It's interesting to see two top-tier Sand Hill Road venture capital firms take opposite directions in India as overseas investor interest in the market picks up under new government leadership and expectation of fiscal reforms and economic growth.
While Sequoia Capital has raised a new fund of $530 million to invest in tech companies in India, Kleiner Perkins is effectively pulling out by selling a portion of its Indian portfolio co-managed with Sherpalo Ventures to Lightbox, a new fund group formed by Sandeep Murthy.
India has been a tricky market for venture capital investors. It's still early. Venture capitalists from the Valley who entered the Indian market about a decade ago have seen few exits either through IPOs or M&A -- aside from the trophy success stories like MakeMyTrip, which went public in New York in 2010.
But hope has sprung eternal. Many venture capitalists in India such as Ashish Gupta of Helion Venture Partners, Sudhir Sethi of IDG Ventures, and Naren Gupta of Nexus Venture Partners remain optimistic that the opportunities for India to create innovative tech companies that can scale globally are huge. Deals like the recent $210 million fund raising for Flipkart and its acquisition of Myntra reinforce that view. See earlier Forbes post, Flipkart and Startup India. Not to be overlooked is Café Coffee Day, a
Kleiner Perkins' move to withdraw from the Indian market is seen as a strategic move away from a fund it only indirectly managed with technology insider Ram Shririam with his investing firm Sherpalo Ventures. Sandeep Murthy, who was running the investments for the co-managed fund in India, now takes over a chunk of the portfolio with his new fund Lightbox. Another factor in the Sand Hill Road investor's exit is the departure of KP's Indian dealmaker Ajit Nazre from the firm.
Sequoia Capital has seen its own dramatic turns in India. After merging with Westbridge Capital Partners to form Sequoia's first outpost in India in 2006 and raising two large funds -- $400 million in 2006 and $725 million in 2008 -- the Westbridge team led by Sumir Chadha split from Sequoia in 2011 to start making different types of investments in India -- so-called PIPE (private investment in public equity) deals.
Sequoia's new fund -- its fourth for India -- will focus on consumer, technology and healthcare sectors. Note that the new fund will also make investments in Southeast Asia, not just India.
Kleiner Perkins is not the first Silicon Valley firm to withdraw from India but it remains in the minority. The gold rush to India that began in 2005 saw most Sand Hill Road players enter the market. Only one other major firm has retreated, Battery Ventures, during the 2009 recession.
It still remains to be seen if those who have stayed with India and continued to raise new venture funds will prosper. There's no Jack Ma on the horizon -- at least if you don't count the earlier generation of outsourcing leaders Narayana Murthy of
Other positives are India's huge mobile communications market, lots of startup activity around this sector, and its dynamic entrepreneurial engineers. One entrepreneur to watch is Harvard Business School grad and ex-McKinsey consultant Naveen Tewari of mobile advertising company inMobi in Bangalore, which has gone global and become an industry leader. Kleiner was an early backer of inMobi to the tune of $7 million in 2008.
Certainly, India needs more venture capital to support its startups and help them break through to the next level. Only $1.8 billion in venture capital was invested in Indian startups in 2013. That's half the amount in China last year. Granted, India does have a vibrant community of angel investors (such as Mumbai Angels) and those sums are not counted in the VC tally.
Interestingly, it is Bill Draper who has probably made the most money from investing in India -- and he got into the market WAY early, in the 1990s, invested in 25 companies and returned 16 times his limited partners' investment. But as Draper was quoted in my book Startup Asia, "We had a surprisingly large number of successes, without home runs in the sense of multibillion companies."
For venture investors still active in India, the dream is much larger than that.
