Lightspeed Venture Partners, which has backed the likes of Oyo, ShareChat, Udaan, Zepto and PhysicsWallah, is targeting to raise a smaller India-focussed fund with a sharper focus on early-stage deeptech and artificial intelligence startups amid struggles in its growth-stage portfolio, four people aware of the matter told ET.
The fifth India fund is expected to be around $300–350 million, according to people familiar with the matter, making it significantly smaller than its previous corpus of $500 million raised in 2022.
During an interview with ET at its Menlo Park office in November last year, Lightspeed’s partner Bejul Somaia declined to comment on the new fund being smaller but said: “The broader market (in India) has shifted since the exuberance of a few years ago, and our approach, as always, will be measured and consistent with the opportunity ahead.”
The reset comes as Lightspeed recalibrates its India strategy amid a broader shift in venture capital priorities, with firms deploying large pools of capital into AI, deeptech and early-stage technology startups.
Some of Lightspeed’s AI bets include large language model startup Sarvam, vibe-coding platform Emergent and agentic AI firm Composio. It has also backed other startups recently, including instant house-help service provider Snabbit, spacetech firm Pixxel, fintech platform Stable Money and rapid fashion delivery startup Slikk.
Lightspeed partners Ravi Mhatre and Somaia told ET in February that nearly 60% of the firm’s India investments over the past year were directed towards AI-native startups.
Lightspeed did not respond to ET’s request for comment till press time Tuesday.
“There is a lot more dry powder chasing AI and deeptech in India than the number of companies that can absorb that capital right now,” said a venture capital investor aware of the matter. “Lightspeed’s global thesis is AI, but in India, apart from Sarvam and a few other names, the view is that there are not too many opportunities that can grow exponentially. So, a smaller fund with a sharper focus makes more sense.”
Over the past 18 months, venture capital firms, such as Accel, Peak XV Partners, Nexus Venture Partners and Stellaris Venture Partners, have raised large India-focused investment vehicles. The largest among these has been Peak XV’s $1.3-billion raise across three vehicles, after the former Sequoia Capital India outfit downsized its previous fund. Most of these VC firms invest across stages and have talked about focusing on investing in deeptech and AI companies in India.
The recalibration also comes amid questions around the performance of Lightspeed’s growth-stage investments in India, people tracking the firm said. The fund has backed companies such as Razorpay, Zepto, PhysicsWallah, Udaan, ShareChat, Oyo and Byju’s across different stages.
Growth bets dwindle
While Lightspeed made substantial returns via secondary sales in Oyo and Byju’s over the years, many of its other growth-stage investments have not produced large outcomes. Moreover, while Lightspeed continues holding small stakes in Byju’s and Oyo, both companies have seen their valuations drop, with Byju’s, in fact, being under insolvency today.
“Some of the growth deals have not played out as expected,” said a second venture capital investor. “If the growth portfolio is not producing large outcomes, the question naturally becomes whether the firm needs to continue writing those large growth cheques in India. If it does not, then it probably does not need a $500 million India fund.”
For instance, Lightspeed had invested in Razorpay at a valuation of about $7.5 billion. The payments company is currently in the process of filing for an IPO, and per industry executives, is likely to get listed at around $5 billion.
PhysicsWallah, on the other hand, has traded around the valuation at which Lightspeed invested—$2.8 billion. Companies such as Udaan and ShareChat have struggled to deliver meaningful liquidity, people tracking the firm said.
Beyond AI, Lightspeed is bullish on quick commerce, citing its complex unit economics and operational intensity. However, it plans to stay away from consumer brands. “We’re interested in businesses with real non-linearity in outcomes. More predictable models may deliver three to five times capital, but the upside is capped. Our focus is on asymmetric potential,” Somaia told ET during the February interview.
Leadership churn
Lightspeed’s India team has seen a few departures. Abhishek Nag, Vaibhav Agrawal and Shuvi Shrivastava have moved on from the firm over the past 12-15 months.
“Currently, Rahul Taneja, Hemant Mohapatra and Harsha Kumar are the senior partners in India. Dev Khare and Bejul Somaia have moved to the US but are involved in some deals here, but there is no India head as such,” said a third VC investor. “The team is looking at a few AI deals, especially at the early stage, but from a global point of view, India is not as hot a market for them right now.”
The firm is still expected to remain active in India, especially in AI, deeptech and frontier technology companies. However, people aware of the matter said its new fund is likely to be more selective and skewed towards early-stage deals rather than broad-based growth investing.
“India remains an important market, but the strategy is being reset,” said one of the people cited above.
