Smart start-up VCs ally with global peers for faster exits

That a grim market scenario has venture capital firms locking up their purses in 2016 is a fact unmatched. But venture capital firms have turned their eye towards a global solution to return capital to their investors and deliver the best possible return they can, in times of distress. As many VC funds approach the end of their fund’s life cycle, they are being forced to harvest returns or pay a price. In order to enable healthier and faster exits, investors are looking to create tie-ups or co-investing strategies with global investors.

Some are also looking to merge their portfolio companies with bigger global players to ensure fair returns. “We are working with global companies. We are working actively with foreign partners. We have to collectively create more exits“, said Sanjay Nath, Managing Partner, Blume Ventures.

The early-stage investment firm exited VoxPop Clothing in April of 2016, when US-based Bioworld Merchandising acquired the licensing and merchandising start-up. Some investors believe that while a strategy around chasing exits through global co-investments may not always work, the proposition definitely helps a company’s profile and therefore chances of an exit.

“The quality of an investor on the capitalisation table of the company helps its profile and hence the exit; because it’s the stamp that matters“, said Avnish Bajaj, Founder, Matrix Partners India. Matrix recently, exited retail brand W run by TCNS Clothing Company when global PE firm TA Associates bought a minority stake for $140 million.

Bajaj, however, maintains that Matrix is not chasing co-investments with global investors as a formal strategy. Investors’ efforts in this direction are corroborated by the fact that the value of exits in 2016 so far has surpassed the value of capital invested in the same period for the first time.

According to data from Venture Intelligence, the value of exits so far in 2016 has been pegged at $1.4 billion through 55 deals as against an investment of $1.09 billion through 54 deals in the same period last year. Matrix Partners India exited food-delivery firm TinyOwl in May after it merged with Roadrunnr to become Runnr. TinyOwl saw Matrix Partners’ global entity enter the Series-C round.

Some early-stage firms are looking at merging their portfolio companies with bigger global players in the same space. Kae Capital recently made a smart exit when artificial intelligence-powered US-based BoomTrain acquired Nudgespot, a messaging platform based in Bengaluru, backed by Kae.

“We sell to a bigger company because we believe that to scale, we need a bigger partner. So we thought of merging into the bigger SaaS company and getting a smaller but a more valuable pie“, said Sasha Mirchandani, Founder, Kae Capital.

Source: The Economic Times