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Bangalore: The venture capital firms looking at growth equity investments, including the companies in listed entities, is fast catching on. Traditionally, the VC firms invested largely in early-stage companies.
The NVP India, an Indian arm of a Silicon Valley-based venture capital firm Norwest Venture Partners, invested about $15 million (Rs70.65 crore) for a less than five percent stake in OnMobile Global, a provider of value-added services (VAS) for mobile phones. This was picked up directly from the market.
"Norwest is actively evaluating a number of opportunities in the listed space. We see a lot of value in public companies across sectors and we expect to make a number of investments through the secondary markets," said Sohail Chand, Managing Director at NVP India.
Apart from NVP, Sequoia Capital India has been insistently investing in listed companies since October, after it started investing in India in 2000. Sequoia's $400 million fund is fully invested now, though the $725 million it collected in mid-2008 for its Sequoia India Growth II is untouched. The $300 million early-stage fund raised last year is also "barely touched". "We have been investing more, and mostly in the public markets," said Sumir Chadha, Managing Director at Sequoia Capital.
But, at times, when the 2 and 20 model is under serious question, many limited partners (LPs) have also started doubting the rationale behind their managers putting money into public companies. The 2 and 20 model refers to the two percent management fee and 20 percent share of the profits, which investors in private equity and venture capital funds pay their fund managers. Such investors can put money directly in listed equities and at a lower fee.
Chadha clarified that the vast majority of what Sequoia does is still private investing and that it occasionally invests in public companies, where it has deep knowledge of the company and the sector. It recently invested in privately held Mumbai-headquartered Ideacts Innovations and Trichy-headquartered Vasan Eye Care Hospitals. "Our LPs are comfortable with this. We feel that there are times when public-market opportunities look very compelling and we take advantage of these. We take a long-term view on management teams and fundamentals. We exit early when the markets or a particular stock runs up very quickly," Chadha added.
In mid September, the liquidity crisis in the world brought the primary market and merger and acquisitions activities to a standstill. And, such possibilities become the concern for the VCs to exit. "We would make those exits, but only when we feel a little better about the public markets. Some of it we�ll look at (for exit) late this year or early next year," said Chadha.
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