Sequoia Capital India has earned the distinction of being one of the earliest venture capital (VC) players to bet on Indian entrepreneurs starting 2000. And, it is among a handful of VC firms that have over $1 billion for investments in India. So far, Sequoia Capital India has raised five funds — three for early stage and two growth stage. It has invested in over 50 firms, including Firstsource (exited), Applabs and SKS Microfinance. Its recent investments, which include Just Dial and Vasan Healthcare, are from a $725 million growth fund, raised last year, and a $300 million early-stage fund. Sequoia Capital India Managing Director Sandeep Singhal, who along with K P Balaraj, Sumir Chadha and others, manages the India portfolio, speaks to Shivani Shinde about the firm’s strategy. Excerpts:
Sequoia was really active last year, but this year we have not heard much. Why?
On the contrary, we have been quite active even in the first half of 2009 as well as during the downturn. It’s just that we have not been talking. To name a few firms that we invested in this year so far are Just Dial and Vasan Healthcare. We have also partnered with other players in follow-on funding. In January, we did a follow-on investment in Apna Paisa.
There is a growing trend among VCs to get into growth funding. Sequoia has also been doing this. How is this different from early stage?
There are very few firms like Sequoia which are into both the segments as well as the private equity space. We do not change our filter when we look at the public market. In the growth stage, we still look at staying invested for three-five years, which would be similar to a public firm. So, the fundamentals don’t change. But yes, a dominant part of our focus will be on privately-held firms. Among the growth firms, we will invest in the region of $20 million to $100 million.
Do you think the secondary market is getting better valued now?
Valuations are not as cheap as they used to be. There was a lot more value in the market six-nine months ago. Today, we have to be careful as many have run ahead of themselves. And, private deals get benchmarked to public market pretty quickly.
But aren’t valuations much better now compared to what they used to be two years ago?
Agree. But if you take the last three months, markets have gone up significantly, in some cases ahead of the fundamentals. At the same time, when you look at company performances, they are good but not yet great. The downturn is still there and the valuation of some firms has gone up by 80 per cent. Having said this, I must say that valuations are attractive in some cases. It’s just that we have to be careful and swift.
Are you looking at any exit this year, considering that some of the companies that Sequoia has invested in had to postpone their listing plans last year?
You might see two-three public listing from our portfolio in the next 12 months. We would have a few exits in the next 12 months.
There is a general feeling that your exits from Royal Orchid and Firstsource were early?
We don’t look at it that way. Firstsource was an early investment for Sequoia. So, we did get good returns. In case of Royal Orchid, given the large portfolio we have — and we take a portfolio-wide view — our investment in the firm was pretty small. So, we figured that we should focus on large investments and exited.
Sequoia’s early investments were in the IT and IT-enabled services sector. Do you think investors are no more bullish about investing in this sector?
It is a very interesting space. Yes, we have more capital there. We have invested from our Fund I and II. Some of them are growing well with good profit margins. We have had a lot of acquisition interest in them. At an appropriate time, we will look at that. Moreover, some of these firms are planning to hit the public market as well. Selectively, this sector still has enough opportunity.
What trends do you see in India from an investment perspective for 2009?
It’s hard to give a prediction from the market point of view. It depends on how the market pans out. We have a significant amount of capital in India that is not invested. It is closer to $1 billion. Despite the cycles of the economy, we continue to invest. We see a strong opportunity in both venture and growth stage. The number of entrepreneurs in India is large. We will invest across sectors, with focus on segments such as financial services, infrastructure, consumer, healthcare and manufacturing.
