How Multi-Act Aims To Elevate Investment Play With A $100 Mn Global Fintech Fund

India has emerged as the third-largest startup ecosystem globally, home to more than 68K+ tech startups and 115 unicorns. This has attracted investment giants from all over the world, with $146 Bn infused into the ecosystem, courtesy an active investor base of 9.7K+, according to Inc42 data.

With the rise of a technology-focussed economy in the past decade, homegrown tech startups are now considered a lucrative asset class not only for angels and VCs but also for private equity (PE) funds, family offices, ultra-high-net-worth and high-net-worth individuals, wealth managers and more.

Multi-Act is one such PE firm headquartered in Mumbai that invests in Indian startups through a SEBI-approved Category II AIF/VC fund. The VC business was launched in 2017 by Wharton graduate Prashant K. Trivedi, CFA and is sponsored by the parent company, Multi-Act Trade and Investments.

Multi-Act’s Fund I has a corpus of INR 100 Cr and invests in next-generation fintech startups that leverage artificial intelligence, predictive analytics and other cutting-edge technologies. It is now looking to launch a global fintech fund worth $100 Mn. Fund II will be functional by October this year, with a first close at $50 Mn.

The India fund’s fundamental investment themes include wealthtech, insurtech, fintech infrastructure and capital market tech. It is stage-agnostic and boasts a diversified portfolio ranging from seed-stage to pre-IPO entities.

Fund I has deployed nearly 75% of the corpus across seven investments including Gradatim IT Ventures, Raise Fintech Ventures, Origa Lease Finance, RupeeSeed, Aureus Analytics, NSE, and Orbis Financial. The remaining 25% (INR 25-30 Cr) will be invested in three or four companies by the end of 2024.

It recently made its first partial exit from Orbis Financial with 57.6% returns – about 7.8x MOIC (multiple on invested capital) and 1.11x DPI (distribution to paid-in capital). With this partial exit, the AIF has returned 103% of its paid-in capital to the fund’s LPs. Other portfolio companies include Gradatim, Raise, RupeeSeed, Origa and Aureus Analytics.

As part of Inc42’s Moneyball Series, we talked with Multi-Act’s Board Director Ashutosh Bishnoi and AIF Fund CIO and General Manager Sekar Iyer about its entry into the Indian startup ecosystem, business evolution, investment thesis and details regarding the upcoming global fintech fund. Here are the edited excerpts.

Inc42: Multi-Act was founded in 1997 to provide equity research services for Trivedi’s single-family office. How has the business evolved since then?

Ashutosh Bisnoi: Prashant was earlier working for SG Warburg’s [a London-headquartered investment bank] fixed interest sales desk in Singapore. But he left in 1991 and joined his family business based in Hong Kong, with operations in India and Southern Africa. Six years later, he set up the Multi-Act Family Office, prioritising independent research and building internal capabilities to invest in global asset classes. It was required as affluent families lacked a structured approach to wealth management at the time.

Since 2012, Multi-Act has been providing independent investment research services (Multi-Act Trade and Investments.) to a diverse range, including wealthy families, business owners, institutional investors and capital intermediaries (brokers and dealers) worldwide.

Also, Multi-Act Trade and Investments offers family office advisory, and Multi-Act Equity Consultancy offers portfolio management services to HNIs and UHNIs.

By 2017, we had four portfolio strategies working in the public markets. We are now advising nearly half a dozen families on their complete portfolios.

Inc42: Multi-Act did not explore the startup asset class until 2017, nearly two decades after launching its investment research arm. What triggered the move?

Ashutosh Bisnoi: From our experience, we knew we could not solely rely on public markets for our investment appetite as a single-family office or for the families we advise. Quite clearly, we needed an asset class with a longer horizon, sometimes even 75 years.

So, how do you match asset liability with opportunity? It is evident that the private side of investing offers more than public markets. In the last 25 years, cycles have changed faster, and one cannot hold on to public-market companies for 20-30 years. So, around 2012, we started looking at the private sector, but it was outside India.

At the time, we felt traditional business owners in India were too conservative; they were not flexible about accepting external investments. But globally, the narrative was different. For instance, more than 50% of European core businesses are family-owned and have welcomed private equity. However, things changed when the Indian tech startup ecosystem started taking shape.

Inc42: Why fintech though?

Ashutosh Bisnoi: By 2017, when we thoroughly understood the private sector and felt comfortable about it, we decided to take a plunge here in India. At the time, the Indian startup ecosystem was widely open to external investments and we saw unicorns (startups with billion-dollar valuations or more) emerge from different sectors. As we best understood financial services, we decided to start with a fintech fund.

Inc42: Within fintech, what are the key categories Multi-Act looks at?

Sekar Iyer: We look for innovative B2B and B2B2C financial services that focus on creating a streamlined capital market or BFSI ecosystem, making operations more efficient and responsive. We are particularly interested in companies that are category leaders or have the potential to become one and that use cutting-edge technologies like AI/ML, natural language processing (NLP) and predictive analytics.

We primarily look for specific applications in investment tech and wealthtech. Then there are specialised, asset-light lending platforms, which can transform into a marketplace model and help legacy companies go a notch higher with their proprietary technology usage.

Inc42: What is the core investment thesis that you follow at Multi-Act Fintech Fund?

Sekar Iyer: The general principle is that whenever we venture into something new, we invest our own money in the first cycle so that our limited partners (LPs) are not exposed to avoidable risks.

Besides, we are looking at companies that already have revenues but they don’t need to be profitable. Nevertheless, we don’t particularly invest in cash-drizzly businesses. We are stage-agnostic and look to invest in 10-15 companies during a fund cycle. For Fund I, our sweet spot is $1 Mn – $500K for pre-seed and about $2.5 Mn for growth capital, meant for companies nearing Series B or raising pre-IPO rounds.

As for our INR 100 Cr Fund I, almost 80% of the investment came from domestic investors and the rest from overseas. Three Indian LPs put in about INR 82 Cr.

We aim to maintain a highly focused portfolio and continue to provide growth capital so that our portfolio companies can scale up operationally and financially. Accordingly, we can work out a set of metrics to determine the return on capital (ROC) for our LPs.

Inc42: What are the key areas you look at when investing in a startup?

Sekar Iyer: First, we consider the sector or sub-sector. We try to identify how it is building a moat to maintain a competitive advantage in that space. Essentially, we look at the business capability it brings from a product perspective that will help it grow faster than other players in the market.

Inc42: The fintech landscape in India has been volatile due to regulatory issues. Does it impact the LPs investing here, especially the global limited partners?

Sekar Iyer: We don’t invest in companies carrying out core activities that banks can replace. Instead, we look for fintech infra providers on the B2B side with no risk on their books. They should only provide business solutions to legacy players. Over time, they will grow and become what regulators call market infrastructure providers.

Let me explain it further. We will not invest in neobanks offering challenger credit cards with high risk on their books. However, we will invest in startups providing cloud services to digital lending companies to help them improve their service delivery and manage end-to-end operations effectively. These may include underwriting, KYC (know your customer), wealth management or fraud detection. Massive technology adoption can accelerate these services in the BFSI sector, whatever the consumer risks attached to them.

Inc42: How does Multi-Act bring value to its portfolio companies?

Ashutosh Bisnoi: One thing that we continually assess is whether we can strategically influence these businesses. But it’s a two-way street.

Apart from managing a fintech fund, we are a financial services company. We provide asset management services, run an equity and AIF research division and work with associate companies outside India.

As we grow within the services ecosystem and bring more companies to the fold, we need to understand if our target startups can also make a big difference in everything we do. If they can, we will benefit each other. That’s another reason why we only focus on fintech startups for funding.

Sekar Iyer: Moreover, it is highly probable that these fintech entities, including the capital market players, will synergise with Multi-Act’s ecosystem play. See, we are sitting on a data mine of nearly 7K Indian companies. This data advantage will help us identify which companies in our portfolio can productise certain aspects of what we deliver to the masses.

Inc42: What are your plans for FY25?

Sekar Iyer: We will launch a $100 Mn Fund II around October this year, with the first close at $50 Mn. This time, there may be a slightly tweaked deal focus, but we will stay largely in the same space and look for more opportunities. We may look outside India for new deals but our focus will be on India and we will look for more fintechs building from India for the world. Our ticket size may also increase for new investments and follow-up rounds in the existing portfolio companies.

Additionally, we will try to test the waters in the B2C space. However, we will not consider companies with balance sheet risks. You know, those businesses are the scariest and have a habit of blowing up. Moreover, it finally boils down to management and its processes to read the right risk in the marketplace. So, for us, those will remain low on the priority list.

Ashutosh Bisnoi: I would like to add another thing. Simply raising another fund means there’s a liability involving [idle] cash. We need to be cautious about that as we want to make a difference in a specific segment. Right now, we are evaluating several deals and working on the pipeline to see what’s available within our investment play, philosophy and strategy, and how much we need to stretch it to stay focussed on what we want to do.

We want to stay relevant in the fintech space but must align with the changing realities of the market. Fund II will cater to those needs and explore more full-stack models. We need to look at those options and stay away from the stuff that is going out of fashion.

[Edited by Sanghamitra Mandal]

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