Venture capital firms ahead of PEs in fund raising

Last Updated: Wed, Oct 17, 2012 19:26 hrs

Even as India-focused private equity (PE) firms are struggling to raise funds, a slew of venture capital (VC) fund managers are scripting a different story by closing funds on time.

The general partners (GPs or fund managers) of India focused VC funds such as Nexus Venture Partners, Helion Ventures and IndoUS Ventures remain happy as investors in their past funds have shown faith in them, leading to the VC firms closing funds in a short period.

Sanjeev Krishan, executive director, PricewaterhouseCoopers (PwC), said, “It is an expression of faith in the first-generation Indian entrepreneur, buzzing with start-up ideas, particularly in technology and online ventures.”

Last month, Nexus Venture Partners, a technology-focused fund, raised $270 million (Rs 1,500 crore) for its third fund. Helion Venture Partners, an early-to-mid-stage venture capital firm, also raised about $255 million for its third fund (Helion venture Fund III), raising its assets under management to $605 million, while IndoUS Venture, rebranded as Kalaari Capital, recently closed its $150-million fund.

Experts say the lack of sizeable deals in the Indian market led to investors shifting their focus from PEs to VC and seed funds. Krishan said, “On the venture side, deal sizes could be as little at $1 million. In most cases, potential investors are funding an idea or a concept that an entrepreneur believes is scalable. Later, the same investors may put in more.”

Contrary to the VC space, none of the PE firms could close funds successfully this year. Naren Gupta, co-founder, Nexus Venture Partners, says, “Global investors have preferred not to invest in PE funds because of concerns on returns and liquidity. There have also been some financial scandals in PE-funded companies. Trust is critical when investors work with funds.” Along with Sandeep Singhal and Suvir Sujan, Silicon Valley-based Gupta had set up Nexus in 2006. Nexus Venture Partners, which accounts for about 40 investments, has exited six. In one of the largest exits for a VC fund, Nexus sold its 74 per cent stake in Netmagic Solutions to Japan’s NTT Communications for Rs 900 crore.

Gupta believes the negative view on India made fundraising difficult for India-focused PE/VC firms. “At this time, global investors generally have a negative view on investing in India. In part, this is driven by frequent regulation changes, taxation uncertainties, lack of profitable exits, a dearth of company-building expertise among investors and mediocre returns,” he says.

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