Moneycontrol
Sep 09, 2016 10:25 PM IST | Source: CNBC-TV18

First time VC funds finding it difficult to raise money

First-time fund managers are struggling to attract money from startup backers, also called limited partners.


The correction in the startup arena does not bode well for debut venture funds. First-time fund managers are struggling to attract money from startup backers, also called limited partners, report CNBC-TV18's Adith Charlie and Areeb Sherwani.


Stayzilla, Paytm, Lucideus, Zilingo, Lenskart, Alternacare -- for every start-up that's raising money, there are a couple that have failed to attract investors. And more often than not, these are start-ups looking to raise seed funding.


In August, for instance, only 20 start-ups managed to bag venture capital funding. This makes August the slowest month for VC deal-making in over a year. But this reluctance to invest is not because of a scarcity in good investment options. Long exit windows, lack of sufficient secondary data to conduct due diligence, and diminishing returns have made limited partners, who generally make money available to venture capital funds, have turned cautious.


Says Ajay Ramasubramaniam, Director, Zone Startups India: "Zone startups has a Rs 190 crore category A VC fund. We have been on the road trying to raise money for the last six months. We have some commitments [but it is] not easy for funds. Early stage funds were not able to give the kind of returns that were expected."


This caution is being exacerbated with many investee startups going belly up, or having to resort to drastic cost-cutting initiatives like lay-offs or deferred recruitment -- and new venture capital funds looking to build an investment corpus are feeling the heat. Take one-year-old Altius Capital -- it attempts to raise a maiden corpus of USD 25 million.


"Definitely on the corpus side, I think there is a lot of difference between reality and expectation," says Altius' young founder Mohit Gulati. "USD 25 million was... [for a] 28-year-old age [fund manager]... lots of people are questioning your ability to manage their money."

Established fund houses, however, are not facing such a huge problem, mainly because they have small fund sizes to ensure a diversified investment portfolio. So new funds will have to work harder on broadbasing the investor pool. And hope that more startups survive these tough times, so limited partners get back in the giving mood.

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