Even as private equity (PE) firms have struggled to exit investments during the period 2008-2014 due to unfavourable market conditions, three firms — Sequoia Capital India, ICICI Venture Funds and ChrysCapital — managed to buck the trend by being the top companies to make exits during the period.
“Exit track record is one of the most important aspects that limited partners (LPs) consider and this has a tremendous influence on fund raising,” says Sanjeev Krishan, leader of private equity practice at PriceWaterhouse Coopers.
Vishakha Mulye, managing director and chief executive of ICICI Venture, says they typically remain invested in their portfolio companies for three to four years before exiting the investment at the ‘right time’.
“We are very focused on our exits. If you look at our track record, we have returned close to $1 billion to our investors in the past four to five years. We think about exits as we invest into a company and in order to do that, we use structures to get the risk reward right in a company,” Mulye said.
Typically, private equity investment firms target to generate at least 2.5-3 times return on the capital invested.
For example, this year Sequoia Capital partly exited its investment in eClerx at around 4.8 times.
Similarly, in 2010, ChrysCapital exited its stake in Zydus Wellness at 4.7 times, while ICICI Venture sold its stake in Metropolis Healthcare at approximately four times.
Mulye says their investment decisions are based on the risk reward in the industry, scalability of the company’s business model, choice of partners and exit.
“It helps us to get into a right company, at a right valuation and meet our expectation on the timing and returns from these investments,” Mulye added.
ICICI Venture has assets under management of around $2.5 billion and has invested in companies like Geometric Software, ING Vysya Bank, Express Towers and Adlabs Entertainment.
Krishan says focus on operations, cost rationalisation and the timing of exits has helped PE firms like Sequoia Capital to exit investments and create value for investors.
“Sequoia Capital has been one of the most prolific and successful PE investors in India, and part of their success lies in being able to exit their investments at an opportune time,” Krishan added.
Sequoia Capital set up shop in India in 2006 and has invested across technology, healthcare and consumption driven sectors in companies like Zomato, Paras Pharma, Cafe Coffee Day and Idea Cellular.
Sequoia Capital had raised $530 million for its fourth India-dedicated fund in May 2014. The total capital committed to Sequoia’s India-focused investments is to the tune of $2 billion.
With assets under management of $2.5 billion across six funds, ChrysCapital says its investment philosophy is based on disciplined risk aversion and diversification, along with a contrarian approach with focus on long-term fundamentals. It has invested in companies like Mphasis, Suzlon, Axis Bank, Mankind and HCL Technologies.
Between 2008-2015, there were approximately 3,400 PE investments, while the total number of exit deals during the same period stood at 1010. In 2007 and 2008, there were over 700 PE funds active in the market. In 2015 this has declined to less than 300 PE funds.
The collapse of US investment bank Lehman Brothers in September 2008 triggered a global financial crisis and sent the global economy into a tailspin. Several other factors like challenges in the domestic economy and an economic crisis in the Eurozone prevented many PE funds from exiting their investments due to subdued valuations.
In fact, between 2000-2013, PE firms have invested to the tune of $94 billion, and have exited 19.5% or $18.3 billion of this investment at 1.7 times or a value of $30.3 billion.