Avatar’s new fund will support B2B, SaaS startups

“The size of the new fund could increase to $400 million. The size of the investment check will be between $15 million and $50 million. We have already inked a deal with this new fund, which was $15 million. Two more investments are in the pipeline ,” Mohan Kumar, founder and managing partner of Avatar, said in an interview. With an average ticket size of $35 million, Bengaluru-based Avatar is looking to support up to 15 companies through new funds from Series B. In D phases for an average period of at least seven years.

The investment will include 60-70% in SaaS and 20-25% in B2B marketplaces in the healthtech, agritech and deeptech sectors, Kumar said.

He said Avatar is not bullish on investing in the business-to-consumer (B2C) space.

“We see a huge opportunity to work with up to 15 companies in a single fund and we do not need to deploy more than $400 million. The B2B market is more predictable in terms of revenue and is not cash crunched. SaaS, B2B And exit is very easy in deeptech,” he said.

Avatar was founded by Kumar, former executive director of Norwest Venture Partners, and Nishant Rao, former chief operating officer of FreshWorks. In February last year, it announced the final closing of its $100 million opportunity fund to top-up investments in select portfolio firms as well as new investments.

The fund has seen participation from large institutional limited partners (LPs) across Europe and the US. This follows Avatar’s first fund of $300 million announced in September 2019, which had Harbourwest, the Boston-headquartered fund of funds, as its sole LP.

Its earlier fund has invested in 10 startups including wellness and fitness SaaS unicorn Genoty, media and fast SaaS firm Amagi, travel and hospitality SaaS firm RateGain, B2B rural commerce platform ElasticRun and BFSI SaaS CRMNext.

“In the next 18-24 months, the unicorn rate will obviously come down by 50%. A Unicorn is all about valuation and doesn’t talk about company fundamentals. It is not a metric of how good a company is,” Kumar said.

While investing in companies through its new fund, Avatar follows key three metrics – Annual Recurring Revenue (ARR), Gross Margin and Net Revenue Retention (NRR).

“For Series B investments, we’ll see an ARR between $7 and $10 million, for Series C, $15-$25 million and for Series D, we’ll see $40-$50 million. For that, we will look for its gross margin,” Kumar said.

“For the next ten years, every business in the world will be buying technology software and this is a trillion dollar opportunity and in India we aim to fund at least 10 profitable companies with more than $100 million in ARR and 15 in each fund. Our goal is to build in.% EBITDA. Over the next ten years, we aim to have at least 50 companies in our portfolio in five funds that will be more than $100 million and profitable.”

Avatar has so far made two partial exits, which include spa and salon software providers Genoty and Elasticarn.