Whalesbook
New Fund-of-Funds Strategy
JITO Incubation and Innovation Foundation (JIIF) is changing its investment model, moving away from only direct investments. By investing Rs 26.5 crore in Atomic Capital, JIIF is entering the fund-of-funds space. This allows JIIF to use Atomic Capital's expertise in early growth-stage consumer and consumer-tech startups in India, a sector seeing many deals in smaller sizes. Investing in another fund helps JIIF diversify its portfolio and find more opportunities it might not find directly. This approach offers broader diversification and access to new fund managers. It also matches a wider industry trend where fund-of-funds provide access to more assets and strategies, reducing dependence on single managers or direct deal sourcing.
Asia-Pacific Accelerator Planned
At the same time, JIIF plans to launch an accelerator program for the Asia-Pacific (APAC) region, including India, the Middle East, and Southeast Asia. This expansion shows JIIF's goal to tap into the fast-growing startup ecosystems in these markets. The program will focus on promising sectors like artificial intelligence, fintech, climate technology, and mobility. The VC market in Southeast Asia, while recovering, has seen a big shift: late-stage deals are increasing while seed funding has dropped by half, highlighting investor focus on profitability and efficient use of capital. AI, though dominant globally, is a new but growing area in SEA, with most regional AI investment going to Singapore. JIIF's regional focus recognizes India's strong growth, predicted at 14.05% annually until 2031.
Startup Funding Environment
JIIF's current investments are spread across consumer and D2C (25%), AI/deeptech (15%), and fintech (15-20%). It has achieved exits mainly through secondary sales and buybacks, aiming for an Internal Rate of Return (IRR) of 20-30% or more. However, the venture capital market is changing, with investors becoming more selective. Startups are now closely examined for clear financial performance and a realistic path to profitability, a change from the past focus on rapid growth. Even AI investments are seeing fewer but larger deals, suggesting funding is concentrating in fewer companies. JIIF's typical investment size of Rs 1.5 crore to Rs 2 crore places it in the early-stage and seed funding areas, which are expected to grow but face competition as investors shift their priorities.
Potential Challenges
While JIIF's strategy changes are positive, there are significant risks in how they will be carried out. Managing direct investments, a fund-of-funds through Atomic Capital, and a multi-country accelerator at once adds complexity. Relying on partner funds like Atomic Capital for finding deals raises questions about JIIF's ability to consistently secure unique investment opportunities and oversee the quality of early-stage investments. Exits through secondary sales and buybacks depend on market liquidity; a downturn could lengthen investment times and affect target IRRs. Launching an accelerator across the varied economic and regulatory environments in APAC also presents substantial logistical and strategic difficulties. The Asian VC market, while growing, has historically had lower returns compared to Western markets. With the current focus on profitability and efficient capital use, startups without clear financial performance may struggle to get future funding, which could indirectly affect JIIF's investments and its own exit plans.
Future Plans
JIIF plans to invest an additional Rs 80-100 crore over the next 12-18 months, aiming to support 20-25 startups each year. This ongoing commitment to early-stage funding shows JIIF's belief in the potential of new companies, especially in its target tech sectors. The combination of direct and indirect investments, along with accelerator support, positions JIIF to play a role in and benefit from the evolving startup ecosystems in India and the wider APAC region.