For VCs, Naspers-Citrus deal a reason to cheer, not get carried away

Important as the Naspers-Citrus deal is for the venture capital market, it doesn’t signal a turning point just yet for the early-stage exits


Naspers arm PayU Global is buying online payments start-up Citrus Payment Solutions in a $130 million all-cash transaction. Photo: Bloomberg
Naspers arm PayU Global is buying online payments start-up Citrus Payment Solutions in a $130 million all-cash transaction. Photo: Bloomberg

When South African Internet conglomerate Naspers Ltd announced its intent to acquire Citrus Payment Solutions Pvt. Ltd earlier this month, venture capitalists took to social media with rare abandon to talk up the deal.

There is indeed much to cheer. Naspers arm PayU Global is buying the Mumbai-based online payments start-up in a $130 million all-cash transaction that is slated to close this quarter. The deal spells big payouts for Citrus’s venture capital backers, who, according to media reports, collectively owned 55% of the company. According to Crunchbase, the company had raised $32.5 million over multiple funding rounds since starting up a little over five years ago. Its investors include Sequoia Capital, Ascent Capital, eContext Asia and Beenos Asia. Sequoia takes home the lion’s share of the proceeds. It was the first investor in the firm and pumped in about $10 million over three funding rounds for a reported 32% stake.

An all-cash acquisition is something of an event in a venture capital market where all-stock and cash-and-stock deals, distress sales and acqui-hires and the like have lately been the norm. However, important as the deal is for the venture capital market, it doesn’t signal a turning point just yet for the early-stage exit market. If anything, it is a manifestation of the frenetic activity that has been underway at most venture capital firms over the past nine months to shore up exits from past investments and return capital to investors, or limited partners.

Data compiled by London-based alternative assets research firm Preqin shows that 65 venture-capital backed exit deals worth nearly $1 billion took place till the end of August. Only some of those deals have been noteworthy. Before Citrus, the last significant deal was private equity firm TA Associates’ $140 million investment in Delhi-based womenswear maker TCNS Clothing Co. Most of the proceeds went into buying Matrix Partners’s undisclosed stake in the company. The venture capital firm earned a 5x return on its original investment.

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Earlier, in August, Singapore-based private equity firm Capital Square Partners bought a controlling stake in outsourcing company Indecomm Global Services for a reported $90 million. The deal delivered exits for Indecomm’s early backers WestBridge Capital Partners and International Finance Corp. However, it should be noted that both invested in the company more than 10 years ago. The other recent deal of significance is the merger of online travel services company Yatra Online with Terrapin 3 Acquisition Corp., a US-based special purpose acquisition company, ahead of a Nasdaq listing. The deal involves a $80 million cash payout to Yatra’s early backers including Norwest Venture Partners, TV18 Group and Valiant Capital, who continue to hold a combined 35% in the company. Again, Yatra is more than a ten-year-old investment for some of these investors.

In a couple of days, the numbers on venture capital investments over the last nine months will be out and we will know whether the funding slowdown currently underway in the market has gotten worse. A KPMG and CB Insights report in July said that investments in the second quarter of the year, April to June, plummeted nearly 59% to $583 million from $1.4 billion in the first quarter. If investments have slipped further it would imply, among other things, that the pressure on fund managers to generate exits has only intensified.

The problem for venture capitalists is that deals such as Citrus, even Yatra and Indecomm, are far outnumbered by a host of deals that can at best be regarded as compromises. Take Titan’s recent acquisition of a majority stake in jewellery e-tailer Caratlane for $53 million. According to reports, the deal created an exit for New York hedge fund Tiger Global Management. But it’s an exit robbed of its roar. Tiger Global, a VCCircle report said in July, had invested $52.22 million in Caratlane over multiple tranches and the deal just about enables it to recover its investment. There are several more such deals and investors in most of those deals haven’t even been as lucky as Tiger Global.

The Citrus acquisition, a deal that has brought wins for all stakeholders—investors, founders, employees—should be celebrated. But, given that there is still a lot of pain in the exit market, it’s best not to get carried away with the celebrations.

Snigdha Sengupta is a consulting writer with Mint. She contributes stories on venture capital and private equity.

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