Fundamentum Frontier Advisors, a deeptech investment firm spearheaded by industry veteran Nandan Nilekani, has upped its domestic investment allocation by ₹500 crore, pushing the total to ₹2,500 crore. The firm is reacting to heightened demand from local investors, a sign that interest in deeptech sectors is gaining traction in markets that have typically passed them by.
Now, the firm has its sights set on a total fund size of ₹3,500 crore. The remaining ₹1,000 crore will be allocated to an offshore vehicle. This shift deviates from the original target of ₹3,000 crore. A general partner at F2A expects they will hit this new hard cap in the next few weeks to two months.
Domestic limited partners (LPs), which include institutions, family offices, and high-net-worth individuals, are increasingly drawn to deeptech investments. These LPs provide the capital that lets fund managers make investment decisions for them. The surge in domestic interest stands out in a sector that demands substantial capital and long timelines before seeing returns.
F2A kicked off its fundraising efforts in June, after announcing the fund in May, with approval from the Securities and Exchange Board of India (Sebi) secured in April. The firm is riding a wave of venture investors who are moving towards companies developing proprietary technology, despite the hurdles the sector presents.
Domestic and International Investment Dynamics
The newfound interest in deeptech isn't just coming from specialist funds. Domestic growth investors, who previously stayed clear of this sector, are now eyeing potential opportunities. This shift demands a new way of evaluating investments, as deeptech companies often lack the clear growth indicators present in other sectors.
Debraj Banerjee, another general partner at F2A, pointed out the growing readiness of domestic capital to get involved in deeptech. He stressed the importance of where funding comes from, especially for companies working on strategically vital technologies. Founders in defense and similar sectors are particularly wary of foreign investors due to the potential complications they can introduce.
While domestic demand has prompted F2A to increase its local allocation, most of its foreign capital stems from Japanese and South Korean companies. The firm has earmarked ₹1,000 crore for an offshore vehicle based in Seoul, South Korea. East Asian investors are eager to plant their flags in India's tech landscape, anticipating the nation's growth up the technology ladder.
Back in April, South Korean tech giants Krafton and Naver teamed up with Mirae Asset Venture Investments India to manage a ₹6,000 crore fund focused on Indian early-growth-stage tech startups. Additionally, the Korea Venture Investment Corporation (KVIC) and other South Korean government entities have been exploring LP roles in Indian venture funds.
Japanese venture capital firms are also ramping up their involvement in India, with some setting up localized funds to deepen their market presence.
As F2A continues its fundraising, the firm is gearing up to deploy capital. Though the companies involved remain undisclosed, Banerjee mentioned one involves semiconductors linked to the data center supply chain, while the other two are artificial intelligence investments in the consumer and enterprise sectors.
F2A is currently assessing 75 deals at various stages of negotiation. The firm plans to add six to nine companies to its portfolio over the next 18 months, aiming to build a portfolio of 12-15 companies over three years.
