You inquire with investors, and ultimately, you will arrive at the conclusion, “Businesses with a vision and a robust model will always be funded”. In the midst of a challenging funding climate for Indian start-ups, San Francisco-based venture capital firm Celesta Capital has boldly announced its plans to incorporate 15-25 new entities into its thriving India portfolio. This strategic move has piqued the market's curiosity, as investors wonder which sectors are on Celesta's radar for potential investments. With a portfolio of over 100 companies, including 15 Indian start-ups, and approximately $1.1 billion in assets under management, Celesta Capital is making significant waves in the industry. 

In an exclusive interview with Outlook Start-Up, Arun Kumar, the managing director of Celesta Capital, talks about the factors that drive the firm's optimism about India's start-up ecosystem. Kumar attributes his unwavering confidence to India's rich reservoir of deep tech potential, fueled by a highly skilled talent pool and its strategic positioning within the India-U.S. corridor. Celesta Capital's investment strategy in the Indian startup landscape places a strong emphasis on early-stage deep tech ventures, with a specific focus on intellectual property creation and addressing global challenges. 

Edited Exerpts: 
Celesta Capital has announced the addition of 15-25 entities in its India portfolio. What makes Celesta Capital optimistic in such times of a prolonged funding winter? 

India remains one of the top markets for VC start-up investments despite the overall global decline in VC funding. We believe India's deep tech landscape holds substantial opportunity for growth. A major factor is the country’s talent pool in technology driven by high-quality education in institutions like the Indian Institutes of Technology, the Indian Institute of Science, and several engineering schools across the country, as well as the large number of global capability centers where sophisticated design and development are undertaken for multinational technology companies. India’s position in the current geopolitical landscape is driving advanced manufacturing in India. Our optimism is rooted in the potential of this talent base and Celesta’s strategic positioning and networks within the India – -U.S. corridor. We believe we can assist India-based companies to fulfil their global potential.  

What is the strategy adopted by Celesta Capital to invest in Indian start-ups?   

At Celesta, we are deeply excited about the strength of the US-India corridor for business growth and value creation. Our strategy is to invest in early-stage deep tech start-ups in India focused on IP creation and solving problems for global markets. We look for strong teams with differentiated technologies, inclined to scale not just domestically but globally. Celesta targets technology ventures that enable mass adoption, transformation of a sector, and healthcare innovations. In India, we particularly look for start-ups bringing critical and emerging technologies to wide adoption, such as AI or IoT. We believe technology-enabled industry transformations in sectors such as Agritech, Semiconductor, and Spacetech hold significant potential.  

We acknowledge that deep-tech endeavors inherently demand a considerable investment of time and resources on account of the complex and groundbreaking nature of the innovations involved. We assess the core fundamentals of each business – including technology IP and value creation potential, market traction, and execution capability of the leadership – and focus our energy on helping founders build sustainable businesses. The recently listed drone-maker start-up, ideaForge, is a great example of one such investment. Our team partnered closely with them for several years as active board members and advisors.    

At a time when things have been tough for start-ups, how are Celesta Capital-backed start-ups faring in the market? 

Between the US and India, we've invested in more than 100 companies and successfully exited 27 of them. Within our portfolio, we have 11 companies valued at over $1 billion, four at $500 million, and 37 at over $100 million. Impressively, 28 of our portfolio companies have seen their valuations increase at least three times than what they were when we first invested.  

I would like to highlight that back in 2017, we led the Series A investment round in ideaForge Technologies when the defense drone market was relatively unexplored, and drones weren't as widely recognised as they are today. We collaborated closely with ideaForge, sharing a common vision with the founders of taking the company from its early stages to an IPO and bringing a strong advanced product company. Today, ideaForge is the leading provider of defense drones in India and is at the forefront of using drones for security, surveillance, and surveying applications.  

In addition to our involvement with ideaForge in India, we've invested in other promising start-ups, including Stellapps, Pixis, Bolt & Brick, 5C Network and Arzooo.Top of Form  

Which sectors do you think will be the next attractive sectors for VCs for their investments?  

We are focused on deep tech. There we see opportunities in sectors like GenAI, energy, and data processing which are placing increased demand for infrastructural hardware and software technologies. Sectors, where we continue to see a groundswell of opportunities, include fabless semiconductors, decentralised web, data management, and within bio-convergence, the merging of new advanced high tech and biotech.   

Problems related to corporate governance were raised by some big names in the start-up ecosystem recently. From a VC’s perspective, how do you see the need to pay attention to adherence to these standards? 

Strong governance is a fundamental and non-negotiable element when we make investments. Companies that become embroiled in governance issues will inevitably face value destruction. With the vast majority of our investments, we seek one or more board seats in order to facilitate strong governance and management transparency. We also help mentor and advise founders on best practices of executive management that will support building a strong and sustainable business for the long term. Among venture firms, our team is distinctive for its operating and leadership accomplishments; we thus offer an extraordinary level of multifaceted experience to assist the companies we invest in.  

The faltering of Edtech and Agritech start-ups has sparked a debate that Venture Capital firms have oversold the India story. Do you think the VC hypothesis has gone wrong?  

We see that valuations have mostly corrected or are on such a path in these sectors. In fact, we see some very interesting companies that are reaffirming the India narrative. Take for instance Stellapps, a strong and growing company that has digitised and optimised milk production and procurement and cold chain management. They are now expanding into offering financing options and insurance to farmers.   

Every venture investment includes risk, and the key is to strike a balance between optimism and cautiousness. Both investors and new entrepreneurs should approach opportunities with a solid understanding of the complexities and uncertain market environment that come with building businesses in emerging sectors.