Bangalore: Venture capital firms in India continue to favour initial public offerings, or IPOs, while exiting investments despite a meltdown on the stock markets though, in some instances, such backers are also exploring alternative exit options such as an equity sale through an acquisition or offloading stake to a peer VC or private equity fund.
Contrarian: K.P. Balaraj, Sequoia Capital India managing director. Photograph: Hemant Mishra / Mint
Yet, the effects of a slowing stock market could show up in fewer IPOs in the next 6-12 months, experts say. “Not many IPOs have happened this year so far and I do not think things will change drastically in (the coming) months,” says Lightspeed Advisory Services India Pvt. Ltd’s managing director Srini Vudayagiri. According to VC tracker Venture Intelligence, one of the two exits so far this year has been through an IPO.
Funds that can remain invested for longer periods will hold on until an IPO is possible unless there is a need for a follow-on round of funding at the investee company, Vudayagiri adds. India’s stock markets have lost more than a quarter in value since their peak last year.
A contrarian is Sequoia Capital India’s managing director K.P. Balaraj, who predicts more VCs this year will exit through mergers and acquisitions. “This year, we will see exits through this route as more US-based private equity and trade buyer capital funds are getting into India,” he says. Sequoia last year made two exits through M&A deals: selling its stake in Zavata India Pvt. Ltd to Apollo Health Street for $180 million (Rs759 crore) and equity in marketRX Inc. to Cognizant Technology Solutions Corp. for $135 million, according to data from Thomson Financial and Four-S Services. Sequoia sold 4.45% stake in FirstSource Solutions Ltd, a back office services firm, to private equity fund SUN Group for $42 million and retains around 5% stake in the Mumbai firm after its IPO last year.
Still, even Balaraj says 10-15 of Sequoia’s portfolio firms will consider IPOs this year and next. These include Indecomm Global Services Ltd, AppLabs Technologies Pvt. Ltd, SKS Microfinance Pvt. Ltd and TutorVista Global Pvt. Ltd.
Norwest Venture Partners’ managing partner Niren Shah agrees there will be a slowdown in IPOs by VC-backed firms. “I feel some strong, revenue generating companies will go public. However, a plethora will not happen,” he says. The firm’s first portfolio company in India considering an IPO is local information and e-commerce portal Sulekha.com, which plans an IPO in 2009.
Other consumer Internet firms considering this route include Helion Ventures-backed travel portal Makemytrip.com, whose chief executive Deep Kalra says it may look at an IPO in two years. People Interactive Group, which owns sites including Shaadi.com, also plans to go public next year.