Side effect of fewer exits and SAT: Sequoia plans to squeeze India-focused fund size by 25%

Venture investing into startups in India has changed in the past couple of years as heavyweight strategic investors such as SoftBank, Alibaba, and Tencent have taken the lead. Many VC and hedge funds, who were appeared mighty and tall till 2016 are now belittled by SAT (SoftBank, Alibaba, and Tencent). Pure play VCs are now being cautious in sourcing deals.

Majority of investors also want to fund companies that can later be picked up by SAT. SAT is gradually becoming the new IPO for traditional tech investors.

In a bid to realign its focus on India, Sequoia Capital is trimming its India focused fund size by about 25 per cent. The VC firm is targeting to raise about $650-700 million to fund startups in consumer Internet and healthcare startups, reports TOI.

Two months ago, media reports were hinting that Sequoia Capital is planning to raise up to $1 billion India focused the sixth fund. In its fifth fund, Sequoia India had raised about $930 million for its India-focused fund. Importantly, fresh India focused fund would be 30 per cent smaller than the previous fund size.

The realignment in Sequoia’s focus comes at a time when limited partners (LPs) have started questioning exit scenario from the local ecosystem. Though, the exit scenario has improved in the past 12 months as SoftBank has been showing strong interest in buying secondary shares.

SoftBank has bought about $2 billion worth secondary shares in Flipkart, Paytm and Ola.

The VC firm, which manages about $3.2 billion of investments, has some well-known firms such as Zomato, Just Dial, Grofers and Byju’s, among others as its investees.

Last year, the firm invested about $183 million across 23 deals in India, mainly in the technology, consumer, and healthcare sectors, according to data research platform Venture Intelligence.

The venture capital firm also plans to invest in Southeast Asia-based startups from the fresh fund. The SouthEast Asian region will be a significant part of the strategy in the upcoming fund for Sequoia Capital India, according to some media reports surfaced in January.

A quick look at funds launched in 2017

Over the past 12-18 months, several new venture capital firms have made debut in India.

Ex Helion Venture Partners key executives Rahul Chaudhry, Alok Goyal and Ritesh Banglani floated Stellaris Venture to invest in early-stage startups while Rahul Chandra, managing director at Helion Venture Partners also launched a new investment firm Unitary Helion with a corpus of $100 million.

Epiq is one of the new investments firms that made debut in Indian startup ecosystem last year. In July 2017, Nandan Nilekani and Helion Venture’s Sanjeev Aggarwal launched investment fund called Fundamentum with a corpus of $100 million to back startups looking for growth capital.

Another Helion Ventures co-founder Kanwaljit Singh launched Fireside Ventures in August to invest in consumer brands across sectors, including food and beverages, personal care and home products.

Last year, the Indian startup ecosystem witnessed the launch of various funds including Stellaris and Pravega VC. In November, tech entrepreneur and billionaire from Canada, Terry Matthew in a collaboration with Indian company Ideas to Impacts launched $10 million funds for Indian startups.