Why Smaller Funds Are Redefining the Private Capital Landscape in India
For decades, bigger was better in the world of private investing. Larger funds translated to higher assets under management (AUM), which typically meant more compensation for fund managers. But this dynamic is undergoing a quiet revolution—especially in India’s private capital market.
Today, many Limited Partners (LPs) are rethinking priorities. Instead of chasing scale, they’re leaning toward disciplined fund sizes that emphasize sustainable returns over asset accumulation. In this new paradigm, smaller isn’t just smarter—it’s strategic.
A Shift in Mindset: Performance Over Size
The winds have shifted for General Partners (GPs). In the past, raising mega-funds was a badge of honor. Now, managers are opting for leaner, sub-$100 million vehicles—driven not only by tighter capital availability but also by a recalibration of LP-GP alignment.
Sayan Ghosh, founder of Ortella Global Capital, explains:
“We intentionally capped our fund at $36 million to target a 55% IRR, consistent with our historical returns. We prioritize IRR over AUM because that’s what our LPs value most.”
Ghosh, who previously backed leading funds like Stellaris, Prime Venture Partners, and Endiya Ventures while at IFC, notes that funds under $50 million have often delivered stronger returns—both faster and more consistently.
Capital Velocity, Not Vanity Metrics
This shift isn’t an anomaly. Tracxn data shows that over 60% of venture capital funds raised globally in 2023 and 2024 were under $100 million. In India, while giants like Peak XV raised $2 billion across vehicles last year, the focus is rapidly tilting toward micro funds and capital efficiency.
Utkarsh Sinha of Bexley Advisors puts it simply:
“Micro funds allow for faster deployment, tighter alignment, and better risk-adjusted IRRs.”
What began as a constraint has now become a strategic choice. LPs, especially family offices and boutique wealth managers, are prioritizing liquidity and risk-adjusted returns over brand name or fund size.
Adapting Fund Structures for Flexibility
Aviral Bhatnagar of A Junior VC (AJVC) recently closed a Rs 100 crore pre-seed fund. But scaling it further? That’s a challenge.
“The sweet spot for fund size in India might be around Rs 600 crore. Unlike the US, we simply don’t have as many companies scaling to Rs 10,000 crore,” he notes.
Manu Chandra of Sauce.VC echoes this strategic focus.
“We tailor fund structures to align with both founders and LPs—long-term vision for startups, regular cash flows for investors. Different vehicles allow us to stay involved from early-stage to IPO while delivering on both fronts.”
This nuanced structuring ensures that both short-term liquidity and long-term growth can coexist.
Emerging Managers Are Embracing the Model
India’s Alternative Investment Fund (AIF) regulations, which mandate a Rs 1 crore minimum investment, are creating space for emerging managers. Wealth managers are playing a pivotal role in connecting these GPs with high-net-worth individuals (HNIs) and family offices.
Ashwin Poorswani, a seasoned LP, highlights:
“We’re seeing a surge of first-time managers using the AIF route to launch lean, focused funds. These are no longer stopgap measures—they’re becoming the new standard.”
Even established managers are keeping it lean. As one anonymous VC put it:
“At $300 million, strong returns are hard unless you get lucky. And you can’t build a fund strategy around luck. This is a game of patience—whether you're a founder, LP, or GP.”
The Private Credit Parallel
The story is similar in private credit. Rahul Chowdhury, founder of RevX Capital, deliberately keeps his fund size between Rs 500-750 crore to maintain investment discipline and capital agility.
“With a micro fund, we deploy fully in six months and optimize IRR across the fund lifecycle. LPs get timely liquidity and consistent yield—a win-win,” he explains.
Smaller credit vehicles are proving more nimble in volatile markets, enabling more responsive strategies and predictable capital flows.
The New Blueprint for Indian Funds
India’s fund ecosystem is maturing. LPs are more discerning, and GPs are evolving. The once-necessary compromise of running smaller funds is now a deliberate, long-term strategy.
Manu Chandra captures this evolution well:
“When we targeted Rs 250 crore for our third early-stage fund in 2024, we saw Rs 850 crore in inbound demand within weeks. But to preserve size discipline, we capped it at Rs 365 crore—even if it meant turning away capital. That’s how long-term value is built.”
Final Thoughts
The next chapter of Indian private capital won’t be dominated by the biggest funds. It’ll be defined by the most agile, disciplined, and return-focused managers. For LPs chasing performance—and not just prestige—micro may very well be the new mega.
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