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Strike VC deals but be prepared for the long haul, say fund managers

10 March, 2016

As India witnesses a flood of deal activity in the venture capital space, questions around sustainability and valuations have cropped up. A heated panel discussion on the state of venture capital investing in the country on the final day of the VCCircle India Limited Partners Summit 2016 brought out various possible solutions to create a sustainable growth model in the VC space.

The panel was moderated by Deepak Shahdadpuri, founder and managing director, DSG Consumer Partner. Other panelists included Sasha Mirchandani, founder and managing partner at Kae Capital; Vineet Chadha, partner at Tata Capital Innovations Fund; Sandeep Murthy, partner at Lightbox Ventures; and Rehan Yar Khan, general partner and founder at Orios Venture Partners.

Fund managers warned investors to take up VC-style of investments only if they had the stomach to patiently wait for long periods of time for returns. “People need to realise that VC investing is much more intense. To get those kinds of metrics is not easy,” said Chadha of Tata Capital. Murthy of Lightbox concurred, saying: “You have to have a stomach to do early-stage growth-style deals. You need passion to be in this game.”

“You have to have a stomach to do early-stage growth-style deals,” said Sandeep Murthy, partner at Lightbox Ventures

Participants said investee companies have more options today to raise capital. “There is lot more money chasing VC deals today,” Shahdadpuri said. Khan of Orios Venture added that 2015 was a banner year for venture capital investments.

Mirchandani, on the other hand, blamed VCs more for the frenzy of the past 24 months. “People will take the capital if it is available,” he said.

But investors expect reality to hit soon. “Markets have definitely slowed down and valuations have also somewhat come down,” Mirchandani said. But he said that the best investments Kae Capital had made were always in a bad market and that the firm will invest more this year.

While panelists felt the hype is by and large good, they also said that dependence on foreign capital is not enough. “We need domestic capital to back sectors that are needed in India,” said Chadha of Tata Capital.

Keeping exits in mind at the time of investment is also important, the panelists said and shared opinion on their favourite mode of exit.

Khan said selling to other funds was the main form of exit for Orios. “Funds have finite life, we like to pass on the baton, prefer secondary sale,” he said.

Shahdadpuri also said he liked to sell his stakes in secondary sales and that he had sold his holding in Oyo Rooms to SoftBank. Murthy, however, had a different take. “We invest with a view of companies going public,” he said.


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Strike VC deals but be prepared for the long haul, say fund managers

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