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Local firms buying startups to enable PE-VC exits, say panellists at VCCircle summit

16 June, 2017

Indian companies are turning out to be new buyers through which several private equity and venture capital funds will be able to exit their investments, said the panellists at News Corp VCCircle E-commerce Summit 2017.

Speaking at a panel discussion, angel investor Sanjay Mehta said large companies globally such as Microsoft and Facebook have actively acquired startups but this trend has yet to catch up in India.

Still, there are a few examples where large Indian companies have acquired PE-backed startups. Tata Group’s watch and jewellery arm, Titan, for example, bought Tiger Global-backed CaratLane.com while retailer Future Group purchased furniture e-tailer FabFurnish.com from Rocket Internet.

Besides, a number of startups and consumer Internet companies have acquired their peers. Online retailer Snapdeal, for instance, bought digital wallet FreeCharge in 2015 and e-tailer Flipkart acquired fashion portal Jabong last year.

The key concern for the investors, however, is getting exits for the investments done in the 2007-08 vintage, said Navin Honagudi, investment director at early-stage investor Kae Capital.

Investors have been able to exit a few companies such as ticketing website redBus and FreeCharge in the e-commerce sector in recent years, he said. It is a matter of time before corporate houses see an opportunity in absorbing the startups, he added.

Anshu Prasher, director at venture debt firm InnoVen Capital India Pvt. Ltd, concurred with Honagudi. “The biggest issue is the rupee and dollar return because many investments came in when the dollar was Rs 45 between 2007 and 2009,” he said. “But the next three years would see many more exits.”

Innoven has exited companies such as Prizm Payment, FreeCharge and Myntra from its portfolio in recent years.
Pointing out to a successful corporate exit, Facebook acquiring Litte Eye Labs and got a 10-fold return on its capital even though the dollar return was smaller, Honagudi added. Honagudi said that the fund, with a life of eight to ten years, prefers to exit far earlier before a portfolio company is ready for an initial public offering.

Prasher added that while corporate houses can leverage on certain businesses after acquiring them, the startups also get access to the large canvass that a corporate contact brings.

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Local firms buying startups to enable PE-VC exits, say panellists at VCCircle summit

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