After real estate, private equity (PE) and venture capital (VC) players are holding on to their investments in information technology (IT) companies coming up with initial public offers (IPOs).
Traditionally, PE and VC firms look at IPOs as their main exit option.
For instance, Pune-based Persistent Systems has filed its draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (Sebi). It will soon hit the market to raise Rs 150-200 crore. Investors such as Intel Capital, Norwest Venture Partners (NVP), Gabriel Venture Partners and Hewlett-Packard (HP) together hold over 20 per cent in the company. While Intel and HP invested in 2000, Promod Haque of NVP and Gabriel Venture Partners invested in 2005.
HP’s and a part of Intel’s investment have a one-year lock-in, but NVP and Gabriel Ventures have continued to stay with the company.
“It is good for us as it validates our business proposition. But, we also work very closely with some of our investors. We work with some of the investee firms of our investors and, hence, they understand our sector well and also know the growth proposition,” said Anand Deshpande, managing director and chief executive officer of Persistent Systems.
Alok Mittal, managing director, Canaan Partner said other than specific lock-in requirements, “investors may feel that there is a lot of growth left in the company and so would like to benefit.” At the same time, he added these were mostly company-specific issues and, hence, it was tough to generalise. “High-growth sectors such as consumer internet do afford themselves to the argument,” said Mittal.
The other case in point is online e-card services firm 123Greetings. Again, Intel Capital, which invested two years ago, has chosen not to exit. Intel Capital (Mauritius) holds 16.3 per cent in the company.
“In case of 123Greetings, Intel’s investment has been for two-three years and, ideally, VCs stay invested for five-six years. Besides, Intel Capital does not have the pressure of LPs since it invests from its P&L (profit and loss) account,” said the head of a leading fund on condition of anonymity.
Sudheer Kuppam, managing director, Intel Capital India, said, “The current regulatory process gives little choice to investors on the ‘price’ obtained at the time of listing. Given the uncertainty and lack of flexibility to back out should the price be unfavourable, investors typically decide to wait until the listing is completed.” He added given a robust growth forecast for India for the next five to 10 years, the risk in a “wait & see” approach was low.
The other case in point is Walden International. It has been an investor in MindTree since inception. It was only recently (2009 onwards) that the VC firm started to exit the company. From 16 per cent at the time of listing, Walden’s stake in the company was 10.08 per cent in December 31, 2009. “In case of Walden, there was a lock-in period of one year. Since then, the VC firm has started to slowly sell its stake,” said a fund manager.
Within the real estate sector, investors are opting not to exit, expecting better gains once these companies are listed. In many instances, offshore investors cannot exit real estate companies due to a three-year lock-in for foreign direct investment and a one-year lock-in if they do not intend to sell during IPOs. Besides, some domestic and international investors are staying on in the hope that they can improve the returns once the sector picks up in the coming quarters.
Global hedge fund Och Ziff, with investment in Bangalore-based Nitesh Estates, Morgan Stanley in Oberoi Realty, Indiareit’s domestic fund, which is making a partial exit from Mumbai’s Neptune Developers, and HDFC Property Fund in Vascon Engineers are some of the investors staying on for the moment.
