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Frequency Frequency Frequency Frequency India Venture Capital and Private Equity Report 2014 banks and financial institutions (fund of funds, insurance, etc.). However in the US, close to half of the commitments to the VCPE asset class have been from pension funds. Pension funds being long term sources of funding with defined cash inflows and outflows can be ideal sources for VCPE funds. However, the regulatory environment in India prevents the domestic pension funds to invest in VCPE funds. The share of pension funds in the commitments in India has been from foreign pension funds. Another category of LPs that contribute to substantial commitments in the US are the foundations and university endowments. University endowments in India are not very large that can allocate a portion of it to PE. Further, universities in India are commonly set up as trusts and societies, and the regulations that govern these structures also do not facilitate investment in VCPE funds. Liberalisation of the regulations would result in inflow by domestic capital from these LPs. (A) Domestic LPs Mean: $11.46 million Std. dev: 11.807 N = 22 (B) Foreign LPs Mean: $16.68 million Std. dev: 8.9580 N = 96 Commitment amount ($, million) Commitment amount ($, million) (C) Private sector LPs (D) Public sector LPs Mean: $14.86 million Std. dev: 8.16 N = 57 Mean: $19.14 million Std. dev: 9.862 N = 43 Commitment amount ($, million) Commitment amount ($, million) Fig 1.2: Commitment amounts for different categories of LPs Table 1.4: Recipients of LP commitments Number of Commitments Commitment Amount Panel A: Classification by lifecycle stage of commitment PE: VC: Social ventures 4.6 : 3 : 1 7.2 : 1.3 : 1 Panel B: Classification by fund type Sector specific funds : Diversified funds 1 : 1.6 1.6 : 1 Technology funds : Non-Technology funds 1 : 6.4 1 : 6.3 Panel C: Classification by GPs Institutional GPs : Boutique GPs 1 : 1.9 2.7 : 1 Domestic GPs : Foreign GPs 1.4 : 1 1 : 3.6 © Indian Institute of Technology Madras 6
India Venture Capital and Private Equity Report 2014 60.0% 58.3% 48.9% 40.0% 20.0% 0.0% -20.0% 34.4% 10.2% Sovereign wealth and government funds 19.3% Banks and financial institutions India US 21.6% 3.1% 4.2% Foundation and university endowment Pension funds (Source: TVS Capital, author analysis) Fig 1.3: Comparative illustration of commitment from different institutional LPs in India and US We also analysed the recipients of the LP commitments by stage of funding, type of funds, and type of asset manager. Table 1.4 gives the results. Panel A shows that both in terms of number of commitments as well amount of commitment, PE funds have the highest share. Proportion of commitment amount to PE funds is even higher than the proportion of number of commitments to PE funds. When the commitments were mapped to the type of the fund, it was found that more number of commitments was in diversified funds, whereas more amounts committed were in sector specific funds. This indicates that some of the large commitments were seen in sector specific funds. It was also seen that LPs tended to make more commitments (both in terms of number of commitments and amount of commitment) in multi-purpose funds rather than sole technology funds. This indicated that technology per se has not been a significant attraction for LPs. When the commitments were analysed based on the GPs, it was seen that there was a contrast in the number of commitments as well the commitment amount. Boutique GPs had more number of commitments, but institutional GPs have been more successful in terms of getting higher commitment amount. Similarly, domestic GPs have obtained more number of commitments, whereas foreign GPs have got higher amounts committed. 1.5 LP commitments and lifecycle of the investee company VCPE firms invest in different stages of the lifecycle of the investee companies. While some would invest in early and growth stages, others would invest in late and pre-IPO stages. Most often, the stage at which they invest also determines the quantum of investment. For example, seed stage funds invest much lower amounts as compared to late stage funds. We analysed the pattern in the LPs commitments in terms of the stage of the investee company. We classified the funds into three categories: venture funds, social venture funds, and private equity funds. Social venture funds and venture funds would invest in the seed and early growth stages of the company. Between the two, the former invest in very early stages of the firm, though they invest only in businesses that envisage to create a social impact. PE funds generally make growth and late stage investments. The LPs decision to invest in the different type of funds can be seen as an indicator of their preference for investing in a particular stage of the lifecycle of the investee company. Table 1.5 gives the results of our analysis. Panel A gives the results when LPs where classified by their origin, Panel B when LPs were classified by their orientation, and Panel C when LPs were classified by their business type. We comment only on the key trends. Overall, it can be seen that a large portion of commitments were made in private equity and venture capital funds. Social venture funds accounted for a very small proportion of © Indian Institute of Technology Madras 7
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