Celesta Capital, a deeptech-focused US venture capital (VC) firm, aims to more than double its investments in Indian companies, said Arun Kumar, who recently joined as the managing partner at the firm.
Celesta Capital (previously called WRVI Capital) plans to raise its cumulative India portfolio from the existing 15% to 25% or higher of its total around $1.1 billion corpus raised across four funds. In January, the VC firm closed its fourth fund at about $400 million. With an average cheque size ranging from $3-10 million, Celesta Capital’s portfolio companies in India include Arzooo, Clairvolex, Connect & Heal, Healofy, IdeaForge, Questt, Pixis, Rizzle, and Stellapps.
In an interview, Kumar, earlier the chairman and chief executive officer of KPMG in India, shared Celesta Capital’s India plans, his thoughts on tech valuations and pitfalls that entrepreneurs typically make. Edited excerpts:
Celesta Capital is an active investor in the deeptech space. Can you give us a sense of what’s happening in the sector?
There is a kind of a reset in the valuation of private companies. Things had gotten a bit overheated in the past several years. There were multiple driving factors, including, to some extent, the FOMO (fear of missing out) in approaching investments. Celesta has been more deliberate and focused in the deep-tech sector and did not play much in the B2C (business-to-consumer) space, where you have seen a lot of frothy action. We saw this (reset) before, back in 2000 and 2008. So, in a sense, when you separate the grain from the chaff, you have great value to offer. To me, it will be more of an orderly reset now, unlike a lot of panic actions in the past. VC investments are more about focusing on the best teams and best value proposition. The funding availability from VCs is a good situation as now is not the time to get into the public markets for new investors but get into long-term investments over the next 5-10 years as opposed to returns next year or thereafter.
How big is your India investment plan?
Between the US and India, we have invested in about 95 companies, and 25 have been exited. And we have about 15% of the total investments in India. Celesta has a series of four funds totalling about $1.1 billion, of which a couple are India-focused, and the other two are India and abroad. We want to double down on our investments in India and significantly increase the focus here for multiple reasons—the talent base, the market and very strong synergies between the US and India.
Within deeptech, what are the focus areas?
For India, certainly AI (artificial intelligence), deeptech relating to information technologies, and technologies for transformation like IoT (internet of things) are key focus areas. In the US, Celesta has invested in biotechnology because (we see) more and more convergence in multiple areas. Designs of multiple layers are adopted into molecular biologies for drug design, drug testing, etc. As we go forward, we will find similar opportunities here. The whole idea of convergence of technologies and a crossover of semiconductors and system design into molecular applications are some interesting areas, and these have a large amount of data, including unstructured areas. These are all going to be ubiquitous. AI will have a lot of potential going forward to become one of the most transforming disciplines as it can help with the cost and capabilities.
How have investments changed with the valuation reset?
Companies now have to be much more careful in terms of cash flow. They cannot be spending, assuming there would be a higher valuation coming up in the next round. My focus (as an entrepreneur) today would be on my cash balance as long as possible. Cash is king, and it becomes real in a situation when cash at a high valuation dries up. As an entrepreneur during such times, you don’t want to dilute much (of your equity). People (investors and entrepreneurs) will look at spending with caution, and that will continue.
What are the pitfalls entrepreneurs typically make in such deeptech areas?
One is that entrepreneurs can be too early or too late. This cannot be controlled, but maybe they can look at the markets and see whether to stay on course or modify the programme if they are too early. There are many good companies in Silicon Valley that could have gone under but are among the best companies as they could make those corrections. Another area that can be highly controlled is teamwork. Teams have to work together. Creative, talented and driven people must learn how to work as teams to get the best out of each other. A good founding team and wanting to bring good talent is also very important.