PE novices flounder as fund-raising gets tougher

Mumbai: The first-time private equity funds now have opportunities to invest in potential blue-chip companies because of the erosion of value in equities since the past year. But these first timers don't have enough money to invest in such big companies and are having a tough time raising funds amid worsening macro-economic conditions, reported The Economic Times.

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Industry observers said limited partners (LPs), which are institutions that back private equity funds, are turning selective to prefer established funds over first timers to put money in.

"LPs are looking at the track record for investing and the first time funds are unable to prove their experience. A reason for LPs to stay away from them," said Arun Natarajan, CEO of Venture Intelligence, which tracks venture capital activity in India.

According to data by Venture Intelligence, so far this year, the total amount raised by first-time funds was $275 million by two such entities. In 2007, 14 first-time funds garnered $3.6 billion while 10 such funds raised $1.67 billion in 2006.

Unlike the current scene, the fund-raising scenario for first-timers was much easier before January 2008. Examples of successful first-time fund closings are Nexus India Capital and Helion Venture Partners, which last year raised $100 million and $140 million, respectively.

These two first-time funds were able to close their funds successfully, as its promoters were entrepreneurs with proven track record. One of Helion's managing directors, Ashish Gupta was a co-founder of junglee.com and Tavant Technologies, while another, Sanjeev Aggarwal, was the founder of BPO firm Daksh. Nexus India Capitals Co-founder Naren Gupta was the Chairman of Integrated Systems while another co-founder, Suvir Sujan was the CEO of bazee.com.

"An LP might commit the money initially, but there is no guarantee that it will go ahead with it. Most of the first-timers have not been able to raise the amount that was targeted earlier in the recent months," said a top official at a Bangalore-based private equity.

But, Alok Gupta, MD & CEO of Axis Private Equity, which raised $150 million for its first fund in five months by March 2008, have another view. "Though it is not a cakewalk, it is still possible to raise money even now. It depends on the efforts first-timers take to diversify their investor base," he said.