How venture capital's Big Three raised funds and spent them in 2016

PUNE, India - Dec. 22, 2016 - PRLog -- Nobody will disagree that the past 12 months have been among the most difficult that India's start-ups, especially those vested with lofty billion-dollar valuations on paper, have experienced in a while. Capital has been elusive and valuations remain under pressure as concerns run high about whether the somewhat irrational deal-making of the past two years will yield profitable returns. Those concerns, however, haven't discouraged global institutional investors from continuing to bankroll India's venture capital firms.

As of early November, Mint reported, the dry powder, uninvested capital, available with India-focused venture capital funds stood at a record $3.1 billion, according to data compiled by London-based researcher Preqin. The bulk of that dry powder is concentrated in three unusually large funds raised over the past 12 months. In December last year, Mumbai-based Nexus Venture Partners raised $450 million for its fourth fund. Two months later, Sequoia Capital India, the country's largest venture capital firm, raised a record $920 million for its fifth successive India-focused fund. And, this month, Bengaluru-based Accel Partners India joined the party with a $450 million fund, its fifth for this market.

With the exception of Sequoia, most venture capital firms in India, including Nexus and Accel, are new to large funds. Last year, a particularly busy one in terms of new funds that closed commitments from limited partners (investors in venture capital funds), the largest fund raised was SAIF Partners' $350 million fourth India fund in May. Prior to that, in March, Accel raised a $325 million fourth fund. In August, Lightspeed Venture Partners followed with a $135 million debut India fund, and the following month, Kalaari Capital, the Bengaluru-based firm, garnered $290 million for its third fund.

The big funds raised by Sequoia, Accel and Nexus in the past 12 months may indicate that while limited partners are not pulling back from the market, they prefer to park more capital with established firms rather than place bets on untested ones. That doesn't mean new firms will not raise funds. Upstart firms backed by seasoned fund managers such as Pravega Ventures, founded this year by former SAIF Partners executives Mukul Singhal and Rohit Jain; Stellaris Venture Partners, founded by the former Helion Venture Partners team of Ritesh Banglani, Alok Goyal, and Rahul Chowdhri; and Endiya Partners, started by former Ventureeast partners Sateesh Andra and Ramesh Byrapaneni, have already closed some commitments for their debut funds.

More important than the size of the mega funds raised this year is where all that money is headed. Sequoia, Nexus, and Accel count among the most prolific and influential venture capital investors in this market and their deal-making run over the past 12 months could be instructive on how the market will play out in future. Mint takes a look at how the three firms have been spending their money this year.

Nexus Venture Partners: Measured pace

When Nexus Venture Partners raised $450 million for its fourth fund in December last year, it wouldn't have been unnatural to assume that the Mumbai and Menlo Park, California-based venture capital firm would burn up the deal market.

Nexus co-founder and managing director Naren Gupta. Photo: Hemant Mishra/Mint

After all, this was the biggest fund the firm had raised in its over 10-year history and nearly double the size of its previous fund. But it has stuck to its measured pace of deal-making and will close this year with dozen-odd deals, give and take some.

"The fund size has grown modestly in line with higher capital needs of rapidly growing companies… the need to continue to sponsor successful companies through their entire life cycle," Nexus co-founder and managing director Naren Gupta said in an email response.

A larger fund gives Nexus the resources to scale up its investment in existing portfolio companies that have grown and could potentially deliver supernormal returns in a few years. Most of these companies are now heavily funded by later-stage investors who have deeper pockets than Nexus and a large fund allows the firm to continue to participate in later-stage funding rounds and retain a meaningful stake. For instance, this year, it participated in the $51 million growth round raised by cloud data security company Druva from an investor consortium led by Sequoia Capital. Nexus had entered Druva in 2011 as the lead investor in its Series B round. It also participated in e-commerce company ShopClues's January growth round (http://www.livemint.com/Companies/1rT8GCbJn9GQ9jSbAGtwiM/...) which was led by Tiger Global Management and GIC, the Singapore government-owned investment firm. The size of the round was not disclosed.

This isn't the first time though that Nexus has felt the need to beef up its resources for later-stage investments. In March 2014, it raised a sidecar fund dubbed Nexus Opportunity Fund, according to a filing submitted to US Securities and Exchange Commission, with a reported corpus of $110 million for the purpose. That, along with the $450 million fund it raised last December has taken its overall funds under management to about $1.2 billion, the first home-grown venture capital firm to breach the $1 billion mark.

Despite its bumped-up size and the odd growth deal every now and then, the firm's deal run this year demonstrates that it prefers to more or less stick to its founding mandate—8-10 deals a year, preferably at the Series A stage, selectively at the Series B stage and, only in the technology sector. Last year was an exception. Based on what has been disclosed through media reports and press releases, it closed more than 20 deals of which at least 10 were Series A deals. There seems to be a bit of shift in terms of the stages it has invested in this year Continue reading (https://mnacritique.mergersindia.com/news/how-venture-cap...)