Nandan Nilekani's Fundamentum raises $227 million in second fund

Fundamentum, the venture capital (VC) firm led by Nandan Nilekani, the co-founder of Infosys and architect of Aadhaar, has raised $227 million in its second fund. The money would be invested in early growth-stage Indian start-ups.

Fundamentum plans to fund enterprises that have attained product-market fit and developed momentum in their scale-up journey.

Fundamentum plans to lead or co-lead a $25-40 million round, investing in four-five start-ups each year. It will focus on tech-driven enterprises in the consumer internet and enterprise software space in India.

The firm will back India-based entrepreneurs, who are set to move from the start-up stage to the scale-up phase.

“We are actually a fund set up by entrepreneurs, who want to help other entrepreneurs succeed,” said Nandan Nilekani, co-founder and general partner at Fundamentum.

He added, “We are also not a ‘spray and pray' kind of fund, where we would invest in 50 things and hope something would happen. We invest in very few companies and take concentrated bets.”

Fundamentum’s first fund of $100 million was deployed strategically in early growth-stage start-ups, including Pharmeasy and Spinny. These have attained unicorn status, which is a start-up with over $1-billion valuation.

Post the fund’s initial investment, Fundamentum’s portfolio companies have collectively raised over $1 billion in follow-on rounds.

Fundamentum has raised the second fund at a time when global investors such as Sequoia and SoftBank are preparing for a ‘funding winter’ and warning their portfolio firms of cost cutting.

India is also witnessing a series of layoffs in the industry and valuations are under stress. A growing list of unicorns has fired employees recently.

After a recent fall in profit, Masayoshi Son of SoftBank announced that it will look at dramatic cost cutting.

Before he does that, investments in India for the calendar year 2022 (CY22) will fall drastically, said sources.

Last year, SoftBank had invested around $3.2-3.5 billion in the Indian start-up ecosystem. It was almost 10 per cent of the total investment the sector received. For CY22, the investments may not even touch $1 billion.

But Nilekani said he is extremely optimistic about India’s digital transformation led by great companies that are emerging.

“We received a tremendous response to our fund and ended up raising more money,” said Nilekani. 

Prateek Jain, principal, Fundamentum, said it was able to raise the fund in a short span of time, despite the tough market.

“This shows that Fundamentum has a good standing with the investing community,” said Jain. He added, “About 25 per cent of the money comes from the Fundamentum team, which demonstrates high belief and skin in the game.”

Despite the macro-economic environment, Nilekani said that Fundamentum would stay the course and invest in the great companies that are out there and help them. “If you look at the West, some of the great companies emerged from difficult times like Amazon was born during the dot-com bust and Facebook was born before the financial crisis,” said Nilekani. “So, these macro things happen, but we are long-term bullish on Indian startups. India has 90,000 startups and more than 100 unicorns. Our success will come from our ability to sift through all the players out there and find the right entrepreneurs. This is the time when we will get access to very good companies.”

Sanjeev Aggarwal, co-founder and General Partner at Fundamentum said entrepreneur quality is the single biggest determinant of the success of a company. “We like to back missionary entrepreneurs who have an unwavering focus on customer experience,” said Aggarwal, who himself co-founded Daksh, a pioneer in the BPO industry, which was acquired by tech giant IBM in 2004. “A strengthened team and focus on emerging sectors such as Bharat Apps, SaaS and Clean-tech, among others, will enable us to propel the growth of our investee firms,” added Aggarwal.

Ashish Kumar, co-founder and General Partner of Fundamentum said the venture capital has an experienced team of former entrepreneurs, who can leverage their own experience to contribute to the early-growth stage companies. “Also this stage is still very under-served in India and needs on-the-ground, homegrown investors for a fleet-footed approach and robust operational diligence,” said Kumar. “We have a healthy pipeline and are seeing over 200 deals a year with an aim to invest in 4-5 start-ups every year.” 

Nilekani also said digital acceleration, brought on by the pandemic, has dramatically increased technology spending across the world. He said that India has all the ingredients in place—capital, entrepreneurs, stories of success, and liquidity. 

Companies are also focusing on frugality and becoming cash-efficient to achieve profitability. “The best thing that would come out of this current situation (funding winter and economic slowdown) is that the respect for capital will go up,” said Nilekani. “Companies and entrepreneurs would be far more careful, frugal and innovative.”

Nilekani set up Fundamentum in 2017 along with Sanjeev Aggarwal, who is also a co-founder at venture capital firm Helion. Canadian pension fund and institutional investor CDPQ  invested in it as a limited partner (LP) in 2018.