Accel Partners wanted a presence in India, but it didn’t want to rush. U.S.-based Partner Peter Wagner, who helped lead the firm’s India initiative, says he spent at least three years thinking about and studying the market.
The result is Accel India Venture Fund, a seed and early stage effort run by the partners of 2-year-old Indian seed investor Erasmic Venture Fund. Erasmic, which ran a $10 million fund, has been folded into the new firm. Accel India is now raising a new fund of $60 million, which it hopes to close by the end of the year.
“We had no preconception about what would be the right thing to do,” Wagner says. “We met with lots of people—mostly with entrepreneurs, but also with investors working at different stages and sectors.”
Ultimately, Accel decided the sweet spot for the market was in seed and early stage investments. “There’s a real void for early stage financing and a need for strategic guidance and operational assistance,” Wagner says. “We decided we could earn a great return on our money and also establish a position that in the long term would be very important—where we could exert a lot of influence on the rest of the food chain.”
Although Accel decided to team up with an existing group, it also considered building one from scratch. “As it turned out, we developed a lot of respect for the Erasmic team as individuals and the work they’re doing with their portfolio companies,” Wagner says.
Although Erasmic is just two years old, it already has one exit under its belt. It was an investor in Mumbai-based Small Device Technologies, a mobile phone game developer that was acquired by Digital Chocolate for an undisclosed price in August 2007. Erasmic arranged Small Device’s seed funding, helped with its business strategy and hired its U.S.-based CEO, according to Erasmic’s old website.
Accel was also impressed with the progress of Mu Sigma, a knowledge process outsourcer for companies that need statistical analysts and modelers, Wagner says.
The four Erasmic partners now managing Accel India are Mahendran Balachandran, Gagan Kumar, Subrata Mitra and Prashanth Prakash. All of them will receive carry from the new fund, Wagner says, adding, “We’re big believers in giving autonomy and ownership to the team on the ground that is investing in their market.”
The modest size of the Accel India fund is due to its strategy of focusing on investments of as little as $100,000 to “a couple of million,” Wagner explains.
The deals Accel is looking at in India “are quite capital-efficient, so you would impede progress if you overcapitalize them,” he adds. “Some of these companies will get all the way to cash flow break-even on a couple hundred thousand dollars.”
Sectors of interest include technology and technology-enabled services, life sciences, the Internet, mobile and consumer products and services. The fund will consider everything from “three IIT grads and some slides” to established companies that need growth capital that haven’t previously raised venture capital, Wagner says.
Recent investments tracked by Thomson Reuters (publisher of VCJ) confirm that it is looking at a diverse group of sectors. It invested in fast food restaurant operator Kaati Zone in February, then backed human resources software developer Cnergyis in June.
Investments from the last four months of 2007 include Kirusa Inc., which is developing multi-modal wireless platforms, Myntra Designs, an online marketplace for on-demand consumer products, and Perfint Engineering Services Pvt. Ltd., which offers health care devices and solutions.
While the new fund is getting lots of interest from new and existing limited partners, the target of $60 million “is something we’re pretty set on,” Wagner notes. “It could move a little bit, although we don’t want to make the mistake of raising too much capital given what we’re trying to do.”
The bulk, if not all of the LPs, are expected to come from investors in other funds from Accel and Erasmic. Erasmic had previously raised $10 million from high net worth individuals, institutional LPs and at least one major corporation, Google. It is “still to be determined” whether Google will be in the new fund, Wagner says.
With the addition of Accel India, Accel now has venture funds in the United States, China, Europe, India and Israel.
PROFILE: Accel India Venture Fund
There’s a real void [in India] for early stage financing and a need for strategic guidance and operational assistance.
Location: Bangalore, India
Fund Size: Target of $60M
Partners: Mahendran Balachandran, Gagan Kumar, Subrata Mitra, Prashanth Prakash
LPs: Expected to come from the existing LPs in funds managed by Accel Partners and Erasmic Venture Fund. Google is an LP in Erasmic’s first fund.
Focus: Technology and technology-enabled services, life sciences, the Internet, mobile, consumer products and services.
Investment Range: $100K – $2M
Did you know? Accel India subsumes Erasmic Venture Fund, which was founded in 2006. Balachandran, Kumar, Mitra and Prakash were all partners with Erasmic.
Source: VCJ research
DEALWATCH: Five recent investments by Accel India Venture Fund
_Human resources software
Kaati Zone_Fast food restaurant
Kirusa Inc._Multi-modal wireless platforms
Myntra Designs_Online marketplace for on-demand consumer products
Perfint Engineering Services Pvt. Ltd._Health care devices and solutions
Source: Thomson Reuters