May 30, 2023

Exclusive: Silicon Valley’s Tribe Capital plans to raise $250 million India-dedicated fund: Arjun Sethi Silicon Valley-based Tribe Capital, which was founded by former executives of Chamath Palihapitiya’s venture capital firm Social Capital , plans to launch an India-dedicated fund with a corpus of $250 million. The timing of the India-focussed fund is significant as it coincides with risk investors turning cautious about the technology sector that has undergone a steep correction over the past year after the excesses of 2020-21. The fresh pool of capital for India will be separate from Tribe’s global fund, which has so far backed Indian startups such as logistics aggregator Shiprocket, BlackBuck, a trucking platform, Khatabook, which helps small businesses keep digital records, among others. ETtech Arjun Sethi, cofounder & partner, Tribe Capital, told ETtech that the firm is in the midst of setting up an Alternative Investment Fund (AIF) domiciled in India and operated by a local team based out of New Delhi. Tribe India Venture AIF, Fund I, has already started conversations with limited partners or sponsors who pool in capital and expects to close the discussions in a few months. “Our flagship venture funds have already provided us with a five-year head start here – our dataset covers 1,500 companies, 70 terabytes of data. By launching regional “Navigator” funds, like the India AIF fund, we see a sustainable and incentive-aligned approach whereby we can leverage local data science teams to contribute to our centralized data science efforts (strengthening both our flagship funds and other regional Navigator funds) while offering LPs a product that targets region-specific exposure,” Sethi said. While the fund is sector-agnostic, based on where it observes product-market fit from its current activities in India, Sethi said he expects to focus on Artificial Intelligence, software, and fintech. Discover the stories of your interest As for Tribe’s India portfolio, Sethi said the firm’s largest and most successful investments in India to-date are in Shiprocket, Khatabook, and Blackbuck. “These companies are contrarian (bets) to much of the Indian ecosystem in that they prioritised real world engagement and/or monetization over superficial growth,” he said. Sethi said that India is at an “inflection point” where founders have experienced successes and failures, and the ecosystem is ready to support larger sums of capital investment. Existing investors in India are also less experienced in terms of knowing how to support entrepreneurs through ups and downs, through capital and strategic advice. That’s why now is the right time for us to enter support and help accelerate the Indian ecosystem, he said, while talking about the timing of the India fund launch. Tribe’s founding partners – Sethi, Jonathan Hsu and Ted Maidenberg – had previously invested in companies such as Slack, Snapchat, Carta, Gusto, while they were at Social Capital. The firm, which differentiates itself from the traditional set of VC funds in the Valley, claims to make investing decisions based on data modelling. During the Covid-led tech boom, Tribe backed a plethora of cryptocurrency platforms and Web3 startups including the now-bankrupt FTX, crypto exchange Kraken, Binance US, among many others. Last year, the fund raised $25 million for an incubator programme Tribe Crypto Labs, but the shake-up in the crypto sector has been tough going for funds like Tribe, which have had to write off investments in some of these assets. Why a separate India fund? Looking at the maturity of capital providers and entrepreneurs with tech experience, we believe that the Indian ecosystem is roughly a decade behind the US, Sethi said. He added that both the Indian venture market and the economy are growing much quicker than in the US, which have acted as factors for entrepreneurs. “In particular we see a void in logistics and financial infrastructure, where existing global solutions cannot be applied to India,” Sethi told ETtech. The labour cost advantage means that Indian companies will be able to export and compete globally because they will be able to build software products better, faster, and cheaper than the rest of the developed world. We believe that the Indian opportunity is not only driven by its domestic market growth, but by its value capture through impending Indian exports globally, he added. According to Tribe’s proprietary data analysis of supply and demand of capital in the system, Sethi said the funding crunch is as significant in India as in the US, which represents an opportunity for capital providers. Buying secondaries at discounts Sethi said despite the tightening of the funding environment and many late-stage Indian startups struggling to prove their business models, Tribe is bullish on India. “We are active in India and have been leaning in during the current environment by acquiring more ownership in our current portfolio by transacting secondaries at discounts. As venture investors we take a long-term view and only invest in companies where we have underwritten a 5-10x outcome, so small changes (10-20%) in valuation generally do not materially affect our appetite. However, when we see very large discounts like 50% or higher, we will be more aggressive, such as our secondaries strategy I mentioned above,” Sethi said. The secondary market has been active as existing investors look to clock partial exits from their portfolio firms as IPOs have dried up for more than a year. ETtech reported on May 3 that Malaysia’s sovereign wealth fund Khazanah Nasional picked up about a 3% stake in ecommerce focussed logistics firm Xpressbees by paying $40 million through a secondary share sale. Eyewear retailer Lenskart recently facilitated a $500 million secondary transaction , while FirstCry has been in discussions to liquidate shares of some of its investors at a $3 billion valuation, as reported in April. Talking about India market via-a-vis the US, Sethi said the two markets were different. “We believe that the fundamentals of product-market fit and what companies look like when their product is working, and engagement is compounding, are similar irrespective of which market they operate in. That said, the macro structure of the Indian ecosystem is more nascent, smaller but growing quickly and has a labour cost advantage…” he said.