Sequoia Capital - too much money in the market

Bangalore-based Sequoia Capital India has always been ahead of the curve in the Indian venture capital market. In its earlier incarnation as WestBridge Capital Partners, it raised a $150 million (Rs600 crore) early-stage fund to back Indian technology start-ups in 2001 at a time when early-stage funding had all but deserted India. Last year, it raised its third India fund—the $400 million Sequoia India Growth Fund I—and became the first to focus on consumer-driven Indian companies. Around this time WestBridge also merged with Sequoia—another first in India. Today, the firm manages $750 million in India-dedicated capital. Sequoia India managing director and co-founder K.P. Balaraj spoke to Mint about the road ahead:

Has Sequoia India made a formal transition to private equity investing in India?

Early-stage is still very much a focus, and we continue to be the most active in this segment in India. Later-stage, IPO and PE deals are a growing focus for us and we have invested in a number of companies like Idea, Paras and KMC constructions. We like to position ourselves as a long-term VC investor focused on growth situations alongside strong management teams.

But in the US, isn’t sequoia primarily an early-stage investor?

Well, Sequoia in the US also plays in both segments. So, the India strategy is not different.

What’s the portfolio looking like in Funds II and III so far?

We’ve made about 20 investments from Fund II. More than half has gone into consumer and media companies. From Fund III, about six investments have been in the growth stage. The focus is clearly on consumer-driven opportunities in the domestic market. We are sector agnostic.

Post-merger with Sequoia, do you continue to pursue investments independently?

We tend to manage both businesses separately. It is not one pool of capital.

Any concerns about the current VC environment in India?

The main concern is about the quantum of money that’s already in the market. There are many new teams in the market but only a few are able to raise funds, given that limited partners (LPs) generally feel there is too much money in the Indian market. LPs have turned cautious. There’s likely to be a slowdown in fund raising both, on the VC and PE fronts.

So, you’re saying a bubble is not unlikely.

It is a valid concern. A lot of people will get funded in this phase, so while capital is easily available, the flip side is that most markets will get over-funded. How many will fetch a good return is a call investors have to take before they commit. It is not easy, but then risk is the essence of the VC business.