Blume Fund IV: A pivotal point in Blume’s Journey

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As a team that loves to keep learning, Blume has been listening to a lot of great podcasts capturing the history of Venture firms in Silicon Valley. As VCs, our job is to forecast the future, trend-spot and pattern-match. The lessons gleaned from the mistakes and successes are what make us improve the outcomes with every cycle. The 60-year-old history of Silicon Valley venturing and the ~20 years of Indian venturing have provided invaluable lessons. However, these need to be applied selectively on a made-to-fit basis for the next 25 years of Indian venture. When we arrive at 2047, our 100th year of independence, we would have confidently written several definitive books on venture capital from India. 

It has been a humbling two cycles of the venture ecosystem buildout in India, since 2005-06, during which >95% of the current ecosystem was built. One can argue that over 75% of it was built (on whatever variables you choose to qualify that metric) post 2016. 

These signals point to a pivotal juncture for Blume. We are evolving to become the firm we want to be in 2030 and then march towards 2047. Can we build an inter-generational firm? Can we deliver some companies every fund cycle that outlast even VC firms and become staples in the future of the Indian economy? While we all know that it takes a proverbial village to raise the startup child, can we build a firm that will always be remembered as one of the most important partners to an entrepreneur’s journey to glory?

We think this is our calling.

The $250+ million Blume Fund IV marks the first definitive gong of the bell that tolls to this calling. We will continue to pursue seed to Pre-Series A as an entry point into every relationship, as we have done in every single portfolio company built over 12 years. This firm handshake in the first round is never taken lightly. This focus and obsession build conviction on both sides, whether it is founders wanting to partner with Blume or vice versa. It is arguably the longest marriage on the cap table. We looked at every one of our winning stories, and there’s no exception to this.

What does Blume 2023 look like then? #

Conviction Capital #1 = cheque size at seed no bar, ownership of the journey is the bar

We love what we invest in - the people, the problem they are solving, and all other elements of the journey. We then implicitly know that we’d like to be meaningful partners on this journey. When we play our core cheques, we either back young first-time entrepreneurs with a ~$1-2 million (~7-15 Cr INR) solo or co-led cheque, or be an emphatic deep partner to a seasoned repeat founder with half of a 5-10$ mill round they may be raising. These founders could be one of our alums from prior portfolio companies or someone who built without us, but with whom there is mutual respect and admiration. Our late buildout of Fund III and the first year of Fund IV is replete with such examples.  

Conviction Capital #2 = hold depth of reserves to play compelling follow-on cheques when the founders deliver.

Given the limited reserves in Funds I ($20 mill) and Fund II ($60 million), we went to great lengths to raise additional capital through Opportunities and Secondary Funds. Between 2018 and 2022, this has allowed us to continue investing in our Fund I and II winners. It allowed us to demonstrate conviction; to both our LPs and our portfolio companies. We now want to ensure that we have adequate depth within the fund corpus and reduce dependency on our growth pools till companies reach Series B or C. Our “reserve ratio” (loosely defined as aggregate capital set aside for ALL follow-on rounds across all companies: aggregate capital across ALL first cheques) is now projected to be 2:1. It has grown from 1:1 (Fund I) to 1.3:1 (Fund II) and then to 1.6:1 (Fund III). 

A $250+ mill Fund IV allows for our core cheque conviction to go deeper. 

Conviction Capital #3 = thesis-backed investing by individuals who are OGs in their thinking around a sector. 

We’ve often told our LPs that “you pay us to be ahead of the curve”, not to invest with the herd or, god forbid, behind the curve. The only way to be ahead of the curve is for a sectoral lead at Blume to take a bold view of the future of a certain market. We then marry it to the firm’s collective read of a great founder with high integrity in building her or his own inter-generational leadership and business.  

More importantly, being ahead of the curve is what generates outrageous returns in venture, when those one-off mega-hits are born from the portfolio. That’s the role of early-stage VC, not lazy post-facto trend-spotting. You need to be the trend writer with the entrepreneurs you back. As a generalist tech-VC, this is tough. 

I recall the Blume investment team war cry from 2016 - “the era of generalization at Blume is over. Long live the era of specialization”. This forces the team to choose sectoral expertise and commensurate love for the underlying problems, to keep pace with that manic obsession we see in the founders we back in the corresponding sector. Without that, you’re just money and gyan. With that shared passion and obsession, you are a financing co-founder.  

We worked hard to shape the firm into buckets of technology risk over the last 6-7 years

  • Deep tech and emerging technologies (read EV, Robotics etc),

  • Software (read SaaS, dev tools, Enterprise vertical software etc),

  • Fintech (both infra / rails as well as applications of tech to Financial Services), and lastly,

  • (Indian) Consumer and SMB internet (includes edtech, health, commerce, media etc)

Now, with an accomplished track record in each of these sectoral buckets and able leadership in each of them, we begin the depth journey. Across verticals and across sectoral team leads, we aspire to generate best-in-class returns. 

The $250+ million fund allows us to imagine each of these market opportunities to be modelled and pursued as 50-60$ mill buckets of risk and portfolio construction. 

Conviction is where the blood, sweat and money will flow

I will wrap up with how and why we pitch Blume’s Conviction Capital paradigm to all our stakeholders. Our reward is in their conviction and our new responsibility of Fund IV - one that is 1.5x larger than our first three funds put together. 

Our founders and LPs have now witnessed and sensed this conviction along the 12-year Blume journey. We would also like to prove the same to all of our co-investors. The idea is to build a compelling anti-portfolio for each of our partner firms, which is equal to or better performing than our joint portfolio. 

It is also why we don’t start selling for the sake of selling. We add to positions for much longer than any seed fund in the world! (We’ve only tested this empirically with our LPs and prospective LPs and no one has come up with a counter or a parallel elsewhere). Co-founders don’t sell early do they? Why should we then? We share that conviction most of the time with the CEO-founder. When we don’t share it anymore and/or when we reach the natural limits of a fund cycle, we shall indeed sell. When all of us, along with the founders, collectively feel the company has reached a certain limit, we shall find an acquirer together. Every one of our portfolio M&As have been engineered this way - a collective decision with little or no angst other than the ruefulness of what may have been. If the time’s up on the fund life, we’ll find a mechanism to provide liquidity. 

Over a decade, Blume has demonstrated its beliefs and principles amply. Even the hardened naysayers and sceptics who turned us down in Funds II and III are slowly joining us as backers and partners in our journey. We hope to keep adding such deep-thinking, super long-term custodians of capital to our impressive growing base of world-class LPs. 

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