Early-stage venture fund Prime Venture Partners has said that Foundation Private Equity has fully acquired stakes of investors from Prime’s first fund in 2012, the latest example of venture capital firms (VCs) attempting unique ways to give their investors an exit in the Indian market, where companies have taken longer to mature than other economies.
The so-called secondary transaction ensures that investors from Prime’s oldest fund can get returns after staying invested nearly for a decade-- longer than the seven years VCs typically promise their investors or Limited Partners (LPs). Usually these LPs make money when Prime sells its stakes in portfolio companies.
However, since the new LP Foundation came in, Prime doesn’t need to sell stakes in companies whose value may still surge in coming years. Investors who exited the fund include US-based Mayfield, billionaire Chamath Palihapitiya-led Social Capital LP, Yahoo co-founder Jerry Yang and other high-net-worth individuals.
Investors made about four times what they invested in 2012, while with a new LP the fund’s life has been extended by four more years. The structure resembles that of Blume Ventures, which raised a secondary fund to buy out holdings in older portfolio companies last March.
Prime’s $8 million first fund invested in seven startups including learning firm Quizziz, Happay which was recently acquired by fintech CRED, petcare crowdfunding platform Waggle and software talent solutions provider HackerEarth.
“LPs can get returns on their investments when we exit the companies that the first fund was invested in. However, all these companies will give us best returns in the long term. So, this was an alternate way for us to give liquidity to our LPs and not disrupt the startups we are invested in by exiting,” said Sanjay Swamy, managing partner at Prime Venture Partners.
Over the years, Prime has followed up with three more funds which have invested in fintech, edtech, healthcare and software-as-a-service (SaaS) startups. It closed a second $46 million fund in 2015, third $72 million fund in 2018 and fourth $100 million fund in August last year. Along with Swamy it has two more partners- Shripati Acharya and more recently Amit Somani.
It plans to back companies in emerging spaces such as decentralised finance (DeFi), cryptocurrency, electric vehicles and gaming infrastructure.
Over the past year, startups in India have seen a massive funding boom with growing valuations and large funding amounts across stages. Indian startups raised over $35 billion, three times the previous record.
Many fear these good days for startups may end soon if central banks begin tightening liquidity. Swamy though is not concerned about that.
“That might impact round sizes and valuations a bit. But as long as the company’s focus is on creating value and solving customer problems, it is not a problem. In India we have an incredible opportunity with digitization, and it is still one of the most attractive demographics and markets in the world,” Swamy said.
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