In a move aimed at better aligning itself with its limited partners, Peak XV, the largest India and Southeast Asia-focused venture firm, is reducing the size of a handful of its funds and lowering fees. The decision reflects the firm’s growing apprehension about the frothy public market performance in India and a perceived dearth of venture-scale opportunities in the immediate future.
Reducing Fund Size and Fees
According to an investor letter seen by TechCrunch, Peak XV is releasing limited partners from $465 million in obligations from its 2022 vintage funds. This move comes more than a year after the firm’s separation from Sequoia, which was triggered by market conflicts and confusions amid geopolitical tensions between Washington and Beijing.
Peak XV has decided to trim how much it charges its backers, lowering its management fees to 2% and the percentage of carried interest it collects on profits to 20%, down from 2.5% and 30% respectively. However, there is a performance-based caveat: Peak XV will maintain provisions to revise its carried interest up to 30% after achieving a 3x distributed-to paid-in capital ratio.
Industry Trend
The move by Peak XV reflects a broader trend in the venture capital industry, where many firms have either reduced new fund sizes or struggled to raise their target amounts in recent years following a correction after a 13-year bull run in the tech sector. The firm’s rationale for reducing its fund size and fees is centered around the growing uncertainty in the public market performance in India.
Market Uncertainty
India’s price-to-earnings ratio stands at about 21 times, compared with 10 times for emerging markets overall, 14.5 times for global markets, 17 times for the US, and 8 times for China. Macquarie analysts recently noted that India has seen more tech initial public offerings this year than the U.S.
Peak XV’s Response
In a statement following the publication of this story, Peak XV said: "In the context of a richly priced public market in India, we are investing in a measured manner in our growth fund. While this may be contrarian to market exuberance, this will serve our founders and LPs well in the long term."
Competitor Comparison
Peak XV’s fund size dwarfs those of its competitors in India. Lightspeed’s latest India-focused fund stands at $500 million, while Accel closed its most recent Indian fund at $650 million. Matrix, Elevation, and Nexus have raised $550 million, $670 million, and $700 million, respectively, for their newest funds.
Peak XV’s Dominant Position
The firm has made realized and, notably, unrealized gains in the past few years, with a reported valuation of over $10 billion. Peak XV’s dominant position in the India-focused venture capital space is largely due to its ability to tap into the country’s growing startup ecosystem.
Impact on Investors
The reduction in fund size and fees by Peak XV may have a positive impact on investors, who will benefit from lower management fees and potentially better returns. However, the move also raises questions about the firm’s future fundraising plans and its ability to maintain its dominant position in the market.
Conclusion
Peak XV’s decision to reduce its fund size and fees reflects the growing uncertainty in the public market performance in India. The move is aimed at better aligning itself with its limited partners, but it also raises questions about the firm’s future fundraising plans and its ability to maintain its dominant position in the market.
Related News
- Apple reportedly launching a new event invite feature code-named Confetti
- Google’s X spins out Heritable Agriculture, a startup using AI to improve crop yield
- Shein app relaunches in India with Reliance partnership
