VCs looking for exits in India

VCs looking for exits in India will bring about further consolidation in Indian tech and consumer startup investments. Sequoia Capital, according to Times of India, is said to have concluded a $180-million secondary stake sale in eight of its portfolio companies to Madison Capital, as the venture fund consolidates its holdings. Sequoia has sold its 1.5% ownership in Snapdeal along with stakes in payments platform Pine Labs, health insurer Star Health and India Shelter Finance Corporation, Micromax and UnitedLex.

Having been around in India since 2006, for Sequoia Capital, which manages almost $3 billion in assets across hundreds of companies like Oyo Rooms, Practo, and Bira, clocking returns on its earlier investments has become increasingly imperative, just like other VCs, Sequoia has been one of the most prolific backers of tech and consumer ventures in India, and is among a few investors which is able to write larger cheques in growth-stage rounds as well.

Secondary portfolio sales in the Indian domestic market have not been commonly done by India-focused funds, but are beginning to pick up in an exit starved domestic venture community here. Sequoia had first invested in Micromax in 2010 when the mobile maker was aiming to go public, while it came on board UnitedLex in 2011. The fund got a 3% stake in Snapdeal in 2015, when it sold mobile wallet startup Freecharge to the e-commerce firm in a $400million deal, in a combination of cash and equity. Sequoia part-sold its 3% holding in Snapdeal to Ontario Teachers Pension Plan last year, when the now troubled e-tailer was valued at $6.5 billion.

Other India-dedicated funds which are in the market for a bulk sale of their portfolios include Kalaari Capital, an investor in Snapdeal and Urban Ladder, and Helion Venture Partners which disbanded post a split in the firm's partnership in December 2015. Earlier, Silicon Valley funds Kleiner Perkins Caufield and Byers, Canaan Partners and Draper Fisher Jurvetson sold off their entire portfolios when they decided to shut their India operations. Madison Capital, which has bought out Sequoia's portfolio, has the backing of Lexington Partners, an LP which specialises in secondary transactions. Lexington Partners claims to be the largest independent manager of secondary acquisition and co-investment funds with more than $33 billion in committed capital.

The Indian venture capital industry, which began taking shape after 2005, has not been able to rack up the kind of returns typically associated with their Silicon Valley and Chinese peers. As LPs wait for returns and fund cycles which end every 10 years near completion, most VCs operating India funds have been under immense pressure to make exits.

Some of the big bets on technology startups taken after 2011-12 haven't yet matured for investors like Sequoia, while the non-tech investments do not clock non-linear returns, which is why secondaries help funds exit from at least a few of their non-performing companies and bring in the cash. But secondary portfolio sales work only when funds club together a basket of companies hoping to make it an attractive proposition for the incoming buyer. Finding the right balance of companies and choosing the good companies funds want to divest their stakes in is what takes time. This route to liquidity is now gaining currency as these funds search for exits.

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