Mumbai: Despite a meltdown in India’s equity markets, fresh capital continues to pour into venture and private equity funds with active plans for the country. Such firms have raised more than $1 billion (Rs4,260 crore today) in new funds in the first four months of this year alone, which is about half the total amount raised in 2007.
Fund-raising, which had slowed down in the first half of 2007, is gathering momentum again. At its current rate, it may well match the record level of 2006, when private equity (PE) returned in a big way for the first time since the dotcom bust, raising $2.8 billion.
After spending the last two years deploying funds, several venture capital (VC) and PE players are now raising fresh capital, to start off the next cycle of investments.
“About 60-70% of the money raised is put to work in the first two-three years, so all those (who raised funds around 2006) will come back to fund-raising this year,” says Srini Vudayagiri, managing director, Lightspeed Venture Partners, which closed an $800 million global fund last fortnight.
This time around, however, there will be some key differences. Money will be raised, but there will be fewer first-time funds. Firms say limited partners, or LPs, (institutions that back funds) are more cautious in investing in fresh funds.
“LPs are more risk-averse in this kind of market, and first-time funds will find it hard to raise (capital), but the more established names are benefiting from this,” says Jean Salata, founder and chief executive, Baring Private Equity Asia, a late-stage PE firm that just last week announced closing a $1.5 billion Asia fund.
The VC space, in particular, saw several new names in the last round of fund-raising, including independent funds such as Helion Venture Partners and syndicated funds (local teams that operate under global brand names) such as Canaan Partners India and IDG Ventures India.
“Most people who wanted to do syndicated funds have done so. This year, people will settle down and (existing) funds will be more choosy in their deals,” says Alok Mittal, Canaan’s MD in India.
VC fund-raising has accelerated sharply this year — so far the firms have raised $622 million compared with $780 million in all of 2007.
The current round of fund-raising is also likely to see a broader profile of LPs for growth and early-stage funds, typically backed by US-based investors. Funds say they are seeing more interest from LPs in Asia, Europe and West Asia than before. For example, Bangalore-based Helion Venture Partners was backed by several Asian and European LPs in addition to existing investors for the $210 million second fund it closed earlier this year. A majority of its investors in the first fund were US-based.
Another trend emerging this time is a new, hybrid way of allocating funds. Firms that previously invested in companies here without a dedicated-India corpus, are now earmarking a specific portion of their global pool of capital for this market. Bessemer Venture Partners was among the first to adopt this model for India, when it set aside $350 million for investments here out of the $1 billion global fund it raised in 2007. Others, such as Draper Fisher Jurvetson, Canaan and Baring Private Equity Asia have followed suit. This serves as an alternative to raising a dedicated India fund.
“It gives firms the flexibility to reallocate the funds at a later stage, if market conditions change, which might be difficult for a country-specific fund,” says Chandrasekhar Kandasamy, MD, ePlanet Ventures, which is raising a global fund with a targeted corpus of $500 million and plans to make a third of the investments in India.