Local money, Asian investors driving exits for PE-VC funds: VCCircle LP Summit
L to R: Niren Shah of Norwest, Akhil Awasthi of Tata Capital, P Krishnan of Spark Capital, Bhavna Thakur of Everstone, Rahul Bhasin of Baring PE, Sudhir Sethi of IDG Ventures and Arpan Sheth of Bain & Company

A rise in domestic capital and big-bang investments by Chinese and Japanese investors have driven exit deals for private equity and venture capital funds in India, panellists at the VCCircle India Limited Partners Summit 2018 said on Tuesday.

“In the last two-three years, capital returns are from Indian buyers, whether from IPOs or strategic buys,” Sudhir Sethi, founder and chairman of venture capital firm IDG Ventures India, said at a panel discussion.

Sethi said the tech sector in India has received a lot of Chinese capital from investors such as Alibaba Group and Tencent Holdings. Chinese capital will continue to come into India via both primary and secondary deals, he added.

What makes the Chinese stand out is their knowledge and ability to scale rapidly, Sethi said, adding that there will be more Chinese presence in India in sectors such as logistics and payments. As large investors such as Alibaba and Japan’s SoftBank Group Corp provide exits, it will have a cascading impact on mid-size investments, he said.

Niren Shah, managing director at Norwest Venture Partners, said the VC firm’s track record has been “generally positive” on exits. “We start our investment journey looking at exits, whether IPO or strategic buyout,” he said.

According to Shah, while growth-equity investments have been easier to exit, venture capital exits are yet to catch up.

Shah also said the investment ecosystem in India has changed for the better. While the markets lacked depth in 2015-16, the emergence of global investors such as Naspers and Alibaba in India has created a dramatic change, he said.

“The ‘spray and pray’ and herd mentality in tech has stopped. Investors are now taking a step back to focus,” Shah added.

Akhil Awasthi, managing partner at Tata Capital Growth Fund, said that, like India, domestic players also dominate the Chinese market. “Limited partners are constantly looking at how PEs fare in China. The country’s PE business has benefitted from localisation,” he added.

Exit outlook

Bhavna Thakur, head of capital markets at Everstone Capital, said the PE firm’s limited partners, or investors, want to co-invest in most deals because they are positive about earning a return on their investments.

Sethi, too, has a positive outlook on exits. “If the gradient of exits was 30 degrees (earlier), going forward it will be 75 degrees,” he said. Companies are growing at a faster rate and this also provides exit options, he said.

Besides private businesses, the public markets are also receptive to exits, said P Krishnan, managing partner for EAM business at Spark Capital. He, however, added that the rise in valuations, particularly in financial services, is a cause for concern.

Many PE and VC firms struck partial or full exits in 2017 as portfolio companies floated initial public offerings, and the trend is likely to continue this year.

Tata Capital’s Awasthi was, however, cautious about the returns on exits, saying the ratio of exits to investments is still 60-70%. “If this is the peak, I would be worried,” he said.

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