The trouble with Helion Venture Partners

The company's inability so far to successfully reinvent itself could spell the end of the road for one of the country's oldest venture capital firms

In a dramatic and unfortunate turn of events this week, Helion Venture Partners, one of India’s oldest home-grown venture capital firms, came apart at the seams.

On Wednesday morning, the Bengaluru- and Gurgaon-based firm issued a statement saying three of the firm’s partners—Alok Goyal, Ritesh Banglani and Rahul Chowdhri—were leaving to pursue opportunities outside Helion. The departures, as evident from the statement, aren’t amicable. “The departing executives will separate from the firm over the next few weeks and will cease to provide any ongoing assistance to the portfolio companies," reads the statement.

This implies that Goyal, Banglani and Chowdhri will relinquish their seats on the boards of portfolio companies and likely not participate in any carried interest or profits that Helion earns in future when it exits its investments.

What’s most intriguing about the statement is how it goes out of its way to play down the roles of the three departing partners at the firm. “They held responsibilities in areas of deal sourcing, diligence and portfolio support," it says. About 11 months ago, in an informal conversation in Mumbai with one of Helion’s founding partners, I was specifically acquainted with the reconstituted operating structure of the firm. Goyal, Banglani and Chowdhri had been put at the forefront of leading investments, along with founding partner Rahul Chandra. Goyal had additional responsibilities in steering the firm’s campaign for raising a new fund.

Abrupt as they may seem, the latest developments at Helion aren’t entirely surprising. The 10-year-old firm has struggled for a while with differences within the team on its investment strategy. In fact, the reconstituted operating structure was the result of earlier differences of opinion on whether the firm should or should not continue to pursue investments in non-technology businesses. The firm had barely any exits from its non-technology portfolio and its portfolio of technology investments, particularly in the consumer Internet sector, looked patchy at best. The internal spat eventually led to Kanwaljit Singh, one of the firm’s four founding partners, quitting in September last year.

With Singh’s departure, Goyal, Banglani and Chowdhri took the lead in steering the firm towards a specialist technology investment strategy. It appeared to be working. Over the last 12-18 months, the new team doubled down on technology investments. Seed stage investments, where entry valuations are more attractive and make more sense in a frothy valuation environment, now account for 25% of the firm’s overall investments.

Apart from MakeMyTrip, redBus and Amba Research, it also counts Bengaluru e-commerce company Flipkart among its profitable exits. It gained an entry into Flipkart when portfolio company Letsbuy was acquired by Flipkart in 2012 in a stock-and-cash deal. Earlier this year, Helion reportedly sold that stake for $23.5 million. Finally, it is sitting on a sizable markup in the valuation of its minority stake in cab-hailing company Ola, which also came via a stock swap this year when Ola acquired portfolio company TaxiForSure. Ola is valued at about $5 billion.

Clearly, the contributions of the departing partners extended well beyond the “deal sourcing, diligence and portfolio support" claimed in Helion’s statement. Given their contributions, the internal differences this time around may be rooted in the distribution of the carried interest or profits among the partners. Usually, senior partners, in this case the founding partners—Sanjeev Aggarwal, Ashish Gupta and Chandra—take home a larger slice of the profits.

Unfortunately for the founding partners, the Indian venture capital market has changed quite significantly since Helion started up in 2006. It’s far more competitive than it was even four-to-five years ago, requiring more aggression and speed in deal-making. The number of venture capital firms now actively investing here has multiplied at least three times since 2006. Further, venture capital firms now also have to compete with hedge funds and strategic investors for deals even at the early stages. Competition has also intensified in terms of the rush for technology deals. With the opening up of early-stage technology investment opportunities here over the last few years, nearly every venture capital firm has changed gears to focus more sharply on such investments. However, while most of its peers have been able to change gears relatively smoothly, Helion has continued to be wracked by internal organizational problems.

It may be premature to write Helion’s obituary just yet, but the company’s inability so far to successfully reinvent itself—a prerequisite for success in the venture capital business—could spell the end of the road for one of the country’s oldest venture capital firms.

Snigdha Sengupta is a freelance journalist in Mumbai and founder of StartupCentral. She contributes stories on private equity and venture capital to Mint.