ICICI Venture fund raising hits roadblock

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Mumbai: ICICI Venture, India’s largest private equity firm, has run into difficulties in securing commitments from some key investors for the $841-million India Advantage Fund Series 2. The investors have said they were not informed about recent changes in the company’s management and have, therefore, triggered a clause in their agreement allowing them to hold back their committed funds.

This ‘key man’ clause, which is incorporated in the agreement between a fund manager and investors (also known as limited partners, or LPs), allows the latter to change their investment strategy if key management members or employees leave the fund in which they are investing. ICICI Venture already has a firm commitment for two-thirds of the fund’s financing, while the rest is under dispute. The company has over $2 billion in funds under management.

“LPs are upset because the company did not inform them about the decision to allow the exit of Renuka Ramnath, who has led it since 2001. With LPs deciding to trigger the key man clause, they are not obliged to give the remaining 25% of the committed amount,” said a person familiar with the development. Vishakha Mulye has replaced Ramnath as the new managing director & chief executive of the company.

According to a source close to the development, ICICI Venture held talks with LPs on June 30 to apprise them of recent developments. “According to the documents, the key man has to be ‘cured’ over a period of six to eight months by the supervisory board. (The company) is engaging with the LPs in this regard and would continue to do so over the next few months,” he added. An e-mail sent to ICICI Venture did not elicit any response.

The LPs are already unhappy with the private equity firm’s handling of the recent issue with Subhiksha and the latest development will add grist to their mill. Apart from the IAF Series 2, ICICI Venture handles private equity funds such as IAF Series 1 ($267 million), ICICI Emerging Sector Fund ($692 million), IAF Real Estate Series 1 ($562 million) and IAF Mezzanine Series 1 ($51 million). ICICI Venture is learnt to be announcing the first closure of its India Advantage Fund 3, aiming to raise $1 billion.