Venture capital firm 3one4 Capital, which completes 10 years this year, is looking beyond conventional sectors and metro-focused startups with its recently launched $15 million IIDEA Fund. The firm, which has recorded 26 profitable exits across its first two funds, is also placing greater emphasis on sustainable business models and capital efficiency, managing partner and CIO Pranav Pai told S Shanthi. Excerpts:
Q. Ten years in, what has the first decade produced in terms of exits and returns?
Fund I closed in 2016 with Rs 100 crore and returned all principal capital to LPs within seven years, while retaining shares in several companies. We have recorded 26 profitable exits across Funds I and II. Darwinbox delivered a 58.07x return and 65.08% IRR through a late-stage sale when Partners Group and KKR co-led a $140 million round. Tracxn listed on the NSE and BSE in 2022, following which Fund I exited. Pocket Aces was acquired by Saregama in an all-cash strategic exit, while Fund II fully exited ToneTag. More recently, we exited Kuku FM at approximately 90% IRR and partially exited Raise Financial Services at a superior IRR.
Q. What kind of companies will the $15 million IIDEA Fund back?
The fund is aimed at entrepreneurs solving developmental challenges who often struggle to access capital. Innovation is expanding beyond traditional sectors and urban centres. We are seeing founders reimagine core infrastructure across energy transition, agriculture, health, deeptech and manufacturing. From indigenous semiconductors and batteries to AI-led supply chains and digital health, these companies are tackling complex problems in sectors that have historically been capital-starved. The founder base is also becoming more diverse and distributed, including women, non-urban entrepreneurs and innovators outside traditional ecosystems.
Tell us about your recent investments.
The connection between these companies matters more than the number of investments. We have moved beyond using a single profit-and-loss profile as an investment filter. A robotics company with 30% gross margin in its second year and a deeptech company that is years away from revenue can both have credible venture-scale outcomes. We now underwrite companies based on the economics and characteristics of their industries. For example, ZeroCircle is developing marine-degradable biomaterials from regenerative seaweed biomass to replace flexible plastics. PadCare Labs is building infrastructure for hygiene waste, while Fresh Terra is bringing traceability and quality assurance to agricultural supply chains. Ayr Energy has raised $25 million and crossed $500 million in contracted orders.
Q. What are the favourable investment trends today?
Domestic capital is deeper than ever. LP interest in India has remained steady among top-performing firms, while the domestic pool is widening support for newer fund managers. The other major shift is the evolving role of the State. The government has committed close to Rs 5 lakh crore across research, development and innovation in areas such as semiconductors, AI and quantum technology. This represents a new architecture for indigenous innovation, with the State moving from simply giving grants towards more collaborative and patient capital.
Q. Will the focus on profitability sustain?
Profitability is a structural shift, not a passing phase. The cost of capital is the key driver. When capital was near-free, growth at any cost was rational. That is no longer the case. The companies worth backing have recurring customers, clear value propositions and acquisition costs that can be paid for through gross margins. They should be capable of reaching sustainable economics within five to seven years. Dhan has generated more than Rs 2,500 crore in revenue in four years and operates profitably at 60% Ebitda margins. Scimplify crossed $100 million in annual revenue in 2.5 years, while Kapiva grew sixfold in three years. These companies built efficiency into their models early rather than responding only after market conditions changed.