A $129 million fund has been closed by venture capitalist Iron Pillar, which has supported firms like FreshToHome, Uniphore, Servify, and Curefoods. The fund will be used to invest in Indian companies that are worldwide providers of cloud computing services.
Anand Prasanna, managing partner of Iron Pillar, stated that the fund would consider investing in growth stage startups, including Series B and Series C rounds, with a focus on the software-as-a-service (SaaS) and cloud infrastructure segments, as well as investment themes like cyber security and governance, DevOps tools, the future of work and education, and automation.
The $129 million vehicle is a part of Iron Pillar's Fund II series, and the company wants to introduce another platform with an emphasis on India, bringing the total fund size to more than double, according to Prasanna. In order to be able to repay capital to its limited partners by the first quarter of 2024, he continued, the company will be looking to make some "significant" exits from Fund I portfolio firms during the coming year.
“This is the final close for the cloud SaaS fund, and is one of the vehicles of the Fund II series. We are still in process of finalising the remaining Fund II series and are still in conversations with some LPs (limited partners) on the same. The overall Fund II series will be more than double of the cloud fund,” Prasanna said.
Prasanna and his Iron Pillar colleague Mohanjit Jolly will oversee the deployment of the fund.
Prasanna stated that the company would initially invest between $8 million and $12 million from the $129 million fund, an increase of about 50% in initial cheque sizes from Iron Pillar's first fund. Here at Iron Pillar, we frequently double down. For instance, we now have $68 million exposure to FreshToHome, where we previously invested $6 million. Similarly, we can give the winners a lot more money. We have a concentrated portfolio and support 8 to 10 enterprises at a time, according to the number of funds we work with, he said.
Also, he stated that the cloud SaaS fund would not add to its current portfolio of investments but rather pursue additional prospects.
Iron Pillar will continue to invest in three to four companies per year despite the slowdown in venture funding and valuation correction among India's late-stage entrepreneurs.
“Typically, we invest in three to four companies every year, so it would take around two-and-a-half years to deploy a fund, and that is what we would see with the new fund as well. So nothing changes fundamentally in our way of investing. We do see that today’s market gives us great opportunities,” Prasanna said. “But it’s not just about opportunities. We work with our portfolio companies hands on, and we can’t invest in eight companies in one year and do all the work, which we promised the founders, so we will continue to pace at three to four companies a year.”
The launch of Iron Pillar's new fund comes at a time when SaaS companies around the world are under pressure as a result of organisations' efforts to reduce enterprise contracts and cut expenses as a result of deteriorating macroeconomic conditions. As a result, growth for several of India's software startups has slowed, putting pressure on prices.
"I don't think we have seen the bottom of it. Our advice to founders is that your growth rate plus EBITDA (earnings before interest, taxes, depreciation, and amortization) should be at 40%. That could mean 10% positive EBITDA and the company is growing 30% year-on-year. While investing we typically look at companies which have $5 million to $10 million in recurring revenues, and look to take that metric to $100 million to $150 million. Two companies in our Fund I portfolio have hit that metric," added Prasanna.
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