New fund from Avataar to support B2B and SaaS startups

• ByStartupStory     |    October 17, 2022

The venture capital fund Avataar Venture Partners, which was founded by former executives of Freshworks Inc. and Norwest Venture Partners, with a goal corpus of $350 million (about 2,800 crore).The fund will invest in 12 to 15 growth-stage firms that use software-as-a-service (SaaS) and business-to-business (B2B) business models.

“The amount of the new fund might increase to $400 million. The size of the investment check will range from $15 million to $50 million. With this new fund, we have already completed one $15 million acquisition. According to Mohan Kumar, the company’s founder and managing partner, there are plans for two additional investments.

Avataar, based in Bengaluru, plans to support up to 15 companies through the new fund from the Series B through D stages for an average of at least seven years, with an average ticket size of $35 million.

According to Kumar, the investment will be split between SaaS and B2B marketplaces in the healthtech, agritech, and deeptech sectors, with 60–70% each. Avataar, he continued, is not enthusiastic about making investments in the business-to-consumer (B2C) sector.

“We believe there is a significant opportunity in clocking with up to 15 firms in a fund, and we don’t need to spend more than $400 million.” In terms of revenues, the B2B sector is more stable and doesn’t drain your bank account. In SaaS, B2B, and deeptech, exits are significantly simpler, he claimed.

Nishant Rao, a former chief operational officer at Freshworks, and Kumar, a former executive director at Norwest Venture Partners, launched Avataar. It had announced the final close of its $100 million Opportunities Fund in February of last year, which would have allowed for fresh investments as well as top-up investments in a few portfolio companies.

Large institutional limited partners (LP) from the US and Europe have invested in the fund. It comes after Avataar’s $300 million debut fund, which was unveiled in September 2019 and has Boston-based fund of funds Harbourvest as its single limited partner.Its initial fund had backed 10 businesses, including B2B rural commerce platform ElasticRun, BFSI SaaS CRMNext, media and fast SaaS company Amagi, travel and hospitality SaaS firm RateGain, health and fitness SaaS unicorn Zenoti, and others.

According to reports, the number of unicorns will decline by 50% during the following 18 to 24 months. A unicorn just discusses valuations; it makes no mention of the business’s core principles. It is not a gauge of how successful a business is, according to Kumar.Annual recurring revenue (ARR), gross margin, and net revenue retention are the main three indicators that Avataar focuses on when investing in businesses through its new fund (NRR).

“For Series B investments, we will consider an ARR of $7 to $10 million, $15 to $25 million for Series C, and $40 to $50 million for Series D. We’ll check the gross margin for SaaS companies, Kumar said.

“Every firm in the globe will acquire technological software over the next ten years. This is a trillion dollar potential, and our aim in India is to build at least ten profitable companies with an ARR of at least $100 million and an EBITDA of at least 15% for each fund.

We intend to have at least 50 profitable businesses worth more than $100 million in our portfolio over five funds in ten years,” he said. Avataar has already made two partial exits, including software supplier for spas and salons Zenoti and ElasticRun.

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