Sector-specific funds: The right fit for early-stage founders

Besides just monetary value, funding partners at the early stages nurture startups with their mentorship, industry connections and experience within a sector

By Vinay Singh

Published: Jan 6, 2025 11:09:43 AM IST

Updated: Jan 6, 2025 11:16:01 AM IST

Sector-specific funds offer deeper expertise within the chosen industry segment. Image: Shutterstock

Until a few years ago, one would have never imagined a large sleep-focussed industry with brands created around smart mattresses, beds, pillows, and other sleep-related amenities. For that matter, the audio accessories industry with global giants like BOSE or JBL could have never apprehended a home-grown Indian brand not only disrupting the industry with its style-led audio wearables but also eventually emerging among the top 5 audio accessory brands globally.

What made these seemingly impossible scenarios possible was India’s vibrant investment community, especially the sector-specific funds. They have played a strong role in not only financing but also nurturing and guiding these brands to emerge as category growers and disruptors. Startup brands with innovative products or service propositions are fuelled by the invaluable expertise and networks that these funds are able to offer well beyond the value of the initial cheque.

Sector-specific funds offer deeper expertise within the chosen industry segment. Having worked with different brands within the segment, the funds develop a playbook that further feeds into the thesis-based model for due diligence. This not only makes the due diligence process straight-forward, time efficient, but also delivers some sound business advice for the owners irrespective of the final funding outcome.

Choosing an early-stage sector-specific fund house can be an important strategic move for a startup and could define its future trajectory. With access to a vast pool of experience, these investors often bring valuable mentorship, industry connections, benchmarks, playbooks and other value propositions to the table.

For a new brand entering the market, keeping costs low is critical, however, it remains equally important for them to acquire the best marketing, distribution and operational skills. Building communities, networks and advocates remains another important step towards truly unleashing the potential of the new venture. This is where the fund can help the founder by sharing their extensive knowledge, network and experience within the chosen sector.

Also read: The science of successful startups

Having worked across different companies in the sector, the fund creates multiple playbooks, each with different opportunities, challenges and routes taken by the various entrepreneurs. No two ventures can have the same journey, even within the same sector, but knowledge-sharing makes the process that much clearer and more efficient. It adds immense value to the founder’s growth journey as they are able to harness the potential of a well-established network and have access to the best resources across various functions and operations.

Additionally, funding partners at the early stages of a venture are a lot more than just sources of monetary value. They become partners in a brand’s journey. The sector-specific early-stage funds work side by side with entrepreneurs as they grow an idea into an enterprise. The involvement is far more than a transactional relationship. The fund becomes invested in a more holistic manner, making it more likely for the fund to stay the course with the brand and participate in every successive funding round. These funds will make that initial investment only after thorough due diligence based on a thesis-based model, and the experience helps them bet on brands they know are most likely to grow and succeed within the specific sector. There is longevity to the relationship and the founder is allowed to stay laser-focussed on the task at hand—growing the brand, rather than worrying about securing future funds.

Taking the above thought a step further, early-stage funds have created different programmes to help accelerate the startup growth trajectory. For instance, certain programmes offer the startup exhaustive sector knowledge, learnings and benchmarks from previous investments along with access to internal teams dedicated to support the startup to achieve excellence, along with playbooks and an ecosystem of partners. These enable and empower the brands to charter a seamless growth trajectory from Rs 10-100 crore, with the fund helping them navigate the tricky funding landscape.

The first funding decision is always a big one for an entrepreneur. No doubt it is a complex decision with multiple factors playing an important role—right from choosing the kind of fund one must approach to the amount that must be raised to defining the terms of the deal. While a lot of these factors are driven by pure numbers and calculations, it is those seemingly non-quantifiable factors such as sector expertise, knowledge and network that play a crucial role in deciding the next chapter for the startup.

Besides, the chosen fund needs to be truly invested in the companies’ growth beyond just a transactional relationship. Engaging with an early-stage sector-specific fund creates a win-win situation for both parties, where the founder secures a true partner in its growth journey while the fund is able to expand and add more knowledge depth as well as gravitas to its sector portfolio.

The author is partner & co-founder, Fireside Ventures