We are under no pressure to create artificial exits: Shailendra Singh

Interview with MD, Sequoia India

It’s been nearly a year since the founding members of Sequoia India exited to focus on the public markets. But Sequoia India has been holding steady and continuing their investments without any vacuum. In an interview with Raghuvir Badrinath of Business Standard, Shailendra Singh, MD, Sequoia India details how things have been shaping up and discusses the challenges for this much celebrated investment fund.

The four founders who exited Sequoia India had long and deep relationships with many companies which are pretty successful today. After their exit, how have you managed to stabilise the operations?

We have been as steady as ever. We have not felt any vacuum after their exit. They wanted to do public investments and so they exited. They are still on the Boards of around 5-8 companies and they will continue to be on them until an exit happens. It is no doubt that we rely heavily on relationships in this business, but relationships are built as well. Last year (2011) was one of the busiest for us as we invested around $200 million.

Sequoia has been investing in India for nearly a decade and how different is the scenario today?

The situation today is indeed very different. Let me answer this differently for venture and growth. The venture market is seeing a lot of activity. You obviously know about the e-commerce boom (or bust depending on which side of the category you are on) that overheated the venture markets last year. Investors are a lot more cautious this year and e-commerce companies have been finding it quite tough to raise future rounds of financing.

The growth market is a tougher space to be in. A combination of lack of interest in core growth sectors like infrastructure coupled with a surprising reluctance by entrepreneurs to dilute equity to raise money has slowed deal flow in the growth space. The public markets have also not been kind to companies wanting to raise money and we all know that numerous companies have filed for IPO last year only to postpone their plans thanks to the market. We continue to look at the technology and consumer sectors as the two large pillars of our investment strategy in India and believe that we will continue to find high quality investments in these verticals.

And am sure exits from investments are becoming much more Herculean?

Yes, exits from investments has been a challenge for most investment firms in India. Firstly, as you know, the M&A market has been sluggish though it is showing signs of finally starting to kick on. The IPO market—which is the standard liquidly option for most companies—has been almost stagnant. At Sequoia Capital, we take a long term view and the life of our funds is upto 12 years. Hence we are under no pressure to create artificial exit scenarios in our companies. We constantly work with our portfolio companies and work towards an exit when a window comes by.

Sequoia India has been investing from three funds with a total corpus of $1.4 billion and with the kind of pace you are investing in… wont you require to raise a new fund?

We still have got around $300-400 million left from the corpus. One is a venture capital fund and there are two growth funds. We will start raising a new India focussed fund sometime next year. We have not decided yet on the corpus. But what we have decided is to have a single structure from a multiple fund structure. The same fund will do venture as well as growth equity investments. What we have witnessed is that the same companies which we make venture investments, may require growth stage funds and we are best suited in doing multiple rounds in such scenarios.

During the past 18 months, there has been a sudden spurt in the number of venture funds in India doing a number of deals with some doing one deal a week. How is that aggressiveness altering the scenario?

Each fund has their own approach… some take the approach of reading into the macro-environment and taking many bets, while others chose to select and pick few companies. What we are seeing that the ecosystem is competitive and its certainly maturing for early stage companies.

While you are sharply focused on private equity deals, aren’t you missing out the public market deals?

It is not that we do not do public market deals. We have a small universe of companies which we like and if the price comes to attractive levels, we buy into them. And even in this, we take long term views. With respect to the PIPE (public investment in private equity) deals, the opportunities during the recent past has been coming down as more companies are opting for QIPs, as it is a more attractive structure.