Accel eyes partial exits from multiple early investments

The deals are expected to be a mix of pre-initial public offering (IPO) secondary sales and offer-for-sale (OFS) transactions in upcoming IPOs, three people familiar with the strategy said. This further underscores that exit opportunities are becoming more ubiquitous for VC firms, even if they have been delayed.

“Accel has been in a fundraising mode for the last few months and is actively looking at secondary opportunities to exit some of its portfolio companies and return capital to LPs (limited partners, which invest in VC funds)," one of the people cited above said. “Accel has been invested in these companies for a long time now and they are looking to liquidate some of its holdings in the pre-IPO and IPO stages," he added. To be sure, the end goal for these companies is to tap an IPO, although the timelines may differ.

Accel will pare its holding in IPO-bound online trucking firm BlackBuck, as per the company’s draft red herring prospectus filed in July. Online food delivery platform Swiggy is also expected to file its draft prospectus in the coming weeks, where Accel is said to be one of the selling shareholders, the people cited above said on the condition of anonymity.

One of its other portfolio companies, BlueStone, closed a funding round this month at around a $970 million valuation, where Kalaari Capital sold shares worth nearly ₹300 crore. Accel did not sell shares in the round but is expected to offload shares in the jewellery firm’s upcoming IPO, expected next year. Mint reported last week that Accel was one of the investors evaluating booking a profit in a pre-IPO round in Urban Company, ahead of the company’s plans to list over the next two years.

Also read: How a Street party helped SoftBank cast off its Indian struggles

BlueStone, Swiggy and Accel did not respond to Mint’s request for a comment last week.

“Most of these exits are likely to be IPO stake sales," a second person informed on Accel said, though it may keep its options open with some opportunities even in the pre-IPO stage. The firm is also looking at the “right kind" of exits, the person added. “The real goal for them is to find pre-IPO exit opportunities or through public markets and other strategic outcomes."

Broadly, VC firms in the last few months have seen exits from their late-stage investments, said Abhishek Bhagat, managing director and head of digital and tech investment banking at JM Financial.

“It amplifies what most of these funds have been talking about in terms of more disciplined monetization. These have been very well-coordinated efforts and well-structured processes of navigating liquidity in their performing portfolio companies, wherein arguably one could have kept compounding," he said. Mint reported in August that Japanese investment company SoftBank had been able to generate liquidity by booking profits from its investments in Firstcry and Ola Electric, which went public earlier this year.

With public markets being in great shape, demand for pre-IPO equity in well-established startups has been robust and rising. Funds have been agile enough to capitalize on this momentum, while at the same time they look to exit larger parts of their shareholding via OFS during IPOs and beyond, Bhagat added.

Over 10-year-old investments

Despite Accel’s efforts, many of the investments in its exit pipeline are nearing the 10-year mark or beyond—not what investors hope for in an ideal situation. Fund lives are usually tenured at eight years, where VCs can seek additional year’s extension twice from their fund investors. Similarly, 10-year-old funds can seek additional extensions twice, up to two years from their fund investors.

According to data platform VCCEdge, Accel first invested in Urban Company in 2015. It invested in BlueStone first in 2011 from its third fund (Accel Fund 3), which made subsequent follow-on investments all the way through 2020. It currently holds around a 21% stake in BlueStone.

It first invested in Swiggy in 2015 from its fourth fund and then its fifth. However, Accel booked a partial exit from the food delivery startup in 2018. It now owns about 12.5% in the company, according to VCCEdge. It first made an investment in Bookmyshow in 2012 and made follow-on investments till 2016.

Funds based in India typically have an exit pressure to recycle their capital, allowing for subsequent investments. However, the Indian arms of global franchises, such as Accel, escape this pressure and are able to invest for longer periods of time even without showing exits as well, a third person, a startup VC investor, said.

Also read : Behind the spate of pre-IPO share sales at startups

“Ideally, VCs should have already exited their older investments much before they reach the 10-year mark as it is an obligation they have towards their investors. In India, they were not able to do so as often in the early years as only a few large strategic transactions occurred—such as Myntra’s sale to Flipkart and then Flipkart’s sale to Walmart. The current vintage has seen delayed exits—largely through secondary stake sales or IPOs—with timelines extending beyond 10 years," this person said, adding that the next vintage may prove to be better with more timely exits.

Exits so far

To be clear, Accel’s best exit so far was from Flipkart where in 2023, the investment firm sold its balance stake to parent Walmart, which generated nearly a 30x return on its total investment of $60-80 million over the years, according to a report by news website Moneycontrol. This exit came shortly after Accel in 2022 recruited former UBS executive Alok Bathija as a partner to lead corporate development, with a goal towards driving exits for the firm.

Accel’s India and US arms together held more than 20% in Flipkart in 2008 but reduced their stake in the e-commerce giant to about 6% before Walmart acquired a majority stake 10 years later. After the acquisition, the investment firm continued to hold a 1.1% stake, which it completely exited last year. Accel also scored bumper returns on its investment in Freshworks, which floated its IPO on Nasdaq in 2021. It has booked over $500 million from Freshworks alone, according to an April 2024 report by Arc, a news website.

The early-stage investment firm, which has invested in startups such as Acko and Agrostar, raised $650 million for its seventh fund in 2022 to invest in sectors such as e-commerce, software-as-a-service (SaaS), consumer fintech, global business-to-business (B2B) marketplaces, digital health and Web3. With a goal to raise a new fund every three to four years, the VC firm is now gearing up to launch its eighth India and Southeast Asia-centric fund. Arc reported last month that Accel is preparing to raise a $700 million eighth India fund by the end of 2024. 

Also read: Oister, Tribe Capital set up $500 million secondaries fund