A S Balamurugan started an investment firm to provide debt to small and medium enterprises in 2015, his first choice for a name was Anicut Capital.

"Our idea was to collect funds as one would, water to build a dam, and then irrigate the right investee companies. We had some vague arguments, but fell in love with the name Anicut. The first fund, the Grand Anicut Fund-1 (GAF-1), was launched in 2016," Balamurugan said. After almost seven years, Anicut handles two debt funds and an angel fund. It has assets under management of about Rs 1,500 crore.

GAF-1 and GAF– 2 are category–II Alternative Investment Funds (AIFs) registered with Sebi and started in 2016 and 2019. Anicut Angel Fund was launched in early 2020 and has invested over Rs 100 crore across 30 early-stage startups so far. The maiden fund, GAF 1, hit its first close in 2016 and final close in 2018 at Rs 400 crore, and made investments worth Rs 700 crore in companies like Milky Mist, Sugar Cosmetics, Lendingkart, B9 Beverages, Biryani Blues, Shield Healthcare, among others.

Early this month, it announced the final close of its second debt fund, Grand Anicut Fund-2 (Category II Alternative Investment Funds (AIF)). "The second debt fund saw immense success and is being closed at Rs 875 crore with successful investments across 12 early-stage startups, with an average deal size of Rs 15-100 crore," he said. The funds have financed the likes of Bira, Wow! Momo, Sugar Cosmetics, Neeman’s, Grip Invest, Blue Tokai, Giva and ShareChat in the past.  

What is noteworthy about the second debt fund is that Sidbi has returned as an anchor investor. Sidbi was part of the first fund as well, which had a target of Rs 300 crore, but eventually raised Rs 400 crore. In terms of investor profile, almost 25 per cent of its LPs are institutions, and family offices account for 20-25 per cent, the rest are investors from financial industry, and promoters.

After the success of the first two funds, the team is set to come up with a GAF-3 by June 2022. "Probably, fund 3 should happen by June, and I would be happy if we could go to Rs 1,500 crore. That’s the plan," Balamurugan said.

Why SMEs?

When Balamurugan and his partner Ashvin Chadha decided to invest in Wow! Momo during the peak of Covid in August 2020, they believed that the food business and key SME segment are going to bounce back.

"Covid will not last forever. We were trying to identify good assets that are operationally doing well or have great potential. Those assets may down because of the Covid impact, but once it reverses, they would do well. These are the kind of calls we took and they helped us. Wow! Momo is the best example," he added. The company wants to focus on SMEs going ahead as its founders believe that the long-term growth potential is in intelligently selecting SMEs.

The company has set a target of $1 billion assets under management by 2025-26 and has already applied for an equity fund with Sebi in November 2021. "In the combination of debt, equity, angel, we think that our growth could be four to five times in like five to six years," Balamurugan added.