Mumbai: Sequoia Capital, one of the most active venture capital firms in India, is looking to rationalize its India portfolio of around 130 firms, by selling its stake in eight of them, according to two people familiar with the development.
The storied US venture capital fund has been holding talks for the past few months with several funds specializing in secondary transactions, the two said, asking not to be identified.
A Sequoia spokesperson said the company would not comment on “market speculation”.
The venture capital firm has “bunched together its stakes in eight portfolio firms and is in talks to sell this bucket to specialist secondary funds”, said one of the two persons.
He added that these are the firm’s “more mature investments” and mostly its stakes in “non-tech companies”. The person declined to name the companies, but said the deal size could be about $200 million (about Rs1,350 crore).
A secondary transaction refers to the buying and selling of an investor’s ownership in a privately held firm that is often backed by venture capital or private equity firms.
Investment stakes can be sold in a single company or across an entire portfolio of companies. The funds which acquire direct portfolios of venture capital investments are called direct secondary funds.
It is common for limited partners (or investors who put money into private equity and venture capital funds) to sell their stakes in the secondary market, but it is not so common for a general partner, or the manager of a fund (the private equity or venture capital firm itself) to sell its stake, an expert said on condition of anonymity.
Still, there could be good reasons for this, he added.
“... achieving liquidity at the optimal time for maximizing internal rate of return; reducing concentration risk and locking in early returns; reallocating and retooling investment strategy; eliminating non-strategic investments; and creating strategic partnerships to share investment risk and return...”
Sequoia has around 130 investments in its portfolio currently, according to data from Venture Intelligence. The fund has invested some $2 billion in India in the last decade.
Last year was the most active for Sequoia in India, with the firm investing some $500 million across 73 transactions.
The expert added that Sequoia may be finding its portfolio difficult to manage and is “getting out of investments which do not fall in line with its current investment thesis”.
According to the second person mentioned above, one of the secondary funds that has expressed interest in the portfolio on sale is US-based Lexington Partners Lp.
According to a Preqin report in 2015, the top global fund managers specializing in second-hand private equity interests included Ardian, Lexington Partners, Goldman Sachs AIMS Private Equity, Strategic Partners Fund Solutions and Coller Capital. Lexington Partners did not respond to an e-mail seeking comment.
Even as Sequoia is looking to sell its stake in some portfolio companies, it is also deploying capital across select bets. Last week, Sequoia said it participated in the $50 million fund-raising by education-tech firm Byju’s. In March, Sequoia led a $75 million investment round in the company.
Some of the other start-ups that Sequoia has bet on this year include biotech firm Mitra Biotech Inc., online health products vendor Healthkart, management tech start-up SirionLabs, fashion discovery app Voonik Technologies, tax returns filing start-up ClearTax, artificial intelligence firm Mad Street Den, and education start-up Cuemath.
Sequoia’s secondary sale is different from secondary sales by Draper Fisher Jurvetson (DFJ) earlier this year, Canaan Partners in 2015, and Kleiner Perkins Caufield and Byers, along with Sherpalo Ventures in 2014.
In May, The Economic Times reported that DFJ had sold nearly its entire India portfolio to secondary specialist and Hong-Kong based NewQuest Capital Partners, after a three-year hunt for buyers. The firm had around 8-10 investments in India.
In 2015, Canaan Partners sold its India portfolio of nearly a dozen companies to JP Morgan Asset Management in a deal estimated at about $200 million.
In 2014, another storied Silicon Valley venture capital firm, Kleiner Perkins Caufield and Byers, along with Sherpalo Ventures, sold its India portfolio of six investments to Lightbox Ventures, a venture capital firm started by its former local representative Sandeep Murthy.