The asset management arm of financial services group, IIFL is looking to invest in pre-IPO and late-stage rounds of internet economy companies through its newly launched Rs 1,500 crore fund, a senior company executive said.
The Category II AIF – IIFL Special Opportunities Fund – Series 8 will look to partner tech startups - leaders in monopolistic or duopolistic play - headed for IPOs or those in late stage of growth, said Chetan Naik, executive vice president, Fund Manager, IIFL Asset Management (IIFL AMC), in an interview with ET.
The fund has a green shoe option of around Rs 500 crore, taking its total size to Rs 2,000 crore.
“We have already received commitment worth Rs 400 crore within two weeks of launch and have a target of final close by June this year,” Naik said.
IIFL AMC will raise the capital from family offices and ultra-high net worth individuals. It will look to invest around $10-$20 million in about 10-15 companies through the fund.
This is first fund in India targeted at only IPO-bound private tech enterprises.
“We will look to invest in companies that are planning an IPO within a year or expected to list within five years of investment. The late-stage flexibility will give us a large canvas to pick the right opportunities at the right valuation,” said Naik.
Calling it a late-stage consumer tech fund, the investment vehicle will aim to partner with companies that are already on the path to profitability and where unit economics are already established or are on track.
“There are around 39 unicorns and many more soonicorns in the ecosystem that we will look to partner with,” Naik said.
These companies have to be either earnings before interest, tax, depreciation and amortisation (Ebitda)-positive, or should be contribution margin (CM)-positive, he added.
A unicorn is a company that has crossed $1 billion in valuation, whereas a soonicorn is one which is valued at more than $500 million and is inching towards the billion-dollar mark.
“Of the 39 unicorns, around 13 companies are Ebitda positive whereas another 18 are CM positive. So, we have a very defined and filtered pool to invest from,” Naik said.
Contribution margin is the revenue remaining after subtracting the variable costs that go into producing a product.
Companies such as Delhivery, Freshworks, Byju’s, PolicyBazaar and Flipkart are preparing for their initial public offerings and are likely to hire bankers and start a formal process soon, industry experts said. Online food delivery company Zomato is also expected to file for its $650 million IPO next month. Last month, Zomato raised an additional $250 million from existing and new investors. It completed the primary pre-IPO fundraise at a total valuation of $5.4 billion, a sharp rise from its $3.9 billion valuation in December 2020.
India’s internet economy is expected to grow over nine times from the current $75 billion to around $639 billion by 2030. The internet economy is expected to contribute around 9% of the GDP from the current meagre 2.3%, according to a January 2021 research report by Citibank.
The fund has already started drawing down from its commitments as it partnered several other investors such as Bay Capital, White Oak Global Advisors, Cyrus Poonawalla Group among others to invest in insurtech startup PolicyBazaar earlier in the month, ET had reported.
Till date, through its various funds, IIFL has invested around $1.8 billion (Rs 12,248 crore) in the Indian market. Earlier in the month, Edelweiss Wealth Management launched a private equity (PE) fund to tap sector agnostic pre-IPO and late-stage investment opportunities with a targeted corpus of Rs 5,000 crore.
While this trend has been quite prevalent in the West, it is picking up pace in India, experts said.
“The listing gains that some of the tech companies have seen in the US have been huge. Going by that, there is a strong business case for such funds in India as well, given most of the tech companies, be it consumer tech or enterprise tech, are only going to list overseas,” said Ankur Pahwa, Partner and National Leader for the E-commerce and Consumer Internet sector at EY India.
“We will see more such funds tapping the pre-IPO opportunities as some early investors in IPO-bound companies will look to cash out offering a window for such funds to get in,” Pahwa added.