Vertex Ventures Wants to Back Founders Building Good Companies Rather Than Chasing Valuation: Piyush Kharbanda An early stage investor, Vertex Ventures mostly invests in the seed funding and Series A stage. Supported by Singapore state investor Temasek, it has made 34–35 investments so far from its $305 million Fund IV launched in 2019.

Vertex Ventures, one of SEA's largest and oldest venture capital firms, which manages assets of over $5.1 billion across SouthEast Asia and India, the US, China and Israel, is looking to support founders building solid companies rather than chasing valuation, its General Partner Piyush Kharbanda says in an interaction with Entrepreneur India.

Piyush Kharbanda joined Vertex Ventures in 2016 and is focusing on opportunities in India. He has been the investment lead for the companies such as Kissht, Tortoise, Ayu Health, Signzy, Recko, KukuFM, Glowroad, Hansel.IO, Ace Turtle, Synup, Beepkart and Threado.

"Considering the financial winter, I don't truly think it's a bad market actually. I believe good companies that have the appropriate traction can raise money. They do not take place at the same value as, say in 2021. Therefore, those who have unrealistic expectations about valuation are experiencing a small reality shock in this market. And it's all right. However, investments are being made at fair prices. Investors are very clear: we want to pay a fair price for successful companies," he adds.

Kharbanda believes that over the next 12 to 18 months, everything will remain highly quality-focused.

What's in the pipeline?

The launch of the Vertex Ventures Fund V, which will focus on SouthEast Asia and India, is expected for later this year.

Temasek, the state investor in Singapore, supports Vertex Ventures, which mostly invests in the seed capital and Series A stage. Since the launch of its $305 million Fund IV in 2019, it has made 34–35 investments.

"We made two investments in 2022, which is much lower than our base case, we would have liked to make many more. However, in the end, we only ended up doing two investments in India in 2022. We currently have three term sheets out, but none have been made public. Therefore, over time, we will sort of announce some of those. 2023 is actually moving much more quickly than 2022," emphasises Kharbanda.

The focus areas

Consumer businesses appeal to Vertex Ventures.

"We believe that the consumer market is very active. We've made a lot of investments in the consumer space. These can be marketplaces, brands, or companies that specialise in a certain industry, like BeepKart, which is addressing both the supply process and the customer experience when purchasing a used bike," according to Kharbanda.

Additionally, it has been actively looking at local B2B commerce companies. "Despite the fact that we have a fantastic company named Karkhana, we haven't done much in this space. Karkhana is developing a form of cloud-based manufacturing company that works with big manufacturers and connects them to smaller manufacturers, factories, etc. And building a tech layer in the middle to take care of a lot of complex processes," he continues.

Healthcare has also been a major area of focus for Vertex. "We have avoided primary healthcare, but we genuinely enjoy tertiary healthcare. We have invested in vertical specific programs, like Proactive for Her, in the area of women's wellness, covering specialities such as gynaecology and dermatology. They address topics that most hospitals cannot address in a very empathetic way. We also have a stake in Ayu Health, which offers excellent patient care and is establishing a brand for itself in the Tier 2 hospital network. As a result, they collaborate with already-established hospitals and improve their patients' experiences, focusing on core challenges like pricing, quality of care, and insurance process management," says Kharbanda.

FinTech is the fourth industry that Vertex particularly enjoys. "There have been some great companies in fintech in the last 18 months, and I think some of the good companies have been very, very expensive in terms of valuations that have really run far ahead of performance. It's generally true in the market, but especially true in fintech, and in fact, fintech is one market, very interestingly, where the gap between a great company and a not so great company is very, very large. So the really good companies are really exceptional, and expensive. And then there isn't anything in the middle," he shares.

How the fund works and what it targets?

The fund operates by allocating capital while setting aside a sizeable sum of cash for its companies' follow-up. "For instance, if we invest in, say, a series A company, we'll invest $5–6 million and reserve an additional, you know, $3–6 million. The companies we invest in are relatively young and are scaling up, so a significant amount of money is needed for subsequent rounds. The same thesis also holds true for our funds' investments in other markets, such as Singapore and Indonesia," says Kharbanda.

"So in general, we are seeking companies that have gained some traction; some businesses may not even have a product. We therefore like to be one of the company's earliest investors, as early as it gets. We prefer it when the founders have a very clear idea of what they're trying to accomplish. And there is no limit to how early you can come in. Therefore, we have a pretty open mind concerning the staging. We want passionate founders who are creating in significant markets and want to collaborate with those folks," he highlights.

The market scenario

Kharbanda asserts that the current situation in the US is truly quite dire. Raising a growth round Series B, Series C is nearly impossible. "It's not the case in India. You can surely raise money if your unit economics are sound. I think that in a market with higher valuations, it is possible to raise capital without having solid fundamentals. That market, in my opinion, will maybe come back in about 18 months. And that's okay. Everything passes through cycles, you know."

According to Kharbanda, a lot of investments made last year were not carefully vetted. He believes that people are attempting to understand business models this year. Additionally, good investors help their firms reach such milestones by collaborating with them. The great thing is that many businesses are moving in the correct path.