t was the best of times, it was the worst of times…”
If that line, penned by Charles Dickens more than 150 years ago, were to be applied today to a specific, singular context, it would have to be the dichotomy faced by India’s risk-capital sector.
Funds that had turned cagey about backing domestic startups are again raising money to invest in ventures emerging from the Asia’s third-largest economy, expecting to find more gems following the whip-cracking that’s still reverberating through the industry.
But as they turn to limited partners to back their new investment vehicles, they are finding these investors still sceptical about India-specific funds because of a continuing lack of options to sell investments, inflated valuation expectations, an uncertain regulatory regime and the ongoing choppiness in global markets.
Limited Partners, or LPs, could be billionaire individuals, family offices, sovereign funds, pension funds, endowments or superannuation funds, to name a few, that provide money to venture capital and private equity firms.
“I don’t expect capital allocations for India to increase,” said Gopal Jain, managing partner of mid-market private equity firm Gaja Capital. “All the three asset classes of which India is a part—namely Asia, excluding Japan; the Middle East and BRIC (the Brazil, Russia, India and China economic grouping) —are faring badly. I expect the fundraising environment for India to remain challenging.”
Jain represents one half of a sharply divided fraternity of fund managers and limited partners ET spoke with to gauge the sentiment towards India, with several industry professionals leaning towards decreased capital allocation in the new financial year.
“India continues to be an important geography for us but global LPs are increasingly looking at the country’s regulatory landscape as well, based on which allocations could get decided,” said an investment manager with a prominent asset management firm that has backed a number of funds that have, in turn, invested in prominent domestic startups.
A slowdown in capital allocation by LPs could not come at a worse time for fund managers, a number of whom have announced ambitious plans to launch new funds, among which are a number of debut investment vehicles. That’s another area of uncertainty.
“A lot of investors are not very fond of debut funds, and it will be tough for (the funds), unless, for example, they are spin-out funds of a certain pedigree,” said Mahesh Parasuraman, partner at Amicus Capital Partners, a private equity firm launched last year. Among the debut fund managers on the road to raise money from LPs are Alok Goyal, Ritesh Banglani and Rahul Chowdhri, who quit Helion Venture Partners to start their own firm. Former SAIF Partners principals Mukul Singhal and Rohit Jain, too, are in the process of setting up their own fund, and Mohit Gulati, cofounder of Oliphans