A growth-stage fund with a sharp focus on SaaS and B2B is trying to up the ante from Series C onwards. Can founders find nirvana in Avataar?
Mohan Kumar (right) and Nishant Rao, co-founders, Avataar Venture Partners
Who is a seasoned investor? Is it someone who has backed multiple ventures? Or a veteran who has seen various investment cycles—hypes and bubbles—over decades? Mohan Kumar ticks both the boxes, but what really qualifies him as a seasoned investor is a trait that not many in the investment world possess: Balanced storytelling. He starts with a tale where the protagonist is a founder.
Once upon a time—well, it was in the middle of last year—the startup ecosystem in India found itself in the midst of a crazy funding boom. Kumar, who has spent two decades in leadership and operating roles, including as corporate vice president of Motorola, and has also had stints with two startups, describes the ‘insane’ funding scene. Pre-2018, he first sets the context, the valuation multiples for SaaS companies were in the range of seven to 10 times their revenue. “If you happened to be a market leader, you could even get 15 times,” says the former managing partner at Norwest Venture Partners (NVP), who started growth-stage SaaS- and B2B-focussed fund Avataar Venture Partners towards the latter part of 2019. During the peak of the pandemic, SaaS companies started getting 40x. “Some even got 100x,” he says with a smile.
The reason was simple. The pandemic shut down everything and software companies, and many others who were riding the pandemic tailwinds, were the vaccine the world badly needed. The hedge funds, for instance, the much-famed Tiger Global and the likes, suddenly realised that they were missing the party. “They gatecrashed,” he says. The funding narrative changed. Suddenly, the companies that were raising $30 million for a 20 percent dilution, let’s say, started getting $100 million or $200 million for the same 20 percent. There was hardly any due diligence, and the only objective was to get in, whatever the price.
Kumar now shares what happened with his fund. Till the six months leading to the shutdown in March 2020, Avataar had made three bets. The investment thesis, and the story behind the birth of the fund, were interesting. During his NVP days, Kumar noticed that there were umpteen funds catering to the early-stage needs of entrepreneurs. But when it came to late stage, especially Series C and D, there was a huge white space. Moreover, there were no dedicated funds catering to SaaS founders.
What was also missing was experts—‘been there, done that’ types—who could help B2B and SaaS companies scale. The reason was simple. A lot of companies after completing their 0 to 1 and 1 to 10 stage couldn’t grow. “We found a lot of them with $5 million, $8 million and $10 million revenue,” says Kumar. “But it was hard to spot the ones touching or crossing the $100-million mark,” he says. Kumar teamed up with Nishant Rao and floated Avataar.