Investing and venture capital may appear complex at first glance, but they are journeys filled with excitement and valuable lessons for everyone.
Imagine yourself as a part of an Alternative Investment Fund (AIF) venture capital firm with a unique mission — investing in innovative startups.
In the world of venture capital, where innovation and entrepreneurship converge, there is a dynamic interplay between the investor’s journey and the investment journey. AIFs operating in the venture capital space stand at the forefront of this thrilling ecosystem.
Although AIF space in India is taking shape in expanding the business gaining interest from many HNIs/Ultra HNIs. VC investing has become more democratic as Angels ( ticket size > Rs. 2 lacs & above per investment) is also possible thru Angel funds .
As of June 2023, according to SEBI data, this AIF market will have received investor capital commitments of INR 8,44,926.48 crore (about 105 Bn USD), up from INR 359.5 crore (around 0.04 Bn USD) when SEBI first regulated the industry in 2012.
Let’s delve to understand why this space is currently attracting more investor attention for their investment journey, let’s explore the unique characteristics of the investor’s and investment experience from the VC perspective.
Investment as a Journey:
Investing is not merely a destination, it is a continuous process. In order to achieve success and financial security, investors depending on their risk tolerance and ticket size, look into angel investing, seed round, and pre-series round investments.
Here, investors establish their –
- Financial goals,
- Evaluate their risk tolerance, and
- Select investment strategies.
It’s a pivotal moment where dreams and reality come together to shape an investor’s financial destiny.
Understanding that investing is a journey allows investors to be patient and adaptable, recognizing that the path to success may involve some diversions. It’s a reminder to stay focused on long-term goals.
It’s in this phase that the investment manager assumes the role of a captain, guiding investors through uncharted waters.
The Role of the VC Firm:
The venture capital firm, backed by its LPs and GPs, uses a team of experts to find good startup companies to invest in by providing various product offerings to the investors. This encouraging them to invest through the VC firm in startups at various stages, from seed stage to pre-series level and going through Series A to Pre-IPO stage by creating diversified portfolio.
The primary objective of the venture capital firm is to create the wealth for its investors by investing in startups with the potential for growth and success having its own investment thesis.
Like Auxano, has its unique investment thesis, in this case, “Next Gen-Tech Led — consumer focused business with a secular/subscription income” with an outlook towards category creator — market creator — market leader.
For limited partners (LPs) this highlights the importance of due diligence when selecting a venture capital firm, having a well-defined investment thesis and a track record of success can be crucial indicators of a VC firm’s potential.
Dual Role of Sponsor and IM:
In the world of AIFs, the Sponsor and the Investment Manager often play dual roles, creating a unique dynamic.
The Sponsor’s deep involvement in fund management, coupled with a significant capital investment, signifies their unwavering commitment. This “deep skin in the game” not only encourages trust but also fascinates investors, making them believe in the journey’s success.
Further, this dual role emphasizes the significance of alignment of interests between LPs, the sponsor, and the IM. When all parties are financially and emotionally invested, it fosters a sense of trust and shared vision (wealth creation), crucial for a fruitful investment journey.
Investment Manager (IM), the “Main Hoon Na” Attitude:
Having an Investment Manager/Sponsor with a “Main Hoon Na” (I am here) attitude offers investors the confidence and assurance they seek. This unwavering commitment and determination set the stage for a successful investment journey.
A dedicated and approachable Investment Manager or Sponsor can provide peace of mind to investors. It underscores the importance of clear and open communication in the venture capital space.
Moreover, in the Auxano also, there have been cases where particular investments didn’t follow the expected trajectory. However, Auxano had cultivated strong relationships with the founders during that period and unwaveringly believed in their strategy and vision. This persistent support ultimately led to the company achieving significant valuation and successfully executing a partial exits..
Way forward:
For AIF venture capital firms, the rewards can be substantial, encompassing not only financial returns but also the satisfaction of being catalysts for groundbreaking innovations and transformative businesses. This journey not only creates wealth for LPs but also leaves a lasting impact on the world of innovation and entrepreneurship.
LPs should focus on selecting firms with well-defined investment theses and commitment to success. The dual role of Sponsors and IMs underscores the importance of alignment of interests and the role of trust in investment success.
Auxano & other AiF’s offers different kinds of investment opportunities for investors. Auxano is registered as Sebi regulated CAT 1 and CAT 2 AIF. These options give investors various choices for investments in this asset class .
Author:
Rakesh Rana
