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Peak XV Partners, formerly part of Sequoia Capital, is reducing its latest growth fund by $465 million and is cutting spending on other funds as rising prices make it harder to close deals, particularly in India.
Peak XV has reduced management costs to 2 percent for three of its growth and four multi-stage funds, the company said in a letter to investors seen by Bloomberg News. The company also reduced the interest, or profit margin, to 20 percent on these funds, according to the letter. Peak XV reduced its growth fund, which begins to rise in 2022, by 16 percent to $2.39 billion.
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“We believe that structurally reducing our cost of capital in a growing business will serve us well in the long run and enhance our ability to partner with leading companies,” the company said in a letter.
Singapore and India-based Peak XV did not respond to an email seeking comment.
The move to reduce the fund and lower fees in previous funds is unusual in Asia, and underscores the challenges of investing in India where valuations have increased significantly given the strong market for initial public offerings.
While managers like Peak XV have benefited from hot public markets by exiting their positions through block deals or IPOs, they have struggled to find companies with reasonable valuations for their growth capital, according to people familiar with the matter, who declined to be named. confidential information.
Sequoia Capital is divided into three independent entities, including one focused in the US and one in China. Sequoia India & Southeast Asia, which raised $9.2 billion across 13 funds, became Peak XV, the original name of Mount Everest.
The company has not made any changes to its seed and working capital. All of Peak XV’s funds, like Sequoia Capital’s, charged 2.5 percent in management fees and 30 percent in interest before the change, the people said.
“Mid-cap P/E multiples have grown significantly over the past year,” the firm said. “This has led to high levels of late growth and pre-IPO companies.”
Deal volume
Venture capital volume fell 60 percent in India last year, as investors focused on profitability and product market equity, according to a report by Bain & Co.
Peak XV’s profit share will rise to 30 percent if the fund returns three times its distribution, the ratio of money returned to investors compared to the amount they put in, according to the letter.
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First published: October 02 2024 | 8:34 AM IST