Pavestone Capital to invest in 12 start-ups from its ₹700 crore corpus

Pavestone Capital, a venture capital firm based in Hyderabad, has announced its plans to invest in 12 start-ups using its target corpus of ₹700 crores. The firm’s managing partners have highlighted that the fund, established in July 2021, operates as a SEBI-regulated Alternative Investment Fund (AIF) and primarily focuses on growth-stage investments in Series A and Series B rounds.

Srikanth V J Tanikella, Managing Partner at Pavestone Capital, stated that the fund’s investment strategy revolves around enterprise technology start-ups developing products or platforms to address the challenges large enterprises face. By targeting this niche, Pavestone Capital aims to support innovative solutions catering to established businesses’ needs.

The firm’s investment approach aligns with the growing demand for technology-driven solutions in the corporate sector. By investing in start-ups at their early growth stages, Pavestone Capital seeks to provide capital, expertise, and strategic guidance to fuel the expansion of these enterprises and help them achieve their potential.
Through its investments, Pavestone Capital aims to contribute to the development of the start-up ecosystem and support the growth of disruptive technologies in India. The fund’s targeted corpus of ₹700 crore demonstrates its commitment to providing substantial financial resources to fuel the growth and success of the chosen start-ups.

Overall, Pavestone Capital’s focus on enterprise technology start-ups and its dedicated investment approach position it as an active participant in the venture capital landscape, supporting the growth and development of innovative companies in India.
In addition to its focus on enterprise technology start-ups, Pavestone Capital has expanded its investment scope to include frontier technology companies. These frontier technologies encompass emerging sectors such as space technology, 5G infrastructure, and sustainability.

By investing in frontier technology companies, Pavestone Capital aims to identify and support disruptive innovations that have the potential to reshape industries and drive significant advancements. The firm recognizes the growing importance of these sectors in shaping the future and seeks to play an active role in fostering their growth.
Investing in space tech allows Pavestone Capital to participate in the rapidly evolving space industry, which encompasses satellite communication, Earth observation, space exploration, and other related areas. The firm recognizes the immense potential of space technology and its ability to revolutionize various sectors, ranging from communication and navigation to agriculture and environmental monitoring.

Furthermore, by investing in 5G infrastructure, Pavestone Capital aligns itself with the ongoing digital transformation and the need for advanced connectivity. 5G technology is expected to bring faster speeds, lower latency, and increased network capacity, enabling new applications and services across the healthcare, transportation, manufacturing, and entertainment industries.

The firm’s interest in sustainability reflects its commitment to supporting companies that prioritize environmentally friendly practices and contribute to a greener future. This may include investments in renewable energy, clean technologies, resource conservation, and sustainable agriculture, among others.
By diversifying its investment portfolio to include frontier technologies, Pavestone Capital demonstrates its adaptability and forward-thinking approach. The firm seeks to identify promising opportunities in emerging sectors, aiming to generate significant returns while also contributing to technological advancements and sustainable development.

Since its inception 18 months ago, Pavestone Capital has actively evaluated a substantial number of start-ups, reviewing nearly 350 potential investment opportunities. Throughout this period, the firm has completed three investments amounting to a total of ₹80 crore.
Out of these investments, two have been made in enterprise technology firms, reflecting the fund’s primary focus on this sector. These investments indicate the firm’s interest in supporting start-ups that develop innovative products or platforms to address the specific challenges faced by large enterprises.

Additionally, Pavestone Capital has made one investment in a frontier technology firm, further emphasizing its expansion into emerging sectors such as space tech, 5G infrastructure, and sustainability. By investing in frontier technology companies, the firm seeks to capitalize on the transformative potential and growth opportunities presented by these industries.

Pavestone Capital remains actively engaged in discussions with multiple start-ups, demonstrating its ongoing commitment to identifying and partnering with innovative and high-potential companies. By leveraging its expertise, network, and capital, the firm aims to provide the necessary support and resources to drive the growth and success of the start-ups in its portfolio.

Pavestone Capital adopts a specific investment approach when considering start-ups for potential investments. The firm focuses on companies that have already achieved a significant level of success, generating an annual revenue ranging between ₹6-10 crore.

When investing in these start-ups, Pavestone Capital typically provides an initial investment, commonly referred to as the “first cheque,” within the range of ₹25-40 crore. The specific amount is determined based on factors such as the valuation of the company, market size, and other relevant aspects. In return for the investment, the fund acquires a significant minority stake in the start-up, ranging between 10-40%.

In addition to providing financial support, Pavestone Capital actively engages with the founders and teams of the invested companies by taking a board seat. This level of involvement allows the firm to contribute its expertise, experience, and network to help drive the growth and success of the start-ups. Throughout the investment period, Pavestone Capital may also consider further investments of a similar size, known as follow-on investments, to support the ongoing development of the portfolio companies.

Typically, Pavestone Capital maintains its investments for a period of five to six years, aligning with the medium-term growth and value-creation plans of the start-ups. After this period, the firm evaluates exit opportunities to realize returns on its investments, potentially through methods such as mergers, acquisitions, or initial public offerings (IPOs).
By following this investment approach and actively collaborating with founders and management teams, Pavestone Capital aims to foster the growth and success of the start-ups in its portfolio while generating favourable returns for its investors.

Pavestone Capital, while open to investments across different geographies, has a preference for investing in Indian start-ups. According to Laxmikanth V, the Managing Partner, the firm favours start-ups built in India due to the relatively cost-effective nature of the building and experimenting in the region.
Regarding the impact of the funding winter on the start-up ecosystem, Laxmikanth V acknowledged that stress is mounting, particularly in the Series C, D, and subsequent funding rounds. As a result, some investors have become more cautious in their investment approach. This suggests that the current investment climate has led to a more selective approach among investors, especially at later stages of funding.