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Venture funds step up joint deals

Priya Nadkarni & Shivani Shinde  |  Mumbai 

A third of 21 deals in November are syndicated.

A bleak economic scenario coupled with difficulty in raising fresh funds is pushing venture capital firms in India to invest in groups.

Earlier this month, Draper Fisher Jurvetson, Nexus Capital, Garage Technology ventures, the Mahindra group and social fund Gray Matters Capital invested $5 million in D.light design. Similarly, Unitus Equity Fund, Sequoia Capital, Lok Capital, Unitus Equity Fund II, India Financial Inclusion Fund and Sidbi together put $20.89 million in Ujjivan Financial Services.

While this practice is already prevalent in big-ticket deals that private equity investors do, it is catching on among VCs that typically invest in start-up and late stage start-up companies. Earlier this year, eight private equities, led by Temasek Holdings, an investment arm of the Singapore government, decided to band together to invest around Rs 4,800 crore in Bharti Infratel, the tower arm of the Bharti Group.

According to Grant Thornton data for the month of November, more than a third of the 21 deals that happened in the month were done in groups. There were three deals each in September and October.

"PEs and VCs are increasingly looking for mitigating their risk and validating the investments they are making. No one wants to put in their entire funds and risks in one basket," says C G Srividya, partner, specialist advisory services of Grant Thornton. Earlier, people were talking about such deals, but now one can see it happen, pointed out Srividya, adding that this trend had caught on in the last three-four months.

A drop in valuations of listed companies has meant that PE players are busy bottom-fishing in this space. But for the relatively low profile VC funds that typically invest in early stage start-up companies, a good deal is an investment in a late stage company at an early stage valuation. At such times, if the ticket size of the deal is on the higher side, VCs don't mind clubbing their resources, if they think it is a good investment.

Clearstone generally likes to invest in $3-5 million range, but if the investment size is $20 million, then there is a natural desire to syndicate, said Khanna.

Venture Intelligence data also bear this point out. Almost 38 per cent of the 122 VC deals that happened in 2008 were syndicated, while in 2007, this figure was 19 per cent. Among the PEs, the number of deals has fallen from 438 in 2007 to 384 in 2008, but the number of syndicated deals has soared from 17 per cent in 2007 to 26 per cent this year.

Since VCs are typically long-term investors, they want their portfolio companies to be "well placed" in terms of capital. Mohanjit Singh Jolly, Executive Director, Draper Fisher Jurvetson, said there was a feeling that the slowdown in the economy might worsen a year from now. That is why VCs want the companies that they invest in to be comfortably placed with regard to capital. They don't want their investee companies to spend time sourcing funds at a time like this, he added.

In many cases, one of the investors in the syndicate is a strategic investor. A recent instance is DFJ, which invested in Live Media, a player in the out of the home (OOH) media space, along with Bay Partners and Samsung Ventures. "Often having a strategic investor in the syndicate helps, especially during slowdown. They bend over backwards to give special deals to companies they have invested in," said Jolly.

First Published: Wed, December 17 2008. 00:00 IST