Helion remains committed to early-stage deals

A host of venture capital firms in Asia stand accused of raising more money than they can realistically expect to deploy in early-stage deals and making risky forays into the growth capital space. For some, this strategy has paid off. Others find themselves with insufficient resources to marshal larger-ticket deals and may struggle to raise new funds.

Helion Venture Partners is one of a handful of Indian VC players that has resisted the temptation to abandon its tried and tested formula. The firm closed its third fund last week at just over $255 million, more than twice the size of its debut vehicle raised in 2007, but only $45 million more than Fund II.

Sanjeev Aggarwal, Helion's senior managing director, admits that the difficult fundraising environment prolonged the process - Fund III took about nine months to close, while its predecessor was very quick - but it was still significantly oversubscribed. "Early stage is our core strength and we have no ambition to do much bigger funds," he tells AVCJ. "Our rationale for raising $200-300 million was that we do about 8-10 transactions a year, each of $7-8 million."

The contributors to the fund corpus are more diversified than previously. Commitments came from pension funds, endowments, foundations, sovereign wealth funds, family offices and fund-of-funds. Aggarwal singles out the increased presence of sovereign funds as a key development, while there was also a more balanced regional spread in the LP base, with greater representation from Asia.

Early-stage appeal

According to one of Helion's LPs, who also invests in other Indian VC players, the firm is refreshingly investor-friendly in a market "where you find a fair amount of arrogance."

The appeal of India's early-stage space is essentially top-down in that it's less competitive than the growth capital market and valuations are lower, albeit with greater risk attached. The LP praises Helion and Nexus Venture Partners in particular for capping the size of their funds even though they were oversubscribed, but picking a winner from the industry is difficult given the limited track records. "I don't think anybody has fully proved themselves, but a few firms have the basics you want to see, including guys who know what it is to build and sell a business."

Viewed in this context, the current round of VC fundraising in India is crucial. According to AVCJ Research, Matrix was the first of the leading domestic players to return to the market following the financial crisis, attracting commitments of $300 million for its second India fund. Both Matrix and Helion each now have more than $600 million in assets under management.

Nexus is currently in the market, seeking $250 million for its third fund, while IDG Ventures India is targeting a $200 million second vehicle. NEA IndoUS Venture Partners is said to be raising a second fund of around $150 million.

Consistency in both personal and investment strategy is important. Helion's approach remains unchanged, leveraging growth in India's technology and consumer space. Aggarwal expects to see some evolution in the kinds of opportunities available as first-generation e-commerce increasingly gives way to the likes of digital enabling devices and advertising networks. However, the underlying drivers are the same.

He identifies Makemytrip, a portfolio company from Helion's first fund, which raised $70 million through an IPO on NASDAQ in 2010, as a good example of a business that is benefiting from growth in both internet penetration and propensity for travel, the latter a consequence of increasing disposable income.

Valuation concerns

Valuations remain an issue, although perhaps less so than 12 months ago. Flipkart, a leading online retailer, raised $150 million from existing investors Accel Partners and Tiger Global Management in February. The deal valued the entire company at around $850 million, lower than the $1 billion valuation previously suggested. This adds credence to reports that other private equity firms were considering investments in Flipkart but that talks floundered on price expectations.

Flipkart subsequently purchased rival website Letsbuy.com, a portfolio company of Accel, Tiger Global and Helion, at a considerable markdown on the $80 million sought when the business was originally put on the market. Manik Arora, managing director of IDG, told AVCJ last month that he expects to see a spate of acquisitions as VC-backed companies that have yet to emerge as clear market leaders struggle to remain capitalized.

Aggarwal is wary of mergers, noting that management teams in start-up companies are not necessarily mature enough to absorb one another. He sees the headwinds facing the industry as symptomatic of market losing steam after a period of inflated valuations.

"Some VC rounds have been bid up to the point where it becomes impossible to participate and make money at the end," he says. "My sense is that rationality is coming to the e-commerce space. Investors have become more discerning about whom to back and this is a good thing."

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• Topics
• Fundraising
• Venture
• South Asia
• Early-stage
• Helion Ventures
• India
• Venture
• Fundraising