The erosion of value in equities since the past year has presented first-time private equity funds opportunities to invest in potential blue-chip companies. But, converting such openings into deals may be some distance away for these first timers, who are having a tough time raising funds amid worsening macro-economic conditions and waning risk-appetite of potential investors.
Industry officials and watchers said limited partners (LPs), which are institutions that back private equity funds, are being very choosy about investments in first-time funds and are preferring to put money in established funds.
“Nowadays, LPs are looking at the track record for investing. So, unless, the people involved in first time funds are unable to prove their experience in their chosen area, LPs are mostly staying away from them,” said Arun Natarajan, CEO of Venture Intelligence, which tracks venture capital activity in India.
The total amount raised by first-time funds, so far in 2008, was at $275 million by two such entities. In 2007, 14 first-time funds collected $3.6 billion while 10 such funds raised $1.67 billion in 2006, according to data by Venture Intelligence.
Prior to January 2008, the fund-raising scenario for first-timers was much easier than the existing scenario because of ample availability of funds and a sanguine investment atmosphere. Examples of successful first-time fund closings are Nexus India Capital and Helion Venture Partners, which raised $100 million and $140 million, respectively, last year.
Industry officials said 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 Capital’s co-founder Naren Gupta was the chairman of Integrated Systems while another co-founder, Suvir Sujan was the CEO of bazee.com.
A section of the industry feels, of late, it has become difficult for even those first time fund raisers, with proven entrepreneurial track record, to raise money.
“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.
In an interview on Venture Intelligence’s blog, Steven Cowan, managing director of PCG International (PCGI), an affiliate of US-based PCG, said: “We generally avoid first time funds unless it’s a compelling opportunity or the team is very promising.”
But, not everybody is downcast about the current fund-raising situation. Alok Gupta, MD & CEO of Axis Private Equity, which raised $150 million for its first fund in five months by March 2008, said: “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.”
Source: Economic Times