The entrepreneurial ecosystem in India is at an interesting threshold. After witnessing mass layoffs, inflated valuations, and widening losses since the beginning of 2022, it is finally on the mend.
“As we near the end of CY24, we are seeing a renewed surge of confidence and growth in our founder teams,” Pranav Pai, founding partner at early-stage investment firm 3one4 Capital told DealStreetAsia in an interview.
“The continuation of economic policy in India, a renewed budget supportive of macroeconomic expansion and growth, favourable market tailwinds for tech after the US elections, and the persisting growth from several sectors … are lending strong support to our investments,” he added.
3one4 Capital, a backer of over 55 startups in India including unicorns such as Licious, a meat delivery firm; Darwinbox, an HR tech platform; and neobanking major Open; among others; last raised $200 million for its fourth fund in 2023.
“We closed a vastly oversubscribed Fund IV in 2023 and continue to invest out of this fund. Our strategy typically raises a new fund every 3.5 years, and we remain on track to deploying Fund IV as per our standard cadence,” said Pai.
The corpus it raised then was roughly the same size as its predecessor fund, which was closed in 2020.
Sizing the fund right is key today, with LPs getting selective about deploying capital as more and more PE-VC firms hit the fundraising trail.
“VC firms that have demonstrated consistent performance across market cycles will not have issues raising right-sized funds moving forward,” he added, highlighting how some of the top-tier global investment firms are trimming their fund sizes and reducing fees as a response to the recent correction in private markets.
Those that have made headlines for reducing the target corpus amidst current economic environment include prominent names such as TPG, an American private equity firm; and marquee VC investor Peak XV (formerly Sequoia Capital India), among others.
“These market cycles tend to reward disciplined performance while exerting unrelenting pressure on approaches that are divorced from reality. The physics of capital compounding applies to all, and no firm is above the boundary conditions within which top-tier performance operates,” said Pai.
Edited excerpts from an interview with Pai:
