Sequoia has earned a return of four times on its total investment of $50 million. [Representative image]
Sequoia Capital India made a return of $200 million when private equity giant KKR acquired its stake in Vini Cosmetics- maker of Fogg deodorant at a valuation of $1.2 billion, said sources familiar with the matter, marking one of the Silicon Valley firm’s biggest single exits in a private share sale in its 15-year history in India.
KKR said on June 20 that it has invested $625 million in Vini for a controlling stake, although it didn’t specify how much. $200 million of this was to buy Sequoia’s stake in the company while the rest was to buy primary shares from the company and its founders- Darshan and Dipam Patel, said two people aware of the matter, requesting anonymity.
Sequoia has earned a return of four times on its total investment of $50 million. It first invested $20 million in 2013, and $30 million in 2017, when WestBridge Capital also invested. A Sequoia spokesperson declined to comment.
The deal marks Sequoia’s exit from one of its best companies from a cash exit standpoint, although many of its other internet bets such as Unacademy, Gojek, Tokopedia and others hold the prospect of even larger returns- their valuations are still rich on paper so far.
However, the deal is also a relic of an older Sequoia- when it used to invest in non-technology led consumer facing companies as well. Sequoia’s investment in Vini was led by Abhay Pandey, who quit the firm in 2018 to launch his own fund- A91 Partners along with two other partners from Sequoia India- VT Bharadwaj and Gautam Mago. Sequoia’s current strategy is mostly to back high growth technology-led companies, a category Vini would not fall into.
Pandey declined to comment on the deal.
Sequoia first invested about $20 million (Rs 110-120 crore) in Vini in August 2013, at a valuation of Rs 800 crore. Sequoia knew Darshan Patel from earlier. Patel co-owned and was on the board of directors of Paras Pharmaceuticals- another Sequoia investment. Paras was acquired by Reckitt Benckiser for Rs 3,260 crore in 2010, when Sequoia sold its stake as well.
In December 2012 when Sequoia first met Patel, it was doing about Rs 8 crore of revenue a month. Happy with the scale, Sequoia was set to invest at a valuation of Rs 700 crore. Seven months later, when the deal was about to close, Vini asked for a valuation of Rs 800 crore, since it was already doing Rs 20 crore in monthly revenue at the time- its scale had more than doubled since deal talks had started.
Last minute deal negotiations are often frowned upon by investors, but Vini’s rapid growth justified the valuation for Sequoia, said another person aware of the matter, requesting anonymity.
“They were already breaking even at that point. The potential scale and profits were reasonably obvious. And they knew the founders too. That sort of comfort from all directions is rare for a deal,” this person added.
And, now, for the quarter ended on March 31, Vini had Rs 300 crore of revenue and Rs 85 crore of EBITDA, or Earnings Before Interest Taxes Depreciation Amortisation- a metric of operating profits, these people said. With an annualised revenue of Rs 1200 crore and EBITDA of over Rs 300 crore, it would be among India’s largest privately-held consumer firms set up in the last decade or so.
KKR is hoping to take Vini to an Initial Public Offering (IPO) in the next three years or so, and investors say that KKR could get a return of three-four times on its investment in an IPO- assuming Vini’s growth continues and the public markets continue to value consumer stocks richly
Sequoia’s exit from Vini marks one of its largest full exits from a company. It has sold smaller stakes in Byju’s ($190m), Indigo Paints ($100m) and others where it continues to hold shares.
On a profit of $150 million from Vini, Sequoia is expected to take 30 percent as carried interest- the firm’s share of profits. Of this 30 percent, 10 percent ($15m) may be earmarked for Sequoia US- the Indian firm’s parent, while 20 percent ($30m) will go to Sequoia India- mainly its partners.
The rest is to be distributed to Sequoia’s investors or Limited Partners(LPs)- the funds and endowments that put money in Sequoia’s funds globally.
Pandey, who led the deal from Sequoia, could make $5 million as his personal share of profits (or carry, as commonly known) from the investment. In relative terms, compared to larger companies and upcoming public offerings, it is a smaller amount, but important because Indian venture capitalists are only beginning to earn carry from deals, despite being investors for over a decade.
Investors earning carry indicates the maturity and stability of the ecosystem. So far, Indian VCs have mostly made their money from management fees- generally 2 percent of a VC fund’s size which is used to pay investor salaries. Ideally, the majority of a VCs wealth is supposed to come from carry/profits across deals, but that is yet to happen.