Hedge funds adopt a go-slow approach on Indian start-ups3 min read . Updated: 03 Sep 2015, 10:28 PM IST
In the first four months of 2015, hedge funds made 14 investments in Indian start-ups and since then, they have made only four, 'Bloomberg' data shows
Mumbai: Hedge funds Valiant Capital, Falcon Edge Capital, Steadview Capital, Tybourne Capital and Hillhouse Capital, which were actively funding Indian consumer Internet start-ups last year and early this year, appear to have slowed the pace of their investments—yet another development that points to some cooling in the over-heated dotcom world.
In the first four months of 2015, these hedge funds made 14 investments in Indian start-ups. Since then, they have made only four, data from Bloomberg shows.
Tybourne Capital Management and Valiant Capital Partners haven’t made any new bets since their last investments in February and March. Hillhouse Capital Management has made one since its last investment in January.
Falcon Edge Capital, another hedge fund, which invested in three start-ups in the first four months this year, has made only one investment since. In July, it invested in payments solutions company Mswipe Technologies. Steadview Capital Management has made two investments in the last four months, compared with four investments in the earlier part of the year.
Emails sent to these funds seeking clarity on their India investment plans did not get responses.
Investment bankers and industry experts say most hedge funds have already invested in leaders in different e-commerce and digital segments and are now waiting for new opportunities. A change in the mood across global markets may also be playing a role in their go-slow approach, they said.
“Most of them have taken a call on investing in the top players in a vertical or segment," said Vishal Pereira, managing director at advisory firm CreedCap Asia Advisors, adding that these funds have already invested in most of the themes which were considered “hot".
Tarun Davda, director at venture capital fund Matrix Partners, said the turmoil in the global public market also has a role to play, as the primary focus for many of these hedge funds is public equities.
“Hedge funds have taken bets on most of the leading, high-growth companies where there was an appetite for large amounts of capital to be absorbed," he said, adding that the focus has shifted to monitoring the performance of their investments before deploying more capital.
According to data from VCCEdge, the financial research platform of VCCircle.com, venture capital (VC)-backed start-ups have raised almost $3.6 billion across 285 deals since the start of this year. In 2014, $2.4 billion was raised across 303 deals.
What India is seeing now is the inevitable lull after the storm, according to an investment banker. “There is a little bit of slowdown in the broader market as well. The number of cheques and size of the cheques has reduced," said Nitin Bhatia, managing director at tech-focused investment bank Signal Hill. He added that early-stage valuations have become high and some markets have become cluttered.
“It is unclear which of these will be the break-out companies," he said.
Bankers also point out that hedge funds have started to do deeper due-diligence before closing deals. Early in the cycle, these funds were quick to close deals—in weeks and, sometimes, days.
“The diligence requirements have gone up as these funds are trying to figure out the winners in a crowded market. Till sometime back, there was a sense of urgency for these funds to invest but now they are taking time to evaluate the companies before they invest," said Sudhir Dash, managing director at investment banking firm Investec Capital Services (India) Pvt Ltd.
Still, it is not as if hedge fund activity is coming to a halt.
“It is not as if that hedge funds have tapped out. In fact, we have not even scratched the surface in terms of larger hedge funds which are big investors in the technology space worldwide," said a senior executive at a venture capital fund, who spoke on condition of anonymity.
Businesses in the food-technology, hyper-local delivery, healthcare and the education space should see investments from hedge funds in the coming months, he added.