Pravega Ventures’ Mukul Singhal on why early-stage tech investing is on an upswing

When Mukul Singhal and Rohit Jain, former fund managers with SAIF Partners, founded Pravega Ventures more than three years back, the mandate was to create a venture capital firm that would take an ecosystem approach to investing in startups. That implied it would typically be the first institutional capital into a startup, investing even at the concept stage if necessary, and collaborating with angels and other stakeholders in backing such startups.

So far, Pravega’s investment strategy has been on track and the Delhi-based firm has quickly built out a portfolio of 13-odd companies. Out of those, four companies -- Fyle, WorkEx, GruBox and Zipsure -- are investments at the concept stage. The firm’s debut fund, which has a $30 million corpus, has invested across sectors such as consumer internet, mobility and fintech and includes companies that are leveraging frontier technologies such as artificial intelligence (AI) and machine learning, data sciences and IoT (internet of things).

Key companies in the current portfolio include Crofarm, a business-to-business (B2B) marketplace for agricultural products and AI-based travel and employee expense management platform Fyle. Others are enterprise robotic process automation platform Ikarus; Big Data analytics platform for healthcare providers in the US, Innovaccer; and skilling and learnings platform GreyAtom.

In an interview with TechCircle, Singhal speaks about building the firm’s portfolio and team, why consumer internet and fintech are among favourite sectors, and how a concentrated focus on technology investing is resonating in the market. Edited excerpts:

Tell us how the firm’s investment strategy has played out so far?

As you are aware, we invest at the very early stages, typically at the seed and pre-Series A stages and target four to five deals a year. We don’t shy away from investing even at the concept stage. For instance, we recently co-led an investment in ZipSure General Insurance, which is applying for an insurance licence. We have also done a couple of cross-border investments where we relied on referrals. Both Innovaccer and Fyle are cross-border investments that came through strong referrals.

The portfolio is seeing good momentum in terms of follow-on interest from other investors. Fyle just raised a Series A round led by Tiger Global Management. Earlier, Innovaccer raised a Series B round led by Microsoft’s venture capital arm. So, overall, the portfolio is doing well.

Apart from the founders, how is the team shaping up at the firm?

From a partnership perspective, we have been able to build a very diversified team. We have a good mix of venture capital, technology and banking expertise in the founding partnership. For instance, Vinay (Menon, co-founder and partner, Pravega) was earlier a managing director at JPMorgan. Talent like that was not available in venture capital and we are finding it very useful at the firm.

You have a concentrated focus on technology startups. Are you seeing enough traction in the market in terms of deal flow and overall investor interest in such startups?

What has happened in the last four to five years is that the market has diversified. In the 2010-2012 period, there was a lot of buzz around e-commerce and classic consumer internet businesses, which continued till 2014-2015. Startups in areas such as internet IoT, AI and hardware were absent at that time. Even software as a service (SAAS) businesses were rare. 

Since 2017-18, we have been seeing diversification in terms of deal flow and business models among startups. People have started to actively create businesses around technologies such as IoT and SaaS and in sectors such as agri-tech and ed-tech. 

The good news is that the investor diversification has also happened simultaneously. Five years ago, there were no takers for IoT but now the base of investors has increased and there are more dollars available for such startups. The new generation of investors that is now entering the market is ready to bet on these emerging segments.

Which sectors are you particularly bullish on?

At Pravega, we really like the consumer internet and fintech sectors. Because of our focus on those two sectors, we generally tend to get more deals there. But I know for sure that there’s enough entrepreneurship happening in all the areas that I mentioned earlier.

E-commerce dominated the consumer internet sector for a long time. Now we are seeing verticals such as hyper-local emerging from the initial e-commerce boom. What do you think are the triggers for this boom in multiple verticals?

The biggest reason for such kind of growth is that data penetration has taken off in the last three to four years. When I became a venture capitalist (with Canaan Partners) in 2006, the number of internet users in the country was just four to five million. There was no WhatsApp, no smartphone, nothing! Later in 2011-2012, the number (of internet users) grew to 70-80 million. Now, there are 300-400 million internet users. WhatsApp and Facebook alone have 200-300 million monthly visitors. The basic enabler in life came with the emergence of data and internet. 

Second, India for the most part is an unorganised market and hyperlocal marketplaces are the right fit for economies with high data penetration. We seed-funded UrbanClap at SAIF Partners which, was a very highly asymmetrical business model. Standardisation was never a part of our lives. With all these marketplaces setting up, the standardisation in prices, information and quality is now beginning to take place.

Are valuations in the consumer internet sector still unrealistic?

Valuations are high, no doubt, and we would continue to see higher valuations for some time. I don’t see much respite on that front and that is linked to global macro trends. 

Globally, we have seen 10-12 years of a bull run in the public markets. In some ways, equity is cheap. For companies such as Amazon and Facebook, it’s very easy to raise billions of dollars. As long as the global public markets are the way they are and if equity continues to be cheaper, we would see a shift from public to private as more capital would flow into private companies. 

Therefore, deep-pocketed investors would continue to keep deploying capital in private companies, which would keep the pressure going downwards. We are also seeing a very secular shift of capital from the old world to the new world, that is, technology investing.

Therefore, people are chasing growth, scale, and other things, considering the global macros.

Coming to fintech, how deep can one go into this segment and what are the emerging themes that investors are looking at besides online lending?

Fintech is just the starting point. Lending has always been a simple product, easy to understand and has very well played out in developed markets. In India, we have a very high consumer population which is not part of the formal lending market. It was easy to start lending businesses, which is why we saw too many startups spring up in that vertical.

Insurance is one area that we think offers tremendous opportunity. Our view is that we will see a lot of innovation in new financial products in India. Another emerging theme could be innovation in credit card products. Remittances is another big pain area. There’s a lot of asymmetry and lack of consumer information there and, therefore, innovation around remittances could be another area. 

On the payments side, companies like Paytm are trying to solve problems in the horizontal payments space. Then, there will be the next level of merchant innovation happening in specific sectors. For example, travel agents have different financial needs so we might see some innovation there too.

What are your views on the exit environment in general and what are your IRR expectations (internal rate of return)?

I think the exit environment has improved overall. We are seeing a lot of velocity now. Since we invest in a very high risk category of companies, our IRR has to be in the 40-50% range.