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Episode 137 · Capital · 49 min

The 2.5% that runs the other 97.5%

India's domestic venture industry has now completed a full twelve-year cycle, and the funds that opened in 2013-14 must finally convert paper IRRs into cash. Anup Jain's claim is that the reckoning will be about governance, not deal flow: SEBI asks a fund manager to put in just 2.5% of the corpus (or ₹5 crore, whichever is lower) and the other 97.5% deserves a boardroom of equals rather than one person, a spouse and a family trust.

Venture capital Regulation & policy Leadership & org

Anup Jain

Co-founder, New early-stage fund · with Vishal Krishna

48:56

Said in this episode

▶ 29:58

97.5%

Share of fund capital that isn't the manager's

SEBI mandates a manager contribution of only 2.5% of the fund or ₹5 crore, whichever is lower, a bigger outside stake than a listed company's 25% minimum public float.

▶ 5:56

₹10,000 cr

SIDBI's fund of funds for domestic VC

Set up to power India's first wave of domestic venture funds by taking up to 20-30% of a fund's total capacity.

▶ 12:04

12%

The hurdle before any carry is earned

Typical for domestic rupee funds, set to exclude currency depreciation; clear it and the manager takes a 20% profit share. The bar is borrowed from what liquid, diversified public markets return without the extra risk.

▶ 13:26

25%+

The IRR LPs were actually pitched

The number usually put in front of LPs, against a promise of 2x and 30%-plus returns; 2025 is when it gets measured as the 2013-14 funds close.

▶ 5:34

~90%

Domestic money inside India's domestic VC funds

Outside the top four global names, Anup says the capital behind Indian venture funds is local HNI and family-office money, and most of those funds have still not closed.

▶ 35:25

$350M

Battery Smart's latest-round valuation

As stated on air, currency implied; Anup was the investment lead and calls it India's largest battery-swapping network for two- and three-wheelers and probably the country's largest climate-tech company.

The brief

The argument in sixty seconds

Jain's claim is that Indian venture capital has finished a full cycle and is being audited for the first time. The first domestic funds opened in 2013-14, raised largely from HNIs and family offices through the wealth-management channel, roughly 90% domestic money, part-underwritten by SIDBI's ₹10,000 crore fund of funds, and sold on FOMO, Silicon Valley mimicry and a promised 25%-plus IRR. Those 8+2 structures close in 2025, when paper IRRs become cash IRRs and the 12% rupee hurdle that unlocks a manager's 20% carry stops being theoretical. His sharper argument is that the question LPs are learning to ask is not about returns but about control: SEBI requires the manager to commit only 2.5% of the fund, or ₹5 crore, whichever is lower, so 97.5% of the money belongs to somebody else, a bigger outside stake than a listed company's minimum public float, and yet many funds are one person, a spouse and a family trust holding the fund-manager entity while the investment committee named in the PPM draws a salary. His prescription is procedural rather than moral: ask for Form A, match the PPM's key persons against the LLP's designated partners, and read partner retention as evidence. The fund he and Rajiv are raising is a bet that transparency has become a fundraising advantage, aimed at climate and sustainability, financial inclusion racing down Aadhaar's rails, and the post-COVID consumer whose habits changed before anyone articulated it.

Worth your time if you are

LPs about to write a first cheque into an Indian VC fund

Family offices deciding whether to re-up in a 2013-vintage manager

Analysts and associates weighing a job at a single-partner fund

First-time fund managers drafting their own PPM

Founders reading the reserved-matters clause in a term sheet

Episode map

Where the conversation travels

Every block is a chapter, coloured by what it's about. Click any of it to jump straight to that minute on YouTube.

Venture capitalRegulation & policyLeadership & orgClimate & energyConsumer IndiaFundraising

01Cold open: a new fund and a reset 0:00 Vishal frames the episode as an announcement: Anup and Rajiv are stepping out to raise their own early-stage fund across climate and sustainability, financial inclusion and post-COVID consumption, set against a 2024 reset that lands harder on LPs than on founders. 02From FMCG aisles to the cap table 2:12 Anup traces a corporate consumer-and-retail career and the india.com dotcom years in Bangalore into angel investing and then, from 2018, a deliberately hands-on VC practice of ten or twelve companies a year, working more like a co-founder than a cheque-writer. 03How VC 1.0 got built and sold 3:48 Middle-class founders needed capital no angel group could supply, so 2013-14 produced India's first domestic funds, with angels who had one or two hits inviting third-party money, distributed through wealth managers to HNIs and family offices, about 90% domestic rupees, with SIDBI's ₹10,000 crore fund of funds taking 20-30% of a corpus. 04The documents LPs were never shown 6:36 SEBI's 2012 AIF regulations handed the fund manager enormous discretion at a moment when neither the LPs nor the rules allowed a peep into investment-committee notes. And, Anup says, cheques went to ideas that could never scale. 05MOIC, DPI and the 12% hurdle 8:59 LPs sold on FOMO are now asking what TVPI and DPI mean, whether the asset class beat the Nifty 50's CAGR and when the money comes back, because 8+2 fund lives plus a SEBI grace year are running out, and the manager's 20% carry only begins above a 12% rupee hurdle borrowed from liquid public markets. 06Three kinds of fund manager 13:05 2025 converts paper IRRs into cash against the 25%-plus that LPs were pitched, and for the first time allocators can choose between brand-new managers, the 2013-14 cohort now wearing numbers on their shirts, and spin-outs like Anup who carry an attributable track record. 07Why the third fund doesn't close 15:55 Reputation catches up in a business where the LP gets one quarterly report and a call: governance lapses and frauds inside a portfolio colour the numbers qualitatively, and the tainted managers are exactly the ones who cannot raise again. 08Fancy titles and the great VC resignation 17:40 Single-success individuals raised big funds, hired partners with grand designations and could not keep them through the 2023 reset, and in an ecosystem two degrees of separation wide, promises not kept to associates travel faster than any track record. 09Form A: who really owns the manager 20:00 The SEBI filing Anup says 90% of LPs skip sets out partnership and controlling interest in the fund-manager entity, and when family members and trusts hold that entity while the PPM's key persons do not, the investment committee is a payroll rather than a partnership. 10The cost of being enamoured 23:01 Venture's glamour pulled in people who assumed words and agreements would be honoured and paid the price later, which is why Anup says his new firm will take its time writing contracts with LPs and employees precisely so it can stand by them. 11What VC 2.0 actually demands 25:30 Being institutional rather than merely projecting it. LPs, including far better-networked investors from the Middle East and America, now want to know who controls the investment committee, and since the fund-manager entity need not be disclosed in the PPM, the only way to find out is to ask for Form A. 122.5% in, 97.5% of the decisions 29:20 SEBI asks a manager to contribute only 2.5% of the fund or ₹5 crore, whichever is lower, which leaves a larger outside stake than a listed company's minimum public float, and, Anup argues, an obligation to govern at least as well as one. 13Boardroom battles nobody reports 31:36 Founders stay silent about value destruction because they must return to the same ecosystem for capital, firms quietly refuse to co-invest with each other, and Anup's test is blunt: 0.5x beats the zero everyone takes when reserved-matter rights are used to shut a company down. 14Climate: Battery Smart, Varaha and the landfill 34:25 The first of the new fund's three themes, argued through investments Anup led. Battery Smart was last valued at about $350 million and Varaha pays carbon-credit income to smallholder farmers, and the frame is India's rank as the third-largest emitter, its landfill and demolition-waste problem, and SEBI's disclosure mandate for the top 1,000 listed companies. 15Rails, three hours a day, consumer 2.0 40:00 Technology is an enabler in everything: Aadhaar and digital public infrastructure carrying financial inclusion to the underserved, quick commerce at the doorstep, close to three hours a day on a personal phone. Post-COVID consumption has shifted in ways nobody has articulated but everybody feels. 16Careers in five-year bursts 43:40 Goal-focused consumers buy fitness done properly, recycled materials and travel that means walking 35 km a day or learning sushi in Japan rather than photographing a monument, careers now run in five-year bursts with breaks to reskill, and Anup signs off with his LP series on Substack and a re-read of Morgan Housel's The Psychology of Money.

Timeline

The arc, briefly

One full cycle of Indian venture capital, from the first domestic funds to the year they have to pay out.

1995-2010There is barely an industry. One or two firms putting money into SMEs, and nothing Anup is willing to call venture capital. Founders from middle-class homes had no route to the capital that scaling needs, and no angel or group of angels could fill it.

2012SEBI writes the AIF rules. Funds came under the alternative investment fund regulations, in a new asset class that handed the manager a great deal of power and that the HNIs and family offices buying it did not yet understand.

2013-14VC 1.0 opens, on domestic money. The first funds raised roughly 90% local HNI and family-office money through wealth managers, part-underwritten by SIDBI's ₹10,000 crore fund of funds taking 20 to 30% of a fund's capacity. Anup says he sat in rooms where ideas that would never scale got cheques. The structures were 8+2: eight years from close, then two more on 75% LP consent.

2018Anup crosses from operator to investor. Out of FMCG, consumer and retail, first angel investing and then working with 10 or 12 companies a year, closer to a co-founder than to a cheque.

2023The great VC resignation. Funds built around one person with one success behind them had hired partners and given them large titles, and could not keep them. Anup counts himself in that wave.

2024The reset, and three kinds of manager. The new ones, the spin-outs who have done the job inside somebody else's firm, and the ones already on a second or third fund. LPs started writing to him privately to say they had not known what to ask for.

2025Paper IRRs become cash IRRs. The 2013-14 funds reach the end of 8+2, positions have to be exited, and the 25%-plus IRR that LPs were pitched finally gets measured. The 12% rupee hurdle that unlocks a manager's 20% carry stops being theoretical.

Today2.5% in, and 97.5% of the decisions. SEBI asks a manager to commit 2.5% of the corpus or ₹5 crore, whichever is lower, a larger outside stake than a listed company's minimum public float, and plenty of funds are still one person, a spouse and a family trust. His fix is procedural: ask for Form A and match the PPM's key persons against the LLP's designated partners. The new fund goes at climate, financial inclusion and the consumer whose habits changed after Covid.

Takeaways

Ideas to carry out of this hour

VC 1.0 was distributed, not underwritten

India's domestic venture asset class was born around 2013-14 because middle-class founders needed capital no angel or angel group could supply, and it was sold the way wealth products are sold, through the wealth-management channel to HNIs and family offices for whom it was a small, high-risk slice of net worth. Roughly 90% of the money in these funds was and still is domestic; outside the top few global names, the rupees are local. SIDBI's ₹10,000 crore fund of funds sat underneath, taking up to 20-30% of a fund's capacity, and the pitch on top was FOMO and Silicon Valley resemblance rather than diligence.

▶ 4:20 ▶ 5:06 ▶ 5:50

2025 is when paper IRR becomes cash IRR

The first cohort of funds ran 8+2 structures: eight years from close plus two one-year extensions requiring 75% LP consent, which passive LPs rarely withheld. SEBI added a further grace year. That clock runs out in 2025, when managers are forced to exit positions and the reported IRR has to become money in an LP's account. The benchmark is unforgiving: a 12% rupee hurdle before any carry, the Nifty 50's CAGR as the liquid alternative, and the 25%-plus IRR LPs were actually pitched.

▶ 10:27 ▶ 12:04 ▶ 13:26

Institutional means equals in the room, and Form A is the test

Anup's operational definition of an institution is a boardroom of equals with a real right to endorse or oppose a decision, not a hierarchy dressed up for a pitch deck. The way to check is Form A, the application filed with SEBI for the fund's certificate, which sets out partnership and controlling interest in the fund-manager entity, a document he says roughly 90% of LPs skip. If the manager entity is held by one person plus a spouse, a sibling or a family trust while the key persons named in the PPM are absent from it, the investment committee is salaried staff worrying about next month's paycheck, not partners.

▶ 20:13 ▶ 20:45 ▶ 21:36

The manager funds 2.5% and controls 97.5%

SEBI requires the fund manager to contribute only 2.5% of the fund's total capital or ₹5 crore, whichever is lower. That means 97.5% of the money being deployed into startups belongs to someone else, a larger share of outside capital than a listed company carries, since a company can go public with just 25% public shareholding. Anup's inference is that the governance bar for a fund should therefore be at least as high as for a listed company, and that the fund-manager entity, which is not currently a mandatory PPM disclosure, is where LPs should look first.

▶ 29:58 ▶ 30:20 ▶ 28:10

Partner retention is the audit LPs never run

Funds started by a single individual with one success handed out managing-partner titles and then failed to keep the people holding them; the great VC resignation of 2023 was the visible result. Venture in India is an ecosystem two degrees of separation wide, so associates and analysts learn quickly whose agreements are honoured, and reputation catches up at exactly the moment a manager needs a third fund. If a firm is ten years old and its PPM key persons still do not overlap with the designated partners of its LLP, Anup's reading is simple: no institution was ever built.

▶ 17:40 ▶ 18:11 ▶ 22:38

Founder-first is enforced by gossip, not contracts

Boardroom battles that destroy value rarely surface, because founders are bound by confidentiality and, more practically, need to raise from the same ecosystem again, so they decline to be seen as rabble-rousers. What does circulate is private: firms quietly refusing to co-invest with other firms, and word about a specific investment lead moving within about four weeks. Anup's test for an investor's intent is arithmetic: if you expected 20x and can get 10x, or even 0.5x, that still beats voting a company shut with reserved-matter rights and handing everyone a zero.

▶ 31:51 ▶ 33:06 ▶ 33:40

The 2.0 portfolio is three bets on changed habits

Climate and sustainability comes with a track record. Anup was the investment lead on Battery Smart, India's largest two- and three-wheeler battery-swapping network, valued at about $350 million in its latest round, and on Varaha, which pays smallholder farmers carbon-credit income for regenerative practices. Financial inclusion, he argues, no longer needs to build infrastructure because Aadhaar and digital public infrastructure laid the rails and businesses are already racing down them. The third is consumer 2.0: a post-COVID shift in health, travel, upskilling, pet care and elder care that nobody has articulated, tested by whether an idea makes you slightly uncomfortable while still feeling relatable.

▶ 35:10 ▶ 41:10 ▶ 41:36

The numbers, drawn

What the episode measures

Every figure below was said on air, with timestamps included and caveats kept.

Whose money is actually in the fund

% of capital

As stated in conversation: SEBI requires the manager to contribute 2.5% of the fund or ₹5 crore, whichever is lower; Anup contrasts the remaining 97.5% with the 25% public shareholding a listed company must maintain.▶ 29:58

The numbers LPs were sold

% IRR

As stated in conversation: a typical 12% rupee hurdle unlocks the manager's 20% carry, LPs were usually pitched 25% IRR and above, and the asset class was sold on 2x and 30%-plus returns. 2025 is when paper IRRs convert to cash.▶ 12:04

Minutes a day on a personal phone

minutes/day

As stated in conversation, from 'seven minutes 15 years ago' to 'close to 3 hours a day', on the personal phone alone, excluding desktop time at work.▶ 40:35

The check an LP is supposed to run

Anup's procedure, in the order he gives it

He says roughly 90% of LPs never ask for the first document. His working definition of an institution is a boardroom of equals with a real right to endorse or oppose a decision, and this is how you find out whether one exists.▶ 20:13

Worth keeping

Lines that stay

The industry is ready for a VC 2.0 — and I'm ready for a VC 2.0 innings.

▶ 3:42

I spent about 12 years with you. You came to me — what have you done? Should I invest in you more or not?

Voicing an LP ▶ 13:56

If they are not represented in the fund manager entity, then what we are saying is that these guys in the investment committee are mere employees — more worried about their paycheck next month than about making an honest, good decision on behalf of the LPs.

▶ 21:16

An institutional structure is where there are equals sitting in the boardroom, and therefore they have a right to endorse or oppose a decision.

▶ 21:36

There are no secrets in this industry. You just need to give it four weeks.

▶ 33:40

Clips that travel

Short on time? Start here

Family offices deciding whether to re-up

The 12% hurdle and the 2025 reckoning

Carry, the hurdle borrowed from public markets, and why the 2013-14 vintage has to turn paper IRRs into cash this year.

11:00 → 14:20 · 3 min ▶ Watch clip

LPs about to write a first cheque into a fund

Form A, and who really owns the manager

The single filing that separates an institution from a family business, and the mismatch between PPM key persons and the LLP's designated partners.

20:00 → 23:01 · 3 min ▶ Watch clip

First-time fund managers drafting their own PPM

2.5% in, 97.5% of the decisions

The cleanest argument in the episode: less manager skin in the game than a listed company's public float, and what that should imply for governance.

29:20 → 31:36 · 2 min ▶ Watch clip

Founders reading a term sheet's reserved matters

The boardroom battles nobody reports

Why value destruction stays off the record, how blacklists actually work, and the 0.5x-beats-zero test for an investor's intent.

31:36 → 34:25 · 3 min ▶ Watch clip

Climate founders raising a first institutional round

Battery Smart, Varaha and a climate thesis

What a climate portfolio looks like in practice: swapping networks, carbon credits for smallholders, and demolition waste as an investable category.

34:55 → 39:20 · 4 min ▶ Watch clip

Glossary

The jargon, unpacked

AIF

Alternative Investment Fund, the SEBI category, regulated since 2012, under which India's domestic venture funds are registered.

Limited Partner: the investor who commits money to a fund and delegates all investment discretion to the manager, typically receiving a quarterly report and an update call.

PPM

Private Placement Memorandum, the document registered with SEBI and shared with LPs that names the fund's key persons; it need not disclose who controls the fund-manager entity.

Form A

The application filed with SEBI for grant of a fund's registration certificate, which sets out partnership and controlling interest in the fund-manager entity. It is the filing Anup urges LPs to demand.

Carry and hurdle

The manager's 20% share of profits, payable only above a minimum return, typically 12% for domestic rupee funds, benchmarked against liquid public-market returns.

MOIC, TVPI, DPI

Fund return metrics: multiple on invested capital, total value to paid-in capital, and distributions to paid-in. The last is the only one that means cash has actually reached the LP.

8+2 fund life

The standard structure of eight years from close plus two one-year extensions requiring 75% LP consent, after which positions must be exited.

Spin-out manager

A fund manager who leaves a regulated fund to raise their own, carrying a track record attributable to the investments they personally led. It is Anup's own category.

Connections

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Full transcript

The whole conversation, searchable

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