Chirantan Patnaik, Director, venture capital at British International Investment
As VC firm Arkam Ventures announces its second fund today focused on backing “middle India”, which is entrepreneurs beyond metros solving problems for half-a-billion people in Bharat, Chirantan Patnaik of BII speaks about why they decided to work with Arkam and the opportunities he sees in India’s startup ecosystem. Edited excerpts:
Q. While BII has been investing in India for a long time, give us a very brief history BII’s first engagement with the VC industry in India
BII is the UK’s development finance institution and impact investor. It invests $1.5 billion to $2 billion a year across all its markets to help create productive, sustainable and inclusive economies.
In addition to equity, we’ve been able to bring in blended finance facilities another innovative capital solutions to further the company’s impact ambitions.
We started our VC programme in India around 2008, and decided early on to take a portfolio approach to these relationships, the first being an AI-focused fund called pi Ventures I. Soon after we partnered with firms such as Omnivore, Ankur, Stellaris, Chiratae, Pravega and recently with 3one4, Blume and India Quotient.
BII is also a direct investor in early-stage companies. Our early-stage investing strategy is to work alongside our fund managers and provide follow-on capital as they look to scale after having achieved product-market fit. Our first early-stage investment through this partnership approach was Loadshare, an asset-light last-mile logistics company.
Overall, the performance of this programme has been good both commercially as well as from an impact perspective, going beyond Tier-I consumers in metros.Q. How long have you been a Limited Partner (LP) with Arkam. Why did you choose to work with them?
In India, we want to support GPs that have a high intentionality to back early-stage companies that can drive inclusive and sustainable outcomes.
When evaluating Arkam’s fund strategy, a few aspects emerged: The digital stack had changed the cost economics of addressing the ‘build for India’ segment which was previously not served due to issues of profitability. While this was seen by every other VC, we could see that the Arkam team had a sharper focus and patient approach in evaluating this segment.
The partners were serious about creating a clear ethos for the firm by seeking to support founders with bold ideas that can reshape the largest markets in India and positively impact the lives of hundreds of millions of people.
We typically engage with fund managers a year or two prior to starting a relationship. We were impressed with the conviction and track record that the partners bought to the platform. More importantly, the team had a clear vision to build an equitable and enduring investment firm. This is absolutely critical for long term success in this business.
Through this relationship, we have also been able to invest directly alongside Arkam in Jai Kisan, an agri-focused funding platform.Also read: Riders of the next ark: Inside Arkam's plan for Middle India's limitless foundersQ.Today, give us a sense of what opportunities you see in India’s startup ecosystem that an institution like BII can tap, while at the same time supporting the growth of entrepreneurship in the country.
Digitalisation is a key pillar of our corporate strategy – we see a clear role in helping to shape digitalisation in our markets towards more impactful, desirable outcomes and ensure mitigants address any additional risks.
Previously, it was difficult for companies to serve this segment profitability, as affordability requires a relatively low price point that is difficult to achieve through traditional brick-and-mortar models.
Tech-enabled business models are better suited to deliver on the high-volume, low-price strategy required in the segment, particularly by reducing overhead costs and spreading the cost of distribution over a large numbers of customers.
Given our experience, on the ground presence and partnerships with leading domestic funds, we have a better understanding of the financing needs, impact requirements and opportunities. This has led to us build out our impact focus which includes focus on diversity and inclusion, climate and digitalisation.
We are very confident of the potential that tech-led innovation can have on the masses and have seen a marked shift in both the founders and the VCs that we have backed who see this as a viable market to address.
Unique to most other LPs, we have evolved four key themes as an approach to prioritising and evaluating companies that better indicate the potential to achieve transformation impact.
These are ‘Enabling MSME businesses’, ‘Expanding access to necessities’, ‘Enhancing agri-value chains’ and ‘Accelerating climate innovation’. Our thesis in each is something we’ve leveraged from working closely with our VC fund managers – and this has enabled us to invest across 10 early-stage companies that are leveraging technology to address significant development challenges.
These range from startups providing last-mile logistics in low-income states (Loadshare), building a platform to manage and upskill to blue-collar/gig workers (Betterplace), access to AI-driven mental health solution (Wysa), providing payments solution for small retailers in India and Africa that enables access to affordable credit (Mintoak), improving climate resilience for small-holder farmers (Cropin), enabling supply chain financing for MSMEs (Vayana), and providing agri-financing in non-metros/rural centres (Jai Kisan).