New Delhi, May 11 -- Ankit Kedia is among the rare pool of investors who have been on both sides of deal negotiations. As a second-generation entrepreneur, Kedia saw his family business, the once listed Manjushree Technopack Ltd, grow into South Asia's largest rigid plastic packaging firm and undergo a delisting in 2015 following an investment from private equity firm Kedaara Capital.
Right after running a manufacturing firm with his father Vimal Kedia, Ankit founded Capital A (registered name Manjushree Capital A Investment Trust), a venture capital firm focused on investing in manufacturing, deep tech and climate.
The firm recently announced the first close of its second fund at Rs 160 crore (nearly $17 million). It is targeting a corpus of Rs 300 crore, plus a greenshoe option of Rs 100 crore.
In an interview with VCCircle, Kedia discussed leading the VC firm, the strategy of his upcoming second fund and early-stage valuations.
What were the origins of the Capital A VC?
I joined Manjushri as a second-generation entrepreneur in 2006. After having functioned as a promoter and operator for 15 years and doing things across the spectrum, I realised that I didn't want to be actively involved in running the business. I wanted to operate a fund that invests in manufacturing businesses.
Given that our family office was an LP in several funds, I clearly realised that none of the fund managers we invested with had actually run or been a part of a manufacturing company. This led me to believe that if a promoter, rather than an operator, established a fund investing in manufacturing businesses, it would be invaluable to founders and of course our LPs. That's the genesis.
What led you to start a VC firm rather than investing from a family office?
The math of a venture capital fund is the entire investment strategy, portfolio management, and eventual exit... While I could have done this in the family office, I think it would have been difficult to put a method to the madness over there. By structuring it like a venture capital firm with a semi-regulated AIF and a governance structure, we also build significant trust with our incoming LPs. Partially, I meet that objective by investing 25% of the fund myself. So of the Rs 400 crores (targeted), we are investing 100 crores from the family office ourselves.
What is the final closing looking like in Fund II?
We're currently deployed in seven companies from Fund II and are on track to close the entire fund of Rs 400 crores by October. December is the deadline for us with SEBI.
We have raised 50% of the funds so far, and we are in the final stages with three institutional funds, most probably, to close the balance. Two of them are Indian and one is a foreign LP, which is a fund of funds that invests in emerging markets for engineering-oriented VCs or engineering-oriented funds.
How will Fund II's strategy be different from Fund I's?
Fund I used a diversified strategy, largely featuring B2B businesses, but also including fintech, a couple of consumer tech investments and manufacturing. The split was largely 40% manufacturing, 30% fintech and 30% everything else. But there was no consumer, largely consumer tech, but not B2C.
Learnings from Fund I were that the principles of a business do not change, whether you're a startup or a business, you have to have cash flow, revenue and profit.
Secondly, equity ownership of what we have is extremely important. So, our earlier ownership target was about 5-6%; we've taken that to now 10-15% ownership in each of the companies that we invest in. This ensures our rights and our involvement with the founders is deep enough for us to play an active role in their respective companies.
How many companies are you looking to invest in from Fund II?
We will invest in close to 17-18 companies. Right now, we've backed seven over the next 1-1.5 years and 80% of them are revenue-making. Two are revenue and PAT positive.
What is your checklist when evaluating new-age sectors apart from manufacturing?
Manufacturing is a fairly broad term for us. Several companies that we have invested in, for example, a space tech company called Manastu, overlap with the manufacturing sector. We intend to keep 80% of our portfolio in manufacturing and its derivatives. This could involve the semiconductor side, defence, robotics, or automation, but we also want to reserve 50% for technology or software supported by AI, or physical AI, which is really gaining momentum.
What challenges do you think need to be resolved for India to become a key manufacturing hub?
Startups will eventually need a slightly differentiated lens for product qualification. The government has mandated certain policies requiring PSUs to support startup products for testing, enabling them to transition to private markets afterwards. But the idea is, if you are able to create a slightly different qualification criteria for them to move from one stage to another within the PSU use, I think that'll be helpful. The GeM (Government e-marketplace) portal and the non-removal of the tendering process in certain categories are definitely simplifying things. But a lot more needs to be done.
Which manufacturing sub-segments do you think will gather momentum?
Artificial intelligence and AI's application layers are definitely gathering steam. Some service derivatives, such as data centres and energy solutions (which derive from manufacturing), will soon become increasingly appreciated. Nuclear energy, particularly the recent announcements regarding nuclear power generation and small modular reactors, is very interesting. The current concentrated dependency of power-generating states will be revisited with nuclear energy as a form of power generation. Educational tech will come back in a very different avatar. The entire transformation of online learning in the post-ChatGPT era world, how does it exist? How can we make it more experiential?
How do you perceive early-stage valuations currently?
Valuations are far more competitive, but founders are also becoming much more selective about which investors they partner with, even if it means accepting a slightly lower valuation. So, I think they're making the right choices. Founders are demanding good valuations. In some cases, rightly so, because in deep tech and manufacturing businesses, the motivation needs to be very, very high, at least up to series B-C, where founders need to hold at least 50% plus ownership in their businesses. So even if it comes at a slightly higher valuation, [which improves] the chances of thriving and survival. We're okay to pay that.
Published by HT Digital Content Services with permission from VC Circle.