Wealth managers emerge as links between VCs, capital
Wealth firms playing crucial role in mobilizing domestic money into venture capita
Mumbai: When Kanwaljit Singh, a partner at Helion Ventures, was considering moving out of the firm to set up his own shop, he had lots of questions on his mind. For any newbie fund to be in business, the most important task is to raise third party capital—also an external factor not in one’s control.
For Singh, his wealth manager came in handy as a sounding board to prepare in advance and put his doubts to rest. “I have known the founders and senior members at Avendus for many years. They were my sounding board as I thought through the fund idea. So it was natural to work with them as partners,” said Singh.
Wealth management firms in India are gradually, yet steadily, emerging as important vehicles for mobilizing domestic money into venture capital. Even as domestic investors become increasingly more willing to participate in the Indian start-up story, wealth managers are playing matchmakers for newbie venture funds and domestic investors.
Singh said that partnering with wealth managers also helps in the confidence-building process between fund managers and limited partners, especially for domestic investors who are warming up to the idea of venture capital as an asset class.
Sample this: Avendus Wealth Management helped Alteria Capital and Fireside Ventures to raise money from domestic investors. While 90% of Alteria Capital’s investors are local, commitments from onshore investors comprise 80% of Fireside Ventures’s overall commitments. In September 2017, Avendus Wealth and JM Financial’s wealth management arm helped Kae Capital to raise money from domestic investors. Similarly, Edelweiss Wealth Management assisted IDG Ventures India last year to mobilise money from local investors.
With the equity markets peaking and bond yields taking a beating, domestic investors are increasingly looking to allocate more money towards private capital. Wealth managers fill in as intermediaries to serve their investment needs.
“I see wealth management firms playing a significant role in domestic fund raising. They first do their own diligence on the fund and reach out to their customers to understand their needs, risk appetite and allocation choices. After the initial warm-up, the investors and fund managers conduct focused discussions. There is a lot of prep work that is done before and after the commitment has been received, which includes plenty of documentation,” said Vinod Murali, managing partner, Alteria Capital Advisors LLP. Alteria has raised ₹600 crore for its fund, and is now looking to work with Kotak Wealth Management.
For domestic investors, FOMO, or fear of missing out on start-ups, remain as VCs have reaped gains in recent past.
“The gradually increasing tempo of exits in the past few years has been a big contributing factor to venture becoming an attractive asset class for domestic investors,” said Sanjay Nath, managing partner, Blume Ventures.
“The push from the government has also helped, which has made big strides with (for example) SIDBI supporting domestic early-stage funds. Indian corporates and family offices are also investing in funds and co-investing with their GPs. Most importantly, investors are seeing returns via a variety of avenues, including overseas M&As, local IPOs and secondaries. More LP distributions mean more inflows into VC funds and start-ups,” Nath added.
“We expect domestic investor’s contribution to be around 30% of total commitments. Had we raised the fund 4-5 years ago, their contribution would not have been more than 5%. Everyone has seen success stories like Flipkart and Paytm emerge, but have not been able to participate in it. That is an opportunity loss that most domestic investors would like to make up for,” said Rahul Chandra, managing director, Unitary Helion Ventures, underling the growing interest among domestic investors to back new VC firms. While most new VC firms are seeing considerable interest from both family offices and institutions, the scales lean towards family offices.
Besides expansion of service offerings, acting as an intermediary allows for further increase in revenues for wealth management firms. For instance, Alteria engaged with Avendus exclusively for its fund raise. Murali of Alteria said that a lot of “homework” is being done to scout the market by wealth managers to understand who can be partnered with.
George Mitra, chief executive, Avendus Wealth Management, said that wealth managers primarily serve as “filters” for narrowing down the choices for their clients. “Each fund manager brings a unique platform, which is slightly different from other offerings. Wealth managers help in conducting diligence and comparison, filtering out choices for the investors, and acting as a bridge for diligence.”
Wealth management firms are also building in-house expertise to help domestic clients invest directly in unlisted and unconventional firms. “A lot of wealth management firms have an in-house bankers to source deals for direct investment. Family offices are keen on co-investment now besides committing large sums of money to a blind pool,” said Siddhartha Rastogi, director, Ambit Asset Management.