Top venture capital funds are set to mop up returns of over $2.5 billion as they sell a portion of their stake in some of India’s hottest startups, according to multiple people aware of these transactions.
Accel Partners, Chiratae Ventures, SAID Partners, Tiger Global, Lightspeed Venture Partners and Nexus Venture Partners are among those earning handsome returns by shedding stakes in companies such as Oyo, Byju’s, PolicyBazaar, BookMyShow, Freshworks, Lenskart, Delhivery and Swiggy.
These shares are being bought by large incoming strategic investors, including Tencent, General Atlantic, SoftBank, Temasek and Hillhouse, as well as funds like NewQuest Capital, Epiq Capital and TR Capital, which engage in such secondary transactions, the sources said.
“Two years ago, Flipkart was the flagship Indian company from an investor lens. Today, that base has considerably widened to a lot more companies, including Swiggy, Oyo and Freshworks,” said a US-based limited partner whose fund has backed Accel Partners.
These deals typically happen at about a 7-10% discount on the primary valuation, say investors and bankers, who reckon this trend is driven by pressure on venture investors to deliver returns to limited partners in a market where traditional exits by way of IPOs or M&As are tough to come by.
“The past 12 months have seen the listed side of capital markets come under pressure. Also, not too many IPOs have taken place, and the number of QIPs has gone down. Private equity and venture capital are alternatives to the primary markets, leading to more secondary transactions,” an investment banker pointed out.
Earlier this month, Lightspeed Venture Partners, Sequoia Capital and Greenoaks Capital are estimated to have netted about $1.5 billion by selling stakes in Oyo, when its chief executive Ritesh Agarwal undertook a share buyback. Oyo is expected to have been valued at $10 billion, giving the early investors massive returns.
Nexus Venture Partners and Multiples Alternate Asset Management also sold a part of their stakes in Delhivery worth a cumulative $100 million earlier this year. The logistics company is valued at $1.6 billion.
Accel Partners is selling a part of its stake in Freshworks, BookMyShow and Swiggy, while SAIF is exiting Swiggy and BookMyShow, the sources said. Emailed queries to Accel, Chiratae, SAIF, Tiger Global and Nexus Venture Partners did not elicit a response till press time.
“Today, without a ₹4,000- 5,000 crore valuation, getting big institutions to participate in an IPO is very difficult. But this doesn’t undermine the quality of the company,” said Sachin Bhartiya, partner at Lighthouse Fund, an investor in beauty and skincare retailer Nykaa.
According to Sarbvir Singh, partner at WaterBridge Ventures, there is now greater belief among investors that startup valuations can be sustained, leading to buyers willing to do secondaries. “Later-stage funds and strategics want to deploy more capital, and are thus keen to do secondaries,” he said.
Bankers are of the view that the advent of secondaries-focused investment firms such as NewQuest Capital, Epiq Capital and TR Capital, that are making a beeline to India, is also driving the secondary sale market.
“The opportunity for venture capital firms to earn a lucrative payout, sometimes even ahead of schedule, is now a reality, albeit still a relatively limited one so far,” said a merchant banker.