Sumir Chadha On Sequoia Split, Public Market Focus & WestBridge Vision

For a veteran investor like Sumir Chadha, who has over a decade experience of investing into the Indian private equity markets, this spin out from  Sequoia Capital to build a public markets investment firm from ground up was not a sudden move. "It was well thought out," says Chadha who is bringing Westbridge back into the game with a focus on public markets. Westbridge, founded in 2000, merged with Sequoia Capital in May 2006. The new Westbridge will bear a huge semblance to a hedge fund taking passive positions in public listed stocks. Chadha is also confident that they should at least be able to raise $200 million by year end for public equity investing. In an interview with VCCircle, Chadha talks about the vision for Westbridge, public market focus and the transition from Sequoia. Excerpts:-

Was this spin-out well-timed? What was the rationale behind the move?

Yes, I think it was well thought out and planned. Sequoia India has been doing public investments for over three years now but it forms a small part of its portfolio. The four founding members KP Balaraj, Sandeep Singhal,  SK Jain and I have been involved in this for three years and now we want to move on to something which we enjoy doing the most - which is public investing. Sequoia is very focussed on private investing and we want to focus very much on public investing. We did this transition in a very amicable, thought out way. We have been thinking over it for some time but the actual decision was made very recently and we announced it to everyone as soon as we made it, to be very open and transparent about everything.     

What was the trigger point?

There is no magical or perfect timing for these kinds of decisions. What is nice about this is that while we have parted, we remain on boards of some 20 plus companies from the portfolio of Seqouia/Westbridge. (Westbridge, founded in 2000, had raised two funds before merging with Sequoia Capital in May 2006.) We have been specifically asked to do this by our clients to make sure that we successfully swift the investments that we have made over the past three years through meaningful exits. What is also nice is that we continue to maintain good relationship with Sequoia Capital. There is a lot of course collaboration going forward but clearly we are going to invest in different spheres - with Seqouia having a private market focus and we doing public investing.

How are LPs reacting to this kind of senior management transition?

I just spoke to the LPs this morning in the US.  Any kind of transition, as you can imagine, raises a lot of questions but the way it has to be done is very partner-like, very amicably and smoothly. I think the clients will be fine as there is a very strong and experienced team running the show and Sequoia will continue to be the dominant venture and growth investing firm in India going forward.

Do you think public equities are more attractive than private equities from a risk-return perspective?

I think there is some truth in this. If you talk to some key guys in the industry who have been around for some time and made money, they will tell you that public investing is generally more attractive than late stage private investing. But clients don’t like private equity funds to do much of public investing as they think that you tend to lose focus. I think if one wants to do public investing, they should raise a vehicle which can invest sizeable amount of money in public markets and is marketed and positioned that way. But, I will also tell you that we have been lucky to be in India at a time when there is a huge opportunity in venture capital, growth investing and also public markets. There is a lot of opportunity in three areas.

There are only guesses as to what makes the better returns going forward. All three classes produce good returns. We have got to this stage in our life where we have good experience, have made enough money and want to do what we are really interested in and it is not only about making the most money.

Are you trying to replicate a ChrysCapital or a Nalanda Capital?

We will be raising a public market fund but will be very different from the likes of ChrysCapital or Nalanda Capital in many respects.

Would you be a quasi-private, public equity fund? Making PIPE investments but seeking board representations?

Not at all. One of the things that we have done at Seqouia very successfully is to take passive public positions. By and large, we are very comfortable taking positions into stocks that we like and not necessarily seeking board representation or pressing for rights.

So basically like a hedge fund picking stakes from open market?

Yes, that is one aspect of it. It will be very focussed on public markets.

Have you done any soft marketing or raised some soft commitments towards the public market fund?

No, we have’nt done any soft marketing yet. Our plan is to put together a go-to market strategy in the next two-three months but there is enough interest from investors who have told us that they would like to back us on what we plan to do next given the track record and reputation that we have built of our 11 years of investing experience in India.

What is the fund size that you are targetting?

Genuinely, we don’t have a good answer to that. We would want it to be at least $200 million but we will have to see how the interest is, the market is etc. But one of the things that we have always done, also at Seqouia, was that we like to start small and grow it much bigger.

So, what is the vision for Westbridge Capital going forward?

We would like to build a pre-eminent, pre-dominant public investment firm. Our goal is that we could have raised our first fund for public investing by year end. Perhaps, we want to take the two- three months off, do a bit of a marketing, put together a PPM (private placement memorandum, a document that is central to marketing funds) and be able to raise a public market fund by this year end.

We have had marquee investors like Ashish Dhawan or Pulak Prasad going the public market way. Is it safe to say that public equities will see a huge participation from institutional investors going forward?

I think one of the trends is that investing into public markets is getting more organized with players like Nalanda, Chyrs getting into the space. We definitely expect that trend to continue. Private equity will also continue to flourish in India, as it can be seen, with a lot of firms having successfully raised follow-on funds or new funds for private investing commitments, but there will be increasingly more organized activity around public equities in the next decade, we got to expect that.

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