Venture capital exits jump 56% to $2.77 billion in 2017
Mumbai: This year saw Indian venture capital () funds reap exits worth around $2.775 billion across 56 deals, a sharp 56.2% jump from the $1.777 million venture capital firms gained from 74 exits last year, data from private deal tracker Venture Intelligence shows.
The year witnessed big exits such as Tiger Global Management’s $800 million part-exit from India’s largest online retailer Flipkart when it sold shares to Japanese telecom and internet conglomerate SoftBank Group Corp.
Tiger Global scored another $500 million exit in ride-hailing company Ola, again selling its shares to SoftBank.
“The venture capital environment is pretty good. Earlier exits used to be a challenge but now multiple modes of exits have come in. Early-stage investors have made significant returns. Exits would help people invest even more,” said Harish H.V., partner at Grant Thornton India.
Others that scored major exits in 2017 include Paytm owner One97 Communications Ltd’s investors Reliance Capital, Saama Capital and Sapphire Ventures, which sold shares worth $250 million to the company’s existing investor Alibaba Group Holding Ltd and its payments arm Ant Financial in March 2017.
“We were fortunate to be an early investor in Paytm and had tremendous faith in Vijay and his team,” said Ash Lilani, managing director and co-founder, Saama Capital, referring to Paytm founder Vijay Shekhar Sharma.
“We were with the company through their journey and our decision to stay with the company for long was based on the founder’s long-term vision and the market opportunity which was huge in the case of Paytm.”
For early investors like Saama Capital, holding on to its investment in One97 for close to seven years meant a return of almost 75 times the capital that it invested in the start-up in 2011, according to Venture Intelligence data.
“We had several opportunities earlier to sell our stake in Paytm but we held off as we are patient investors and had a long-term perspective and wanted to wait for the right timing. Despite our One97 stake sale, we continue to believe in the Paytm vision and have remained as investors in Paytm Mall and I continue to be on the Paytm Bank board so the relationship continues,” said Lilani. According to Lilani, while pricing and timing are critical for exits, there is no exact science to exiting a start-up investment.
“There is no exact science behind exiting a company. You have to determine the timing and price that makes sense for your fund. One important factor is making sure it is done in a very transparent way with the company’s management team and that you sell to someone that they are comfortable with and will be good for the company beyond you,” he said.
However, even as the value of venture capital exits increased significantly, the growth was on the back of a few large deals and one particular buyer—SoftBank.
The three largest venture capital exits this year came on account of SoftBank writing large cheques to acquire secondary shares from existing investors.
According to Karan Sharma, director and co-head, digital and technology investment banking, Avendus Capital, while SoftBank has been a major investor, the market is also seeing several other investors that want to acquire secondary shares in strong digital and technology companies.
“I don’t think SoftBank is a major exit gateway for the investors. Secondary stakes are generally bought by private equity investors in companies that are demonstrating market leadership or those who have already demonstrated or have either become profitable or are likely to become soon. What has happened in the last two to three years is that a lot of the companies have reached that stage where they are under the radar of these growth equity investors, where they can give a secondary exit to some of the early stage investors,” said Sharma.
“While SoftBank is one of the deep-pocketed investors, we are also seeing hedge funds, and global asset management companies taking secondary stakes in companies,” he added.