To tap IPO-bound tech startups, IIFL launches Rs 1,500-crore fund

The asset management branch of financial services group IIFL is planning to invest in pre-IPO and late-stage rounds of internet economy companies via its newly launched Rs 1,500 crore fund, a senior company executive stated.

In an interview with ET, Chetan Naik, executive vice president, Fund Manager, IIFL Asset Management (IIFL AMC)said, that 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 the late stage of growth.

“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 added.

IIFL AMC will raise the capital from family offices and ultra-high net worth individuals. It will plan to invest around $10-$20 million in about 10-15 companies through the fund.

This is the first fund in India aimed 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 collaborate with companies that are already on the path to profitability and where unit economics are already set up 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 should be either earnings before interest, tax, depreciation, and amortization (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 that has a valuation of more than $500 million and is moving 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 left over 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 expected to hire bankers and start a formal process soon, industry experts said. Online food delivery company Zomato is also likely to file for its $650 million IPO next month. Last month, Zomato secured an additional $250 million from existing and new investors. It closed the primary pre-IPO fundraise at a total valuation of $5.4 billion, a significant increase from its $3 .9 billion valuation in December 2020.

According to a January 2021 research report by Citibank, India’s internet economy is predicted 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 meager 2.3%.

The fund has already begun drawing down from its commitments as it collaborated with several other investors such as Cyrus Poonawalla Group, Bay Capital, White Oak Global Advisors, among others to invest in insurtech startup PolicyBazaar earlier in the month, ET had stated.

Ankur Pahwa, Partner and National Leader for the E-commerce and Consumer Internet sector at EY India 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.”

“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,” he added.