Abishek Balendran - CoFounder SilverX

Welcome to another VC Wisdom podcast. Today with us is Abhishek Balan Duran. He's a partner at SilverX Fund. Uh, SilverX is backing, uh, India's deep tech AI future. So we're gonna have Abhi, uh, today with us explain us a bit more about the thesis, his deal flow, how he raises from LPs, and invests in a bunch of companies ranging from, uh, Makers Hive Innovations, Vama, Brainsight. So, Abhi, welcome to the podcast. Tell us a bit more.

Call me Abhi, by the way. And so this is Fund 2 under the Silver Needle Ventures platform that we've launched. Fund 1 was a 2022 September vintage, and in about 2.5 years, we've deployed close to about close to about $8-10 million USD. And today in terms of performance, we're sitting on close to about 3x on the portfolio in about 2 years' time. A couple of companies, famous companies or rather marquee investments that we have there is Onfinance AI, Maker's Eye, Brainsight AI, SuperK. The thesis has been across 3 broad verticals. AI, deep tech, and consumer tech. And we haven't changed the playbook going into Fund 2. Fund 2 is the same, higher check sizes, go deeper into the company, come on the board of the company, try to take a board observer or at least a board governance or a board seat. In fact, I think around 70-80% of Fund 1 companies we held a board governance seat. Barring one or two companies, maybe probably 3 odd companies we weren't, we were just active co-investors. So we have a different thesis related to what's happening in the market right now, especially in India. So we are a group of operator, investor, and entrepreneur driven principal team. Within the fund. So we look at the company from every lens and we try to place one of our ecosystem players rather who's associated with the fund including ourselves as one of the board people on the companies. And these are pretty early companies, we come in the seed plus stage or pre-Series A and going up to Series A and Series B. We acquire stake somewhere between 5% and 15%. So fund 2, the average check size would be around $1.5-3 million. As a first check going up to let's just say I would say probably around 4-4.5 for our select high conviction bets. Fund 2, if I didn't mention before, it's a $100 million fund. It's just to put it out there, I mean I know it's not applicable outside India but these are— India regulator plays a big part of our lives so it's not a private setup, it's a government registered enterprise. That forms a big part of our ecosystem, a big part of trust amongst the LPs that you at least cater to in the Indian setup. So we got a license 2 months back and as I mentioned the sectors are simple SaaS or I would say AI, deep tech and consumer tech with a major focus on AI-first companies. And as we speak, we are 2 months into the fund. We will be announcing our first close somewhere in June, July. And we've already shortlisted a couple of opportunities. In fact, one of the opportunities that we're underwriting right now, it's in the synthetic data LLM space, and it's a pre-IPO kind of an opportunity. It's a large check, and we will be leading the round in that company. So that's pretty much it on the fund side. And so regarding Fund 1, as I mentioned, track record is everything is in— I mean, the entire fund is in the money right now. We just got out of the investment period. We expect distribution 2028 onwards. So that's pretty much it on the fund side. And that leaves me being an investor through and throughout, never been an operator. Across my career, started with investment banking, worked across geographies in India and London and then moved to the buy side. Initially it was on the private equity real estate side where it was more about control transactions acquiring 80% stake into the companies. That led me to the venture capital space, was part of a fund which is on a no-name basis the fund that I was part of, it's one of the top-performing funds in India and did some marquee investments there. Again, the strategy has been similar to what we're doing at Silver Needle, fewer companies, no spray and pray approach, go early, go deep and have a sizable stake by the time you exit. So and I mean it goes a long way to create a founder relationship once you are one of the first few institutional investors. So that's been a strategy and I think we are looking at this as a platform approach and hungry to do deals across India and what is happening in the AI and deep tech space.

And is there anything happening on the AI scene in India like on the infrastructure side? I haven't seen much AI companies come out of there. China for sure, but India, tell me a bit more.

Right, good question, Charles. So I think it's a very different ball game when you come to India. I think let me put it in a very simpler way, whatever is happening in the developed part of the world, right, so let me look at it from two areas. I think Europe is not considered in this conversation. I would say probably US and China. So whatever is happening at the infra and the energy layer there I mean, we can't compete there, we're not there yet. And India is smart enough to not compete there. Now, what will happen is whatever happened in the 2015-2016 time, if you're not aware, in India there's this huge massive digital infra push that happened in India. I think the penetration in India is much more than a lot of these developed economies combined. So what will essentially happen is I think this is solely my view, whatever happens in whatever gets ground up developed in US and China it has to be applied in the real world. I mean I might make the most idealistic situation but if it is not worth consumption by an average consumer because the kind of market that we have which is a 1.4 billion population and such a deep penetration on the mobile and internet side. So diffusion of whatever is happening building on AI eventually what is going to be real, what is about to be real and what is not working out that's where India will come into play. So in a way I think to make it more technical Initially it'll be a lot of application layer companies and as we move ahead into the journey into the number of years that we have in the next 3-5 years as things get more mature in US and China India will be building on top of it. So while there are some proprietary models which are getting constructed in India I would say that those will be very domain specific. A, B, will be very India and local specific and the kind of data that you would get in India you won't get in any part of the world. So this is— I would say that I think you would be knowing it better as well that I think eventually data has to be a moat or any of these companies that we're looking at on the application layer and when this AI gets diffused into the larger economy to have a bigger impact, data will be a clear moat and that's where India will come into play. In fact, one of our companies, FundOne, on finance AI, just to give you an example, they have a compliance OS agent for the BFSI vertical. And just on a— I mean, we're literally sitting on north of, I would say, high early double digits in 1 year of time in this company. So the main proprietary use of that company or the solution that they're offering is what Charles is using as a bank or as a BFSI player. I mean, the data that Charles gives, AB won't have access to that. And vice versa. So that's what's going to work in India. I think, in fact, if you look at the other next company that we're looking at, the synthetic data LLM company from Fundtoo, again, the major clients of that company are Google, Alphabet, Meta, Amazons of the world. And that's for creating synthetic data for these companies because right now whatever is available is on the public domain.

Right. I guess like my point is deep tech is a bit more interesting in India, robotics specifically, space, right? Aren't you more bullish on these companies rather than AI wrappers, or am I mistaken? It's not an AI wrapper?

No. So I would say we are not looking at AI wrappers. I think today or tomorrow they're going to get commoditized. I would say I think one of the inflection points that we're looking at is physical AI that works in the intersection of both AI and deep tech. And there's a lot of activity happening on deep tech and we've had a couple of bets from Fund 1 as well. I don't know whether you've heard of a company called Dhruva Space, it's one of the leading space tech operators globally by the way. It's a full-stack satellite operator and we sit on the board of that company. So So that's what it is. I mean, you have to understand one thing, right, so government is a big part of our lives. I mean, it's more of a mere facilitator in the Western part of the world. Here, I mean, it's a big part of our lives and it's been early like 3-4 years back is when government came hands-on and the regulator said that we're going to promote deep tech sector in India. So I would say that right now in the last 6 months the kind of developments or the kind of support that we're getting just at a sector level, at an industry level is phenomenal. So the government has launched an FOF or rather a pension fund sort of a vehicle amounting to north of $16-17 billion for funds which are focused on AI and deep tech. So I would say that deep tech is early but it's way mature than what it was 5 years back. I think from any of the other developing countries that we have globally, I think we are well-versed and well-paced because there's a lot of activity happening on that front. And yeah.

One question I had, you said your check size is $1.5 mil, right? And did you say like pre-seed?

Seed plus, pre-Series A.

Okay, okay, because seed for $1.5 for an Indian company, that's like a billion dollars for them. Yeah.

That's a lot. So we generally see earlier I think if you look at probably even a year back seed rounds were not more than $1 million. And now because I mean you understand that any of these companies that are building either on top of the foundational layers that are getting built in US or China or on the deep tech side which are capex heavy they've got to have— they're going to command a lot of money early stage. Those $1-1.5 million rounds are all gone. So I would say that pre-seed plus or rather pre-Series A round would be at least a $5-10 million kind of a round where we could play a level playing field. And on average if you give a company a runway of around 18-24 months that's the amount of money that you would require in today's day and age, at least when it comes to India. So I would say that C+ or pre-Series A here would be similar to a seed round company in US or the developed part of the world because the traction is very— I mean, the base is India, not any other country.

Right. I saw you had a US roadshow, so do you also raise capital from US investors? Tell me a bit more about the LP side of things.

Right, right. So Fund 1, we had like around 35-40% of the fund from international, from cross-border, specifically US. As I said, the thesis were very simple. We first fund, we didn't have like too many investors, we got in tech entrepreneurs, tech operators as part of our LP cap table only because they could assist our companies. And they could help us create a platform approach from day one as to what— it's a very tech-heavy, tech-first fund. So fun too, in fact, since it's a larger fund we're having multiple roadshows throughout Indian cities, major Indian cities and US, we'll be having one in Singapore, we had one in Dubai. So what happens is, as I said, it's an Indian registered enterprise SEBI governed, or SEBI is the regulatory authority that governs us. So what happens is we, if you are part of that and we are setting up a feeder vehicle in Delaware, US, and we are setting up another vehicle probably in Singapore or any of the other tax-neutral countries for the international money to pull in so that the LP would be taxed neutrally only once at the time of exit either in India or abroad. So yeah, so we are looking at close to about 30-35% of capital, that's about $30-40 million, at least $30 million for sure from US. Mix of family offices, operators, HNIs, UHNIs.

And you target mostly like Indian Americans, what persona would be interested in Diversify who are deploying in India?

Fund 1, I would say Fund 1 was mainly Indian Americans, as you rightly said. It was smaller fund, ticket sizes were smaller. Fund 2 would be mixed, I would say, because the word is spread now, we built a small bit of brand for ourselves and people know us. In fact, we had roadshows in 5 states and it went on for a month. So we did have some amazing turnout on average per roadshow we had a turnout of north of somewhere between 60-200 people. So I would say mixed bag but initial feeler at least people who are coming initially at the start of the fund are more I would say working class people who would be drawing some handsome salary annually. And they have some capital which they need to invest in and they understand this product easily, it becomes an easy sell. Having said that retail will fall, build a small part of it. I think institutions, both Indian institutes as well as DFIs and cross-border institutes are going to make a large chunk of the fund.

What's the hottest company in India right now?

I mean, depends on the sector, right? So I think AI, I mentioned a couple of bunch of companies that are coming up, Servom AI, and one of my portfolio companies, as I mentioned, OnFinance AI. A lot of work is happening on the medical side, medical imaging side, one of the companies that we back, BrainSight AI. I would say that, Charles, we're still a little 1 or 2 years away than before we call out apparent winners. There are different sectors like for example the home services market on the consumer tech side is picking up. It's picked up after the people of India have seen quick delivery format has worked really well. One of the companies Zepto has recently filed for a public offering. So that's what happens, Charles Cormier, in India. I think you have to become big enough to make the people realize that there is an impactful organization and at the same time it's become big while being value-driven or rather you know how cost-effective India is in general, right, from the person who's sitting on the street to anyone who's sitting on the top. So I would say in every sector companies are like we still We're still early in the moonshot to find a moonshot right now, but signs are we're finding early signs of moonshot in sectors such as AI, deep tech, consumer tech. And you have to understand consumer will always be a flavor here because it's a big consumption market. No matter what happens, that'll be a— I mean, the fad will change over time.

There you go. Your day-to-day as a partner, tell me what does it look like?

I would say a bunch of 3-4 things, right? I think I look after Fund 1 as well as— and Fund 2 is on the road. Fund 1 is more, I would say, portfolio management. And I mean, since we'll be creating an exit pathway for our existing companies, And let's just say if there are good companies, in-the-money companies, I try to look for secondary opportunities, building deeper relationships with the founder. And fund too, it's all about fundraising right now, spreading the word out, what our thesis is, what we're doing, what we're building out. It's an institution and we want to build it right and we know it's a long game. So it's a 10-15 year journey, a lot of people A lot of people give up in between. We knew it from day one, uh, what kind of a duration we're looking at. So, and 3 parts: investment management and portfolio management.

Yeah, you said, uh, drawing attention to the fund, the thesis. How do you precisely do that? How do you spread the word?

I would say, um, a lot of, uh, I mean, we— I think my main founder, Ajay Jain, who is the founder and managing partner and along with me we have another managing partner called Dheeraj. So we three come from the ecosystem, we've been and both the other guys have been in the ecosystem for 25+ years and they're a pretty local, hyperlocal ecosystems in India in specific states. So they were like founding members of those states, those ecosystems in those states. And so a lot of it, a lot of word spread happens through events, through possible investor engagements, and of course through seminars, webinars. And try to— we try to— I mean, we are affiliated with the government as well. We try to attend as much— we try to do as many panel discussions as much as possible because you have to understand that As I'm going to mention it again that everything has to work in an ecosystem. So word has to be spread to you, to the consumer as well as to the regulators that we're there. So those are pretty much the avenues but I would say I think after spending so many years in this ecosystem there is a bit of a flywheel effect that you get and India is a small market. Relative to India or relative to China, it's a pretty small market. So it's too skewed in the top, top— anytime not more than 50 funds would be active, not more than 50 funds would be active. So imagine, so that's, that's what it is. So I mean, as long as you're in the money with a couple of good deals, your name would be there. It's, it's just that you, uh, I mean, you try to avoid, uh, mistakes during this course and you move ahead.

Question from the audience: how much does the Iran war impact fuel prices and the economy in India right now?

So right now at the ground level, it's not very material. I would say it will still take a quarter or two to get the full effect. But like other countries, we are not immune. I'll be very honest. And so with regards to INR/USD, the exchange rate, you pretty much know what is happening. It's very much there in the public news. But on the ground there is a bit of friction that certain— some of these companies are facing. But the real effect is yet to be seen probably a quarter or two from now. If you were to ask me if you look at this one full financial year I think it will be— it would have faced some bottlenecks related to the last financial year. If you look at this from March 2027 onwards.

Intriguing. So what's next for you and the fund? You're busy fundraising right now, you're pitching some people on a daily basis. Like, what are the challenges for you in front of you for this year?

Right, interesting question. So I think, Charles, US, I'll give you a comparative of US, right, and India. So US technology sells in itself and it's a product, it's an industry in itself. It's been in existence for donkey years. In India, people still compare this with public market outcomes. And when I say public market outcomes, it's two levers. One is cash flow, which they can sell any point in time to realize their money. And the second is a long-term view, right? So that's a fundamental difference that's there between the two markets. We are still in very early stages, still a lot of acceptability needs to come. At any point in time an investor here, an HNI investor here would not allocate more than 5% or maybe 10%, that's the best out of his or her portfolio to venture capital as an asset class. And you have to look at it this way, right, only when public market makes money here is when money flows into other asset classes. Okay, so if tomorrow real estate or public markets are not doing too well, everybody would just sit with the cash hoarded in their cupboards. So that's the nature of business. So there are two kinds of people, two kinds of investors. One are the Lehman. Lehman would be the individual investors plus family offices, family office investors who never got exposed to this asset class. So you need to really educate them. They're very value conscious, they're very cost driven, they're very price driven, they're very impatient. So it takes a lot of time. So the fundraising cycle that we are in right now for this fund, we got an approval for around 3 years. So that's the kind of fundraising cycle that we have. So it's not a very easy sell, but having said that, we've moved leaps and bounds. So today if you look at the kind of funds that attract a lot of money are the legacy funds. Who've been in the ecosystem for like 25 years and there are only so much pool of capital in India. So what happens is I mean if you're a large family office, right, so compare the Walmart family office, there are only a few Walmarts in India. So if they have access to me they would have access to a legacy fund which was 25 years old. So it's always an arbitrage by us over them. So we're getting there, I mean track record sets you apart. And your team continuity sets you apart.

Thanks for being on, Abhi. Where could people find out more about you?

I think LinkedIn, yeah, LinkedIn, LinkedIn, LinkedIn, absolutely LinkedIn. Not too much of social media on the Instagram side, but I think LinkedIn is where I'm more active. I'm getting more active. I'm not much of a social media person. This is the first thing that came about and I was like, okay, let's give it a try. And yeah, LinkedIn, LinkedIn very much, or I would love to have an in-person or a direct conversation over the phone or over chat. That's me. That's me.

That was Abhi and Charles Cormier for another VC Wisdom podcast.