The split within the ranks of Sequoia comes after a fairly prominent year of investments as well as exits for the private equity/venture capital firm. Besides being among the most active VC firms with over half dozen investments and the top VC investor by the quantum of money invested in 2010, Sequoia also made part and full exits from a bunch of firms encashing a large amount through a mix of public floats as well as strategic and secondary PE transactions.
In 2010, one of their biggest moves was to sell their minority stake in Actis-backed consumer products maker Paras Pharma to global giant Reckitt Benckiser Group plc. Although the bigger deal involved Reckitt paying $726 million to buy out the Ahmedabad-based firm, Sequoia netted around $50 million for its 7-8% stake. Sequoia had invested another $12 million in 2006 in Paras translating into over 4x returns on its four-year-old investment.
Another multibagger was when Sequoia Capital exited its two-and-half-year-old investment in Kerala-based NBFC, Manappuram General Finance & Leasing. It sold off its 11% stake for around Rs 293 crore in the open market. It struck gold with over 5x returns on its investments.
Sequoia also made a bold move by taking the country's largest microfinance lender SKS Microfinance public, making it the first microfinance firm to list on the stock exchange. It part exited with returns of over 16x in its three-year-old investment and although the share price of SKS Microfinance has been drummed down due to various regulatory problems facing the microfinance industry, it is still sitting on a mutibagger for its remaining shares in the firm. It had invested through two funds SCI II Llc and SCIGI I with average cost of purchase pegged at Rs 61.18 and Rs 137.53 per share, respectively. SKS is trading at Rs 642 on Tuesday. But Sequoia has a mandatory lock-in for its remaining stake since it was classified as a co-promoter for the issue.
The firm also part exited from the country’s second biggest diagnostics chain Dr Lal Pathlabs. It sold around half of its holding in Dr Lal PathLabs for Rs 163 crore ($35 million) to TA Associates. Incidentally, this was originally a WestBridge investment. WestBridge Capital had invested Rs 42 crore in Dr Lal PathLabs in June 2005 for a 26% stake valuing the firm at Rs 161 crore as against the recent transaction value that pegged the company at Rs 1,000 crore.
Sequoia also walked out with a multibagger by exiting its investment in Bangalore-based education-cum-consumer internet services firm TutorVista which some pegged at 12x the cost. It sold alongwith another VC investor Lightspeed among others to British media group Pearson Plc.
Although details of the particular transaction was not disclosed, it is also said to have made handsome returns by selling out legal process outsourcing firm Pangea3 to Thomson Reuters. It is estimated that Pangea3 was sold for $100 million and Sequoia that invested $7 million for 25% stake took out $35 million(including additional money from preferential return clauses).
Besides these exits and part exits, a number of Sequoia-backed firms have queued up to go public or are said to be close to a public float. These include internet security firm Quickheal that may go public within the next two years, Vasan Healthcare, that is 30% owned by Sequoia, is likely to float initial public offer this year and local search engine JustDial is also in line for a listing. The country’s biggest value mobile handset maker Micromax, another Sequoia-backed firm, has already its draft prospectus with Sebi.
Successful exits builds confidence with existing LPs to raise fresh fund for the future and the quartet of four original MDs Sumir Chadha, KP Balaraj, Sandeep Singhal and SK Jain who are moving out with their independent firm WestBridge Capital to focus on public market investing could be eyeing the prospects of their next fund.
WestBridge Capital already has two funds, one of which is fully invested ($140 million WestBridge Ventures I) and WestBridge Ventures II with $200 million of which about $50-60 million is yet to be invested. The four MDs will be investing some of their personal money into this fund that will start making public equity investments of about $20-50 million each in mid-cap public companies.