Indian venture capital set to evolve with the economy: Stellaris Ventures

The state of Indian venture capital (VC) is set to evolve, driven by India's growing demographic dividend and expanding market opportunities. This is paving the way for the creation of specialised funds and growing pool of domestic capital for late-stage investments, according to the investment team at Stellaris Venture Partners.

The early-stage venture capital firm, established in 2017 by Alok Goyal, Rahul Chowdhri, and Ritesh Banglani, recently announced the final close of its third fund at $300 million. The firm also announced the elevation of Naman Lahoty to the role of Partner from Vice President. The serial entrepreneur was the co-founder of Helico Foodlabs before joining Stellaris in 2019. 

With this fresh capital, the firm is bullish on the opportunities for exit in the India market as timelines for successful exits continue to narrow down, creating favourable conditions for investments and returns.

“I think of India as a late-stage company–we have done the PMF (product-market fit), we have done the Series B, we are maybe somewhere around D or E stage where it is all about execution,” Chowdhri told YourStory Founder and CEO Shradha Sharma in an interview. 

“It is ours to score over the next two decades. The potential of the digital economy, GDP is so high, if we continue to execute on the right path,” he added.

Stellaris and its partners, who have had a ringside view of the evolution of the Indian startup ecosystem over the last decade, believe that Indian venture capital is moving towards creating specialised funds both in terms of stage and sectors, as the quality of startups mature. 

Outlook for India’s venture capital ecosystem

Stellaris, which typically leads seed and Series A rounds, has seen the timeline for a good exit compress over the years. 

The firm, which invested in the Series A round of omni-channel personal care company Honasa, which owns and operates Mamaearth and its house of brands, in 2018, saw a significant return on its investment. The firm made Rs 800 crore in cash from its initial investment of Rs 25 crore, and continues to hold unsold stake in the company. 

“The first wave of companies took 15 years to exit or do an IPO. We invested in Mamaearth in the middle of 2018 and it went public in 2023. So, in five years, from our Series A. That timeline is compressing and hopefully, five to seven years is the right time of a good outcome going public. But if you are a venture firm, the 10-year window from entry to exit will stay,” added Chowdhri. 

While Stellaris itself has been a sector agnostic early-stage firm, Chowdhri added that there was a need for specialists. 

“We have seen the amount of capital going up, and with this, the number of more specialised strategy funds will come up. They need to operate with a special stage or sectors which are coming up, as compared to generalists,” said Lahoty.

As the number of funds grow, the next five years will also see the rise of more India-specific late-stage funds for investments in Series D and onwards.

Factors shaping strategy

The opportunities for investors have also expanded in proportion with the depth of the Indian market, leading to a shift in venture strategy. As the ecosystem matures, venture firms are increasingly focusing on niche investment strategies tailored to specific sectors, stages of growth, and quality entrepreneurs, says Ritesh Banglani, Partner at Stellaris.

“By the time we started in 2017, we were able to focus only on tech-led investments in the seed and Series A stage in India because the opportunities in the space are large enough,” said Banglani. 

He added that Stellaris’ strategy keeps the tenets of focus, discipline, and depth. “The advantage of doing only one thing is you get to do it well. It allows us to be disciplined about our portfolio, doing seven to eight deals a year consistently, across the highs of 2021 and relatively lows of 2023–this has happened because the quality of entrepreneurs coming each year has improved,” added Banglani. 

Stellaris has been able to build sector expertise in key sectors of the economy over the years as deal flow continues to be steady. 

Domestic capital and the India opportunity

With the growth in opportunity, the share of domestic capital has grown in new asset classes beyond real estate and gold. Apart from domestic capital playing a key role in investments in private companies, the appetite for India as an investment destination for global capital has been on the rise. 

“We have been pitching to LPs (Limited Partners) who invest in venture capital funds actively for 10-11 years and outside of the US, India is the only viable venture market. China was big, but it has taken a backseat. For people looking to diversify out of the US market, India is the only option,” said Goyal. He added that a stable policy framework, growth in the underlying economy, work on Digital Public Infrastructure (DPI), and the young demographic makes India the perfect investment destination. 

As the Indian startup ecosystem matures, bolder bets are being taken to build global businesses out of India, said Goyal. 

Stellaris’ investment in Dashtoon.ai, a Gen AI-led content creation platform, and Kombai, an AI platform for UI developers, both based out of San Francisco, point to the increasing focus on global markets. 

With these new businesses, the appetite for risk has been on the rise when it comes to startup ideas as well as capital to back these concepts. 

“When we invest, 80% to 90% bets don’t work. Ours is a high-risk bet. As repeat entrepreneurs have come into India, as product orientation has grown, as technology democratisation happened in the world and as late-stage capital has come, bolder bets are being taken,” added Goyal.

With these factors at play, India’s future as a repeat market capable of returning capital through meaningful exits remains stable in the times ahead.

(The copy has been updated)