It has been a tough journey for Blume Ventures, a tech-focussed early-stage venture capital firm, and its managing partners Karthik Reddy and Sanjay Nath, when they set out to raise the second fund, that too mainly from overseas investors. But, now with a bulk of the money in the kitty, the Mumbai-headquartered Blume is changing gears and looks at making bigger bets for a higher stake in the ventures it invests, than what it did through the first fund.
“We will lead or co-lead and write bigger cheques,” says Karthik Reddy, during a recent interaction in his Mumbai office. “In the first fund, we didn’t have capital, so we spread ourselves very thin by making a lot of bets. Now, we don’t want to do that. Doesn’t give us too much ownership, makes us do too much work even for that small position, doesn’t get us respect at the table and so there is no fun in it,” he adds.
Blume has so far got $50 million of a targeted $60 million (about ₹400 crore). Its strategy with the second fund, from which it has started investing, is to invest $300,000-500,000 in round sizes of $500,000 to $1 million, and own at least 10-15 per cent. It will reserve the same amount for a pre-Series A round in the companies, since the Series A market continues to be difficult right now.
Budgeting for bridge rounds With the second fund, Blume is budgeting for bridge rounds, something it could not do with the first fund. Karthik says not all companies will require a bridge round, but the firm is providing for that eventuality too.
“So you have to have $1.5-1.75 million for your best companies. That is the depth. We are shrinking the breadth, by taking lead, co-lead and then going deeper in terms of dollars in the best companies. The number of investments will come down from 70 to probably 45,” says Karthik, an alumnus of IIT Roorkee, IIM-Bangalore and Wharton.
Blume’s first fund of ₹140 crore was raised only from domestic investors – family offices, institutions and wealthy individuals – and it wrote smaller cheques. It could not write follow-on cheques in most cases and had to pass many good investment opportunities because its play would be small. For the second fund, Blume decided to pitch to investors in the US as no VC fund will be complete without participation from America.
Karthik admits that convincing investors in the US was a tough task, especially since Blume did not have any great exits to show and also because it was competing with the established venture capital firms such as Accel, Nexus, IDG, Sequoia and Kalaari in raising funds. “To put it in a nutshell, a fund two, first time institutional raise is exactly like a Series A raise,” he says of the difficulty that Blume faced.
Karthik says it took several rounds of discussions before the cheques started coming in, even as domestic investors who had put in money in Blume’s first fund were keen to participate in the second fund. Blume closed $30 million in December and $40 million in January. “The momentum has brought us to $50 million, we need to get the last $10 million done,” he adds.
From a team perspective too, Blume has made some changes. Instead of Karthik and Sanjay making all the decisions, it now has five principals who will play a major role in bringing deals to the table.
According to Karthik, there is no dearth of investment opportunities in the space Blume is active in. What do you think our pipeline for a year is, he asks and answers it himself, “3,000.” Of this, nearly 70 per cent are cold calls – pitches from companies without any referrals – and the balance referred to by others. To put the number in perspective, Karthik recalls that in 2010, when he was part of Mumbai Angels, there used to be 800 plans a year.
Looking ahead On where Blume is after five years, Karthik says any good venture guy has two-three things – has a broad view of the world, of where it is going; you have a gut which keeps getting trained and gets better; and, you have a reputation.
Fund two, he says, is a newer and bolder animal. It will focus on companies with an India consumption theme, including those where there is an online-offline play.
These would be ventures in financial technology, education and healthcare – the new roti , kapada and makaan , as he describes it – sectors. Thanks to smartphone penetration, a vast majority now have a super-computer in their pockets, which not only provides them information but helps them transact business.
Given the difficulty Blume faced in raising the second fund, when would he start thinking of raising the third fund? Not for another year, at least, replies Karthik.
“The idea is to start showing momentum in the second fund and show another level of hits in the first. Now we need to wow people,” he adds.