For Stellaris Venture Partners, the headline reads another fund closed, another target beaten. The India-based early-stage investor received commitments of USD 225m for its second vintage in 2021, having set out to raise USD 160m. Now Fund III has closed at the hard cap of USD 300m, comfortably exceeding the USD 250m target. Yet Alok Goyal, a partner at the firm, noted a clear shift in LP sentiment.

“In Fund II, having good TVPI [total value to paid-in] was enough. This time around, DPI [distributions to paid-in] mattered a lot more,” he said. “Fund I has at least three winners and several others still in the mix. But what really helped this fundraise was Mamaearth going public in November 2023. We took some liquidity in the public market offering and then some more in January.”

Stellaris backed Honasa Consumer [NSE:HONASA], parent of mother-and-baby brand Mamaearth, in 2018, leading a USD 4m Series A round. It re-upped a couple of times, accumulating a 9.4% stake by the IPO, at which point there was a INR 3.5bn (USD 41.3m) realisation. The January sale isn’t disclosed in stock exchange trading activity, but as of March, Stellaris held a 4.75% stake worth INR 4.1bn.

It is not the only source of DPI. There were 19 investments from Fund I, which closed on USD 90m in 2017, and six of these have been fully or partially exited. Honasa is the only IPO to date – although Stellaris hopes that Whatfix, a digital adoption platform that recently closed a Series E round at a USD 900m valuation, will follow suit. The rest have come from trade sales and expansion rounds.

The most notable trade sale was Slintel, a B2B buyer intelligence platform, which was acquired by US-based 6Sense in 2021. Stellaris was the first investor but only held the position for three years. According to Goyal, the company was performing well and received an inbound offer the founder felt he couldn’t turn down. He also points to it as evidence of strong US strategic interest in software start-ups.

Once a portfolio company is marked at 10x or more, Stellaris generally looks to make a partial exit and return 1x-2x of its investment cost. “Even if a company is still growing strongly there might still be substantial risk, so taking some cash off the table has served us well,” Goyal added.

Going for growth

Partial exits typically come through expansion rounds, whereby larger financial sponsors commit new capital to a business and take out some shares held by early-stage investors. Stellaris has noted a swath of market entrants in the Series B and C space, but pullbacks by international investors mean there is limited capacity for Series D and beyond.

This makes the Whatfix deal – led by Warburg Pincus – exceptional, but it carries additional significance in the broader Stellaris story. The team participated in Whatfix’s seed round in 2015 when working at Helion Venture Partners. On forming Stellaris in 2017, one of their first acts was to join the Series A. Helion, which is now in wind-down mode, made a partial exit in the recent Series E.

In Fund I, the Stellaris partners – Goyal, Ritesh Banglani, and Rahul Chowdhri – relied heavily on commitments from Indian entrepreneurs who knew them from previous deals. In Fund II, global LPs contributed more than three-quarters of the capital, with fund-of-funds and development finance institutions (DFIs) well represented.

Now, Goyal describes the LP base as “almost entirely institutional, almost entirely US dollar” and featuring the likes of pension funds, endowments, foundations, and a larger number of fund-of-funds. Twenty LPs account for 95% of the corpus, with the outstanding 5% reserved for entrepreneurs Stellaris considers strategic. Nevertheless, selling Fund III was not straightforward.

“There was a headwind and a tailwind. Allocations to private assets have gone down globally, and that’s something we heard in our conversations. At the same time, interest in India has gone up on the back of continued GDP growth, political and regulatory stability, and a lot of exits in 2021 and 2022,” said Goyal.

“The withdrawal of capital from China was also a factor. This capital doesn’t have to come to India, but the withdrawal reduces the number of choices for people who want diversification.”

All about AI

Stellaris remains focused on seed and Series A rounds, with Fund III expected to back 25-30 companies, writing cheques on entry of up to USD 10m. One change is that the three partners have become four, with the promotion of Naman Lahoty, a repeat entrepreneur who joined the firm in 2019.

A second – perhaps better described as an intensification – is artificial intelligence (AI) as the dominant investment theme. On the enterprise side, it is addressed through three lenses: applications, developer tools, and the combination of software and services, or services-as-a-software. On the consumer side, Stellaris looks at the application of AI across healthcare, education, and financial services.

Portfolio companies range from Carpl, which streamlines radiology workflows, and OrbitShift, a co-pilot for account executives in IT services, to Dashtoon, which leverages generative AI to create webcomics. The first investment from Fund III is in an AI-enabled testing automation start-up.

“We’ve been active in Fund II, but the number of assets coming our way – enterprise and consumer – has gone way up,” Goyal added. “We think of AI as a horizontal theme that cuts across multiple sectors and deals. We haven’t even asked ourselves how many deals are AI versus non-AI.”