Rajesh Raju on Kalaari Capital’s mass consumer focus and Fund II deal run

If there’s a slowdown underway in venture capital deal making in India, it isn’t evident from Kalaari Capital’s deal run in recent months. Seven-odd months into its relaunch under the current brand identity, the Bangalore-headquartered venture capital investor has put together a portfolio of 10 companies from its second India-dedicated fund, the $150 million Kalaari Capital Partners II, launched last September. Last week, it announced its tenth deal from the fund, and a somewhat unusual one at that, investing an undisclosed amount in Chennai-based quick service restaurant (QSR) chain Ovenfresh.

Rajesh Raju, managing director at Kalaari Capital, spoke to StartupCentral about how the deal was made and how it fits into the firm’s big focus on mass consumer plays. Edited excerpts:

1. You’ve been closing deals quickly. How much of Fund II is already invested?

We’ve done 10 deals so far, we’re aiming for 20-25 deals from this fund, so there are still quite a few investments we plan on doing over the next 2-3 years.

2. Are overall entry valuations looking better this year?

Valuations are really never much of a challenge when it comes to proprietary deals, which is what we prefer. Valuation might be a challenge at times at the Series B and C stages. We play mostly in the Series A stage and largely in proprietary deals.

3. How is Fund II’s investment approach different in terms of average ticket sizes and co-investments? Do you expect to play more in Series A stage deals this year?

Our approach has not changed much from Fund I. We are still primarily a Series A stage investor doing sub $5 million deals. Opportunistically we do participate from time to time in Series B deals. Depending on the situation we are not averse to doing co-investments. Yes, we do expect to do mostly Series A deals this year.

4. You are a technology, Internet and mobile focused investor. Why did you invest in a QSR (Ovenfresh)?

The investment in Ovenfresh isn’t unusual actually. We have a big focus on the Indian consumer and it’s a space that we understand. And if you think about it, ecommerce, for instance, is more of a retail or consumer play rather than a technology play (Kalaari’s Fund II has invested in ecommerce companies Hushbabies, Urban Ladder and Zivame). Also, this is not the first time that we’ve invested in what looks like a non-technology, offline play. The first fund invested in CarZ (multi-brand car servicing chain) and MedPlus (wholesale cash-and-carry pharma).

5. How long did it take to get the Ovenfresh deal done? What did you find interesting about the company?

It took about six months from scoping out the company to the investment. It was a proprietary deal. The QSR space has a lot of potential but it tends to be a little unorganized and lacking in processes. Ovenfresh had two important factors going for it. First, the founder, Rajiv Subramanian, comes from the kind of background that you would normally associate with entrepreneurs in the technology space. He’s an alumnus of IIM Ahmedabad and worked at Lehman Brothers and Oracle before getting into the food and beverages sector. He of course grew up with the business. His mother has been involved in the bakery business for many years. He’s put in processes and technology to run it more like an organized QSR business.

6. What’s their edge?

We like consumer investments that cater to the masses. Unlike a lot of established national chains, Ovenfresh follows a uniquely Indian QSR model. You keep the pricing Indian but offer a world class environment. So, for instance, a cup of coffee at Ovenfresh costs just Rs 10-12. This ensures that customers at an IT park will drop in for 3-5 cups of coffee a day. Now combine this with contemporary systems and processes. The company runs a central kitchen for its 10 outlets, which ensures that the food is consistently good, it uses a lot of technology to ensure that things like delivery, wastage and returns are all controlled from the central kitchen.

7. QSRs are attracting a lot of attention these days from investors. What are some of the challenges of the business?

As in all retail businesses, it is important to figure out your fixed costs. This depends on the size of the store, rentals, etc. You have to know exactly what you need to do to break even at a store level. This is an exercise that any retail business needs to go through because it has implications when post investment the business embarks on rapid scaling. Most people underestimate the cost and complications of scaling. Second, it is all about processes and consistency. Take for instance, McDonald’s. They have a playbook for everything which ensures that consistency is not human-dependent but process-dependent. Having the discipline to not only install but follow systems and processes is the key to long term success in the QSR space.

8. How involved do you expect to be in this portfolio company?

We follow the active investor model. We help our entrepreneurs in a variety of areas, including, strategy, planning, recruiting, scaling, acquisitions, networking, etc. I’ve worked with several consumer businesses in the past and some of those learnings will help.

9. What are some of the other non-tech, consumer segments that you find interesting at this stage?

There’s the overall retail services space. Then there are a lot of interesting models coming up in wellness and healthcare that we find interesting. We’re also looking at education. We’ve invested in a company called SimpliLearn (elearning). Another consumer play we’ve invested in is Magzter, which is a digital store for magazines.

10. How is investing with Kalaari different from Peepul Capital?

When I started at Peepul in 2006 the focus was on early growth stage companies but we were inclined more towards brick-and-mortar companies. At Kalaari the early stage flavor is similar but our portfolio is lot more skewed towards technology and new age business models.

Read our earlier interview with Kalaari Capital founder and managing director Vani Kola.


  1. Aakash says:

    Any food business is ultimately judged on the food. Is it good to eat? Processes are good but should not subvert the quality of the food. That will be the main challenge for Ovenfresh to keep customers hooked to its prodcuts.

  2. Ravish says:

    “Yes, we do expect to do mostly Series A deals this year” — that is good news for startups.

  3. Shadab says:

    @aakash QSR model is not about taste, it’s convenience. Nobody goes to McDonald’s od dominos to eat tasty food. For that there is fine dining

  4. Devraj Sinha says:

    Are there any pure tech VCs in India? All seem to prefer safer areas like restaurants and clinics.

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