The current funding winter has had a strong impact on late-stage investments, with large deals drying up for many startups globally. However, the Indian startup ecosystem is better off than other markets, says Belgium-headquartered single family-backed investment firm Verlinvest.
Verlinvest, which largely operates in late-stage investments, believes the startup ecosystem in India has high-quality entrepreneurial talent and good market opportunities.
“This (Indian startup ecosystem) is still a better ecosystem than many other parts of the world. The reason being the incredible supply of entrepreneurs, coupled with the market opportunity,” Arjun Anand, Managing Director and Head of Asia, Verlinvest, tells YourStory.
Almost every sector in the Indian economy presents a sizeable growth opportunity, unlike some of the mature economies of the West, Anand adds. He also notes that the quality of Indian entrepreneurs has improved over the years.
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“There is an emergence of seasoned professionals who are turning entrepreneurs who have a lot more clarity on what exactly they want to solve and how they are going to achieve it,” he elaborates.
While Anand is bullish on Indian startups, he also admits that the startup ecosystem will continue to face challenges in the short term, especially in raising capital—“just like anybody else across the world.” However, the prospects appear bright from a medium- to long-term perspective, he adds.
Verlinvest hopes to capitalise on future prospects with its time-tested ‘evergreen investment’ philosophy and pump in capital into startups whenever required, for as long as necessary.
Verlinvest’s legacy
Verlinvest was founded in 1995 as a family investment firm. As a family office, it is a 27-year-old firm, but the history of its founders dates back 400 years.
The investment firm was created by the founding families of beer major Anheuser-Busch InBev, through multiple mergers and acquisitions. Over centuries, Anheuser-Busch InBev has become a leading conglomerate in the alcobev segment, owning several global brands.
Anheuser-Busch InBev, which reported revenue of $57.79 billion with a net profit of $5.97 billion for 2022, is a dividend-paying company, and money from the conglomerate flows into Verlinvest.
India focus
Verlinvest began making investments in India in 2010, starting with Sula Vineyards—leveraging its legacy of building consumer brands such as Oatly in Sweden and Vito Coco and Chewy in the US.
In India, it is focused on the four segments of FMCG, consumer internet, healthcare, and lifestyle.
In the last 13 years, Verlinvest has invested in around 20 startups in the country, including Purplle, Byju’s, Lahori, Heads Up for Tails, Wakefit, Veeba, Epigamia, Sula Vineyards, Ferty9, and Future Retail. Seven of its investments in India are active at the moment.
Verlinvest is largely involved in late-stage venture capital funding and mid-market private equity. Typically, the firm invests between $20 million and $200 million in each startup, depending on the stage it is in. For example, it has invested over $40 million in Purplle since 2020.
Verlinvest is bullish on the healthcare sector in India, which has seen increased investments of late. In April, the firm picked up a controlling stake in Ferty9 Fertility Centre, a network of fertility centres in Andhra Pradesh and Telangana, with a commitment of $50 million.
Anand points out that there aren’t adequate quality healthcare providers in the market today. This provides a strong market opportunity for healthcare startups to create a strong brand and a superior customer experience, he says.
Evergreen investments
The driving force behind Verlinvest has been its philosophy of ‘evergreen investments’ wherein it remains invested in a startup for a long period of time and exits when the returns are favourable.
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For example, it invested in Sula Vineyards in 2010 and made a partial exit only in 2022. The company sold 55% of its holding in Sula when the company went public in December 2022. It fully exited Future Retail in 2018 and sold 65% of its stake in BYJU’S in 2020 during the edtech boom.
Anand remarks, “Our investments can remain illiquid as long as they are doing well.”
Verlinvest monitors the performance of the companies it has invested in—on parameters such as sales, market share, and profitability. As Anand puts it, “We want to see a report card that shows us that you are actually doing well.”
According to Anand, Verlinvest will continue to back companies that perform well. At the same time, he says, it will exit early from ventures whose performance is not up to the mark.
“In our structure, we are actually incentivised to get out of bad investments very quickly and recycle it (capital) into our existing good investments.”
In April, Verlinvest launched a VC firm—V3 Ventures—with a backing of 100 million euros to invest in the early-stage categories of seed and Series A funding in India.V3 Ventures will write smaller cheques ranging from $2 million to $5 million.
Present environment
The current investment climate in the startup ecosystem is much different from what it was around two years ago, when there was a flush of capital. Money is now hard to come by, especially in the late-stage category.
Anand pins this down to two reasons: an increase in interest rate and the mismatch between valuation and returns. The increase in interest rates has led to investors seeking higher returns on their investments, but this cannot be guaranteed in the current environment.
For the capital inflow to increase, either the risks must go down or the returns must go up, he adds. This means startups have to demonstrate that they are growing their business and are operating a sustainable business model by reducing losses and not indulging in excessive spending.
In the absence of easy capital flow, Verlinvest is advising its portfolio companies to focus on their core capability and improve profitability and stability.
Anand says the top priority for startups should be limiting their downside. He believes investors will return to the market once they get visibility on the returns they can expect.
“In the current environment, the way to protect and generate return for your capital is to cut risk as well as be more reactive to what is happening externally.”
In addition, startups going the IPO route will open up an avenue for generating returns, he adds, although, as of now, there are no startups in Verlinvest’s portfolio that are headed for an IPO.
Looking ahead
Verlinvest’s game plan for the future is clear—it is enthusiastic about long-term prospects and wants to play with patience and not engage in aggressive tactics, in the short term, by investing large amounts of capital or exiting too early.
“We want to play the long game as we have been around for 27 years and want to be around for another 50 years,” sums up Anand.
Edited by Swetha Kannan
