Artha Venture's early bets begin to pay off as exit opportunities mount

Artha's Anirudh Damani says disciplined entry valuations-not market timing-are driving its biggest wins

Artha Venture Fund expects 2026 to be its most consequential year for returning capital to investors, as a portfolio of early-stage bets placed almost a decade ago begins to mature into exits. The Mumbai-based micro venture capital firm is targeting 10 to 12 exits this fiscal year, with returns ranging from modest single-digit multiples to more than 100 times invested capital.

 

The fund is increasingly turning to secondary sales and founder buybacks as alternatives to initial public offerings—paths that Anirudh Damani, Artha's managing partner, says are faster and more predictable in the current market environment.

 

Enterprise software has emerged as the fund's strongest-performing theme, anchored by an early bet on cloud communications firm Exotel that generated roughly 113 times its invested capital.

 

 

For the first time, Artha entered 2025 with a formal exit target—one it exceeded quickly enough to raise its ambitions for the following year. “Once we set that intent, opportunities started emerging,” Damani said. These included companies moving towards an IPO, one offering a buyback, and two receiving acquisition offers—none planned in advance.

 

“Most exits, especially acquisitions, are not planned events,” he added, noting that such opportunities tend to emerge when a company is fundraising or preparing for its next phase of growth.

 

“We're targeting around 10 to 12 exits. FY27 is expected to be the largest exit year we've had so far,” he said.

 

Artha's exits across 2025 and early 2026 included Exotel (secondary sale), Biryani By Kilo (acquired by Devyani International), Stellar (founder buyback), and Lemnisk (partial secondary).

 

Returns varied widely. Exotel delivered the standout outcome, with an early investment of about ₹7 lakh generating around 113x returns. Lemnisk's partial exit returned about 17x to the fund. Stellar generated about 20x returns with roughly 50 per cent IRR (internal rate of return). Biryani By Kilo delivered about 1x, reflecting weaker conditions in the QSR sector and the share-based nature of the exit.

 

On exits, Damani said the approach is not about chasing high valuations but assessing how the forward IRR profile evolves. As companies scale, sustaining about 50 per cent IRR becomes difficult due to the law of large numbers—prompting evaluation of exits. Damani said M&A has delivered the strongest outcomes for the fund. In acquisitions, he noted, buyers price in strategic benefits such as synergies, product integration, and talent—often resulting in a premium over purely financial valuation. Secondaries are also gaining ground as a liquidity mechanism, with the market now seeing dedicated secondary funds and family offices allocating a portion of their portfolios to such opportunities.

 

These exits come amid a broad reset in startup and IPO valuations, as markets return to prioritising cash generation over growth-at-any-cost pricing.

 

What underpins Damani's confidence is portfolio performance. In January 2026, the top 18 companies in Artha Venture Fund I generated over ₹200 crore in revenue for the month, implying an annualised run rate of around ₹2,400 crore. Portfolio-level EBITDA for that month was also positive, with some companies already reporting provisional full-year profits and at least one expected to deliver around ₹100 crore in PAT.

 

That broader macro context reinforces the case. India's economy is growing at around 6.5 per cent, and structural indicators—including approximately 98 million SIP accounts—point to sustained domestic capital formation. Monthly portfolio revenue has risen roughly 20 per cent year-on-year.

 

Damani said the fund takes a 10- to 15-year view, and short-term global volatility—trade tensions, tightening dollar liquidity—has not altered its direction.

 

“Disciplined investors, focused on entry valuation, fundamentals, and exit discipline, have been able to generate strong outcomes,” Damani said.

 

The exit momentum comes as the firm simultaneously raises its next fund. In October, Artha announced the first close of ₹250 crore for Artha Venture Fund II, targeting a total corpus of ₹500 crore with an additional ₹100 crore green-shoe option.

 

Damani said the firm's continued focus on seed investing is driven by a deliberately structured allocation model: roughly 25–30 per cent of the fund goes to early-stage bets, with 70–75 per cent reserved for follow-on capital. This structure, he said, enables concentration in winners while managing downside, with founders typically retaining 30–40 per cent ownership.

 

Beyond exits, Damani is positioning the fund around two emerging themes—artificial intelligence and SME buyout opportunities.

 

On AI, Damani said India may not lead in large language models given the capital required, but sees strong opportunity in application layers and small language models. “We are investing across infrastructure, data, and application layers,” he said. The key filter remains consistent—a clearly defined problem, a paying customer, and strong unit economics, typically targeting 70–80 per cent gross margins.

 

Artha is also watching the emergence of SME buyout opportunities. India has around 70,000 SMEs facing succession challenges, and a reverse talent flow—professionals returning from the US, Europe, and the Middle East—is creating a pool of potential acquirers. Many of them, Damani said, may not start new companies but can acquire and scale existing businesses.