India’s Zephyr Peacock reaches second close on Fund III

Zephyr, which targets small- and medium-sized enterprises, took less than six months to accumulate of $75 million for its second fund - its first institutional vehicle - in 2009. That fund was smaller than its predecessor.

The situation speaks volumes for India's challenging fundraising market, which saw country-focused vehicles attract just $2.5 billion in 2012, with 20% of that going to ChrysCapital Partners. LPs pumped $21.5 billion into India funds in 2007 and 2008 but the subsequent four years saw commitments fall to $14.3 billion.

Exits remain a stumbling block, with investors unwilling to re-up until they get back some of their original capital. Speaking to AVCJ last November, Mukul Gulati, Zephyr's co-founder and managing director, said the market is divided between those who, out of principle, refuse to commit to managers with no track record of exits and those who see it as a preferred, but not an absolute, requirement.

At the time, Zephyr had yet to record any exits from its previous fund, which closed in late 2009, but Gulati argued that the portfolio, though unrealized, is compelling. Revenues and earnings were strong, several companies were waiting for the opportunity to go public, and strategic investors were expressing an interest in M&A opportunities.

"There is strong evidence that we could exit our companies if wanted to exit - and probably at pretty good prices - but I don't want to exit right now," he said. "If you have a company with an EBITDA that is growing 30% per year and someone offers 6.5x EBITDA, then you might want to hold on for six months because the price will go up 30%. We already have a sales pipeline we might as well wait."

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• Topics
• Fundraising
• South Asia
• India
• Zephyr Peacock Management
• Fundraising