3One4 Capital raises $200 mn for 4th fund targeting tech cos

At a time when the funding winter is intensifying, India-focused funds continue to gain traction, a sign of a maturing ecosystem and significant investor interest in the region. This is the third India-focused fund in the last fortnight to announce its final close after private equity investors Multiples Alternate Assets Management and Chiratae Ventures.

The fund that was oversubscribed had to limit its size to $200 million to pursue the investment discipline that management aims to follow, said Pranav Pai, founding partner and chief investment officer at 3one4 Capital. “For us, to be a focused early-stage investor and maintain our performance levels, $200 million seems to be the optimal fund size,” Pai added.

Its backers include banks, mutual fund operators, US university endowments, global sovereign funds, global corporations, and insurance companies among others. Fund IV is made up of more than 90% institutional investors, the firm said. While the capital split is equal between rupee and dollar investment, it will be the firm’s debut fund at GIFT IFSC. It will also be its first offshore vehicle.

3one4’s approach is contrary to what most of its competitors are doing, which is raising larger funds and writing larger checks or investing longer in successful portfolios.

“We give our LPs the option of direct investment in our portfolio firms, which allows them to support our investments longer through their subsequent rounds,” Pai added.

The VC firm was founded by Pai and his brother Siddarth, who raised six funds so far. In total, the firm will manage ₹3,710 crore ($510 million) of committed capital and over ₹6,000 crore ($750 million) in assets under management. Anurag Ramdasan and Nruthya Madappa are the other two partners in the firm.

In addition to Licious, Darwinbox, Open, BetterPlace, Jupiter, KukuFM, Koo, Dozee, and Tracxn, the firm has already begun deploying from its new fund. It has invested in five deals, said Ramdasan.

According to him, the firm will continue its early-stage strategy, focusing on sectors such as consumer internet, SaaS, fintech, and enterprise and SMB digitisation, while increasing investments in newer areas such as digital health, climate tech, and more.

Its investments will range from pre-seed to Series A, with cheques between $0.5 million and $5 million. The firm will also look at post-seed and pre-Series A funding rounds, Ramdasan added.

As per Prequin’s report, with a net internal rate of return or IRR of 37% and 35% respectively, 3one4 Capital’s Rising I & Fund II (Scheme II) are the top two amongst the best performing India-focused VC funds among the vintage years, 2010- 2018.

Even as the investment ecosystem has slowed down owing to the liquidity crunch globally, India-focused funds continue to gain traction among risk investors. Early-stage investor Chiratae announced the final close of its ₹1001 crore maiden growth fund last week. Multiples Alternate Asset Management said it raised $650 million towards the first close of its new fund. This signals heightened investor interest in fund managers with a proven track record.