Celesta Capital: At a sweet spot in India's deep tech startup landscape

Arun Kumar, managing partner at Celesta Capital Image: Swapnil Sakhare for Forbes India
 
As a multi-stage deeptech-focussed venture capital (VC) fund, Celesta Capital is in a sweet spot relating to its presence and investment in India’s fast-growing deeptech startup landscape. The India portfolio, comprising 15 startups out of a total 92 (including exits), is now nearing $100 million in the form of investments, a jump of 43 percent over the 2022-end.

The San Francisco-headquartered Celesta—founded by Michael Marks, Nicholas Brathwaite, Sriram Viswanathan and Lip-Bu Tan in 2013—had started off with investments into US and Israel-based startups, which later spread to the geographies of China, Japan and India.

ideaForge Technology, a manufacturer of drones—and part of the Celesta India portfolio—saw a stellar public listing in 2023, being the first IPO to be subscribed 100x since 2021. Though it has, since, shed a third of its listing price of ₹1,305 at the BSE—due to a weak Q1FY24 earnings data and on profit booking—a steady order book and demand for drones from the government, are seen as positives.

Celesta and Qualcomm made a partial exit in ideaForge on its listing.

There are over 3,000 deeptech startups in India growing at over 53 percent CAGR over the last decade, according to a Nasscom-Zinnov 2022 report. Deeptech startups account for a 12 percent share in the Indian startup ecosystem, a third of which are in the enterprise tech and the banking, financial services and insurance (BFSI) segment.

India is also getting ready for its own deeptech policy—a national consortium has, in September, got public feedback to its draft policy to strengthen the deeptech ecosystem in India. Though the ecosystem is in a nascent stage, this is also the segment witnessing rapid growth among startups, which are using advanced technologies, including artificial intelligence (AI), machine learning (ML), Internet of Things (IoT), blockchain, Big Data and robotics.

It is in this scenario that Celesta Capital wants to strengthen its presence in India. “We want to double down on India in the next five to six years and add to that level of investment,” says Celesta’s managing partner Arun Kumar.

Celesta gains from leveraging on Kumar’s rich experience of dealing with large institutional investors and government agencies. Formerly residing in the US for years, Kumar came to India as CEO of KPMG in India, to later join Celesta in 2022. He previously served in President Obama’s Administration as assistant secretary of commerce for global markets and the director general of the US & Foreign Commercial Service (USFCS).

“India and the US will continue to be the key regions for deeptech investing,” he told Forbes India. “We are focusing on products and services that trigger mass adoption of emerging technologies; we also look at technology-enabled transformation—from IoT to agriculture and retail—sectors which will be transformed by adoption of technology,” Kumar says. “The third segment of investing is on the convergence of deeptech and bio-technology in the life sciences and health care space.”
 
The Indian team has also been bolstered by the hiring of Anita Rehman, from US-based investor GSV (Global Silicon Valley), as a partner. Rehman, based in Bengaluru, will help build Celesta’s India portfolio.

Celesta’s founding managing partner Brathwaite is confident that their investment thesis is built on the need to improve hardware and systems to further tech innovations. “We are investing into core technology that we think is necessary to power emerging applications and technologies being developed to transform large emerging markets,” says Brathwaite.

Also read: As easy money stops flowing startups shift their focus to profit

In the case of emerging applications, semiconductors play a big role and semiconductor devices and systems are being optimised for AI, which will drive the proliferation of technology. “New devices will form the basis for mass market proliferation of these new ideas,” Brathwaite added.

But deeptech is yet to witness the boom in funding and valuations which the startup world experienced in 2021. There are possibly just two deeptech unicorns in India—5ire and Uniphore.

But Brathwaite is not concerned by this. “India is the microcosm of the world. These [deeptech] companies have the ability to scale beyond India and global businesses. Within the next five to 10 years, you will see major companies coming out of India and becoming large global players. I can’t think of a better time to be an investor or an entrepreneur in India.”

Technology is the cornerstone for every Celesta investment. They are quite unlikely to advise investors to spend capital to gain market share. “We generally invest in companies where we would rather spend investment dollars building technology rather than customer acquisition. Market share is important, but it should be accomplished through superior products,” says Kumar.

As use cases for deeptech increase, so will visibility and investment opportunities for such firms.

A Hurun Future Unicorns in the World 2023 list identifying world’s “gazelles” startups—with a valuation of $500 to $1 billion, but not yet listed—found 688 such startups across the globe, of which 48 are from India (occupying third rank behind the US and China). Though fintech, biotech and SaaS are the top industries which these “gazelles” belong to, AI, semiconductors, robotics and cyber security are also well documented in the list.

In the private equity world, investment decisions and survival have become critical in 2022-23, due to high interest rates which has impacted the ability to raise capital and fewer target companies to chase.

Some of these factors have also impacted venture capitalists, but Brathwaite and Kumar believe investing for VCs has been improving over the past 12 months, as due diligence and funding decisions have become sharper. “The opportunities to fund companies are vast, in a period of a slowdown. At a global level, valuations have corrected and there is greater care to provide due diligence,” Kumar says. At present, in India, Celesta is having “in-depth” conversations with three to six companies, while exploratory talks are on with several others.

The next obvious step for Celesta would be to launch an India-dedicated deeptech fund, but the officials have declined to comment on the matter.

Also listen: 147 Indian companies likely to become unicorns in next 5 years

5C Network: Improved Diagnostics

5C Network is a radiology diagnostics AI company which helps to improve health care through better diagnostics for all types of modalities, including X-rays, CT, MRI, NM and mammography scans. It is connected across 2,300 hospitals and diagnostic centres in 28 states, up from 1,300 a year earlier. This has helped it connect with 10,000 CT and MRI machines.

“5C collects X-rays from the centres digitally, processes them using in-house AI and gets an empanelled radiologist to validate the results,” says 5C’s co-founder and CEO Kalyan Sivasailam.

It generates revenues when patients log in for a report from a 5C-connected diagnostic centre. It also charges premium fees for auxiliary services. In 2022, 5C acquired AI health care startup Krayen, with an aim to double its digital scanning services to 1 billion scans by 2025.

In 2022, 5C raised $4.6 million in Series A led by Celesta Capital, with additional participation from existing investors, including Unitus Ventures and Axilor Ventures. Celesta’s senior partner Sudhir Rao, who is also the founding managing partner of venture fund IndusAge Ventures and a founding director of Karvy Stockbroking, sits on 5C’s board. “Sudhir has co-created the vision of 5C. We discuss what needs to be built, what diseases need to be tracked, how to position 5C,” says Kalyan.

5C plans a fresh, but small, fundraise in November-December. Investors Tata 1mg, Celesta and others are likely to re-invest some more funds. 5C Network has seen “an 80-90 percent jump in revenues and the number of customers in the past one year and is operationally positive”, says Kalyan.

Also read: We must understand that VCs have obligations and commitments to the well-being of their own investors: Vani Kola

Stellapps: Cows Going High-tech

The idea to digitise the dairy supply chain through IoT came to a five-member team from Wipro by chance, when a friend’s uncle wanted help to set up an organic dairy. As with other companies in its portfolio, technology is at the centre of Celesta’s investment decision. Trenching from farms in south and north India revealed that smallholder farmers practised farming like a backyard hobby with just one to three cattle, with archaic practices for production and procurement of milk, due to poor cash flows and lack of credit.  

India is the largest producer of milk in the world with over 300 million cattle, producing 600 million litres of milk per day. But lack of traceability and poor quality mean it is not among the top exporters of milk globally, despite being self-sufficient. New Zealand, Germany and the US are frontrunners.

“We realised that per animal productivity had to be improved, there was a fragmented supply chain and corporates/consumers needed better quality output,” says Ranjith Mukundan, CEO of Stellapps.

Stellapps has digitised and optimised milk production and procurement and cold chain management through SmartMoo platform. This technology has been licenced to 250 third-party dairy processors in India. Around 3.5 million farmers are registered on the platform, Mukundan says. About a quarter million litres of milk per day through 1,650 villages are vertically integrated on Stellapps’ own supply chain. “The plan is to expand this to 5 million litres per day over the next five to seven years. We will also focus on exporting milk, particularly since India has become self-sufficient in milk consumption.” The startup has also tied up with financial institutions as a business correspondent, underwriting risks and offering loans and insurance to farmers, to help their working capital needs and purchase more cattle to boost productivity.

Stellapps charges its clients such as HUL, Nestle, Abbott or ITC on a per litre or per kg basis for premium milk and milk derivatives. The startup hopes to double its revenues from a year earlier to ₹550 crore in FY24, and was Ebitda positive in Q4FY23.

“We want to become the de facto supplier to large MNCs. Parallelly, we will also approach large convenience stores such as 7-Eleven, which sell private label products,” says Mukundan.

Stellapps has raised $35 million, with plans to do another fundraise soon. Mukundan and team have plans to expand their output beyond milk, towards other agri products such as turmeric, spices and seedless watermelon, which reply on cold chain management.