Former Warburg Pincus executives-led Filter Capital closes debut fund at Rs 800 crore

Filter Capital, a homegrown venture capital (VC) firm led by former Warburg Pincus executives Nitin Nayar and Sumit Sinha, has announced the final close of its first fund – Filter Capital India Fund I – with a total corpus of Rs 800 crore.

Sixty percent of capital came from domestic sources while the remaining 40 percent from international investors, with Amansa Capital’s Akash Prakash being the largest Limited Partner (LP).

Some of the leading Indian institutional investors and family offices such as HDFC Fund of Funds, SIDBI, SRI Fund, Oister Global, DSP family office, Harsh Jain, CEO of Dream11, have made commitments.

The fund, which is primarily focused on growth stage technology-led business has so far invested over 30 percent of its corpus across four startups — Capillary Technologies, an enterprise loyalty SaaS provider; Chalo Mobility, a bus mobility platform; LoadShare Networks, an e-commerce logistics services firm; and THB, an Asia-focused healthcare enterprise SaaS firm.

With the final close now, Filter Capital now plans to deploy the rest 60 percent across limited 4-6 deals, leading or co-leading Series B and C rounds, in the next three years.

The cheque size could vary between $60-100 million, the partners told Moneycontrol.

Speaking on their investment thesis, Nayar says the VC firm has found a sweet entry spot to invest in pure technology or tech-led businesses wherein it may not make sense for a large private equity (PE) to enter while a mid-size VC may hold its bars for “pure technology” businesses yet to dole out scalable numbers or profits.

“There are a few investment firms focused on helping today’s breakout technology companies to become tomorrow’s industry leaders. There’s so much to do within mid-cap PE. They are looking at retail, consumer, NBFCs, services, and may not necessarily need to dip their toes in loss-making tech firms. That is the opportunity for us,” said Nayar, who served as the managing director at Warburg Pincus India before starting Filter Capital in 2018.

Nayar was soon joined by his former colleague Sinha, who led technology investment practice at Multiples Alternate Asset Management before joining as a co-founder.

“During our time at Warburg, we spent a lot of time together meeting over 200 entrepreneurs across the board, including the likes of Flipkart, Snapdeal, Ola, Redbus, Paytm. This was the time when the entire new technology ecosystem was emerging in India. The Indian tech-led growth story was going to be big, especially pure tech businesses like software and IT services,” they said.

With Filter Capital, the VC firm is on the lookout for ‘pure technology’ firms, which includes enterprise software and SaaS firms leveraging new technologies like cloud-based data engineering, Generative AI, R&D besides technology-led companies in traditional sectors like consumer, financial, and B2B.

“IT is a massive industry and they are more important in the world than ever before. Digital transformation will only accelerate with the advent of AI and cloud. That creates a window for young startups in IT services to build very interesting differentiated businesses,” said Sinha.

VC trend, rise in secondary deals

On the industry trend, the founders see a rise in secondary market deals in India. Recently, its portfolio firm Capillary Technologies extended its Series D round to $140 million, raising $95 million in secondary transactions to provide exits to existing investors and employees.

“There’s a lot of global demand for secondary strategies right now. It is a recognition that the public markets are not yet open for tech meaningfully. VC firms will have to offload stakes in their private companies before they go public because they have to return money to LPs before raising their next fund. India is no exception to this strategy,” said Nayar.

He continued saying, “We have been meeting people who are interested in setting up secondary AIFs so we do expect to see more secondary activity going forward,” he added.

Filter Capital is also open to these deals, however, with limitations.

“We tend to be a bit careful with respect to firms that are not yet profitable, and may rather reserve capital for primary versus secondary,” he added.

On overall trends, Sinha sees more early-stage VCs doing growth-stage investments as many hold significant-sized funds.

With big-ticket investment making a comeback in 2024, Nayar also sees VCs doubling down their focus on the sustainability of their portfolio firms.

“Everyone’s got the memo that they have to drive outcomes for their portfolio. So instead of scale, sustainability will become the focus. Don’t rely on your next round of funding. That mentality has percolated throughout the entire private investment ecosystem,” he added.