Two More Indian Early Stage and Seed VC Funds- Song Advisors and Epiphany

Topics :  India · Venture Capital · Sep 08, 2009  |  0  Comments

There has been a lot of talk about how the gap in Indian VC investments is not really in the Series A stage (i.e. $2-5M range) but in the seed range i.e. in the $250k-$1M range.


There have been quite a few Venture Capital funds operating in India with this model including Ojas Ventures , SeedFund ,  Erasmic (Now Accel) , VenturEast, FootPrint Ventures , Singularity Ventures and a few more.

Now we have two more, one of which I had heard about before, Song Advisors (backed by Google, Soros and Omidyar Network and also advised by my friend Reuben Abraham) and Epiphany Ventures backed by LN Mittal.

All this doesn't include the Angel Networks - Mumbai Angels and Indian Angel Network and the Micro cap funds (i.e. India's YCombinator like funds) such as Morpheus Venture Partners 

Nothwithstanding, all the positive re-reinforcement that this will do to the Indian start up and entrepreneurial environment, the going continues to be tough for the VC side.

I have had a few conversations with a couple of partners at these funds and the challenges include:
  1. Follow On Investment: Most early stage investors have smaller funds which makes investments in follow on rounds more challenging. Follow on Investing is critical to provide great returns to LP's. Most of the risk in a company is in its early stages and when that risk is mitigated and the company needs "scaling money", if you don't have money to invest in follow on rounds and protect your stake, you essentially do all the hard work and don't reap the benefits.
  2. Partner compensation: Since the funds are smaller and the GP's are paid through management fees and carry (upon exit), smaller funds means that your ongoing base and yearly salary is lower which means partners need utmost patience and a long outlook to wait for the returns from carry. Of course, thats how it was in the old days, when most VC funds were smaller, but thats not the case now. Larger funds will have more management fees (i.e. 2% of Assets under management) and will be attract more qualified people to thier firms
  3. Qualified Deal flow: Early stage deal sourcing continues to be challenging because the Indian ecosystem has not yet learnt the art of  VC talk of pitching, crafting a model, figuring out the potential scaling choke points etc... As a result, VCs get a lot of business plans in thier inbox but very few deals that they get excited about.
Most seed funds seem to realize that and very few funds raise a 2nd Seed funds as Paul Kedrosky said it here and here . The key points from Paul's post:

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One of the wisest words anyone ever said to me about the venture business is this, "No-one raises a second seed fund".

Why? Because seeds funds are really, really hard to do, and there are really only two possible outcomes: Either it doesn't pan out (the most likely scenario), or it works out. In either case, the fund's founders don't usually end with a second fund, because in the former case their investors won't let them raise one, and in the latter case because they raise a larger fund and get out of the seed game.

Okay, now and then it happens, but the reality of venture investing is that most successful, professional seed investors don't raise a second seed fund. They raise a larger fund, one from which they might do a little seed investing, but they don't get stuck in the low fee, low return, over-distracted world of seed financing a second time.

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