Mumbai: The launch of Shradha Sharma’s venture—yourstory.in, a Web platform that narrates entrepreneurs’ stories and helps them network among themselves—came on the heels of a watershed event in global finance: 16 September, the day after icnonic Wall Street bank, Lehman Brothers Holdings Inc. collapsed.
A liquidity crisis triggered by a loss of confidence in financial markets has sent the world into near-recession since.
Better networking: Rahim Penangwala (left) of LGT Capital Partners and Sudhir Sethi of IDG Ventures India. Hemant Mishra / Mint
But it’s times such as these that test entrepreneurial acumen, and Sharma is now pulling out all stops to beat the downturn. Among other things, she is trying to cobble up alliances and partnerships with other firms that run complementary businesses.
She has tied up with a Web portal for aspiring management students, ManagementParadise.com, to share ad revenue, wherever synergies exist. “They are well-networked among the student community, and we, among the entrepreneur community. So there’ll be many areas of overlap, where we can hold events together, and pitch for advertising together,” says Sharma.
It’s not just start-ups, but all the players in the private equity (PE) and venture capital ecosystem, which have until now thrived on unfettered competition, are now coming together to collaborate and cooperate among themselves to survive the economic downturn.
This includes PE/venture capital managers, also called general partners (GPs), their portfolio companies, start-ups looking for venture capital, and believe it or not, investors in PE and venture capital funds, otherwise referred to as limited partners (LPs).
That’s not to say that there aren’t tough questions asked among them: be it between a GP and his LP, say, on the manager’s investment call gone wrong and time to returns getting stretched, or between a GP and its portfolio company, on the latter not being able to meet growth targets it had previously made.
But the buzzword increasingly is cooperation.
Patricia M. Dinneen, managing director of New York-based multi-strategy fund Siguler Guff and Co. Llc., which has committed $350 million (Rs1,813 crore today) to India across 12 GPs, said she saw a lot more LPs depending on one another for due diligence. Siguler Guff invests directly and as a fund-of-funds. A fund-of-funds is a vehicle that receives financing from various entities and, in turn, backs other GPs rather than investing directly into companies as a venture capital and PE firm would do.
“We’ve been comparing notes on fund managers. And I think one of the positive impacts of the crisis is that it gives us a lot more time to delve deeper and work not only with managers, but also with each other, and try to align our interests,” Dinneen said at a conference organized by Asian Venture Capital Journal in Mumbai recently.
Rahim Penangwala, head of private equity (India) at LGT Capital Partners (Asia-Pacific) Ltd, a Switzerland-based fund-of-funds that has committed $200 million to India across eight funds, seconds this view. “We’re trying to gain access to a lot of different information (from other LPs) about the funds, and their portfolio companies. (There is a lot more cooperation) compared to what the LP community is generally used to doing in the last so many years,” he said at the same conference.
Siguler Guff, in fact, is developing sector expertise in its fund-of-funds business so that it can work alongside its GPs, help them evaluate prospective companies, and introduce them to other investors. “We’re all in this together. Now is the time to really strengthen the relationship with our core managers, and get in there and help,” said Dinneen.
There is also a sense of camaraderie emerging between GPs. “They’ve all suddenly become friends,” said the head of a PE fund, who did not want to be identified. Though there have been interactions between funds previously, and there have been many investments that have been done together, the level of interaction has indeed increased. “When the going is tough, it’s only natural that we seek out more information from as many people as we possibly can,” he said.
Saurabh Mehta, senior associate at Indavest Ventures, a Bangalore-based early stage investment management firm, said the downturn has facilitated more interactions between GPs and start-ups, mostly at start-up events.
“The slowdown has made venture capitalists (VCs) more open to hear different perspectives on the companies and the industry itself,” he said.
Such networking, especially among portfolio companies, helps in finding ways to increase revenues, share costs or even collaborate with next-stage VCs for growth.
Putting portfolio companies in touch to do business with each other, and letting them share office space are some of the other initiatives from GPs. Sudhir Sethi, chairman and managing director of IDG Ventures India, which manages a $150 million fund, and has backed nine Indian companies, had told Mint in October that some of its portfolio firms were sharing offices in Delhi, Mumbai and Bangalore, without naming them.