SUMMARY
- Peak XV Partners has reduced the size of its largest fund by 16%.
- Management fees cut from 2.5% to 2%, carried interest lowered from 30% to 20%.
- The VC firm is cautiously investing in growth while prioritizing seed and venture-stage opportunities in India.
With growth-stage funding to the startup ecosystem slowing down dramatically over the past two years, Peak XV Partners has reduced the size of its largest fund by 16%.
The venture capital firm, which raised $2.85 billion for its eighth fund in May 2022, will refund the remaining funds to investors and reduce the fund’s size by $465 million, as reported by YourStory.
The firm’s decision to shrink the size of its fund reflects the difficulties in raising financing in the last 24 months, particularly for growth and late-stage businesses, as well as the growing problems with governance and compliance that Indian startups are facing. Several companies in Peak XV’s portfolio, including GoMechanic, BYJU’S, and Mojocare, have faced serious challenges due to these problems. Additionally, to get better long-term valuations, companies have begun to look to public markets for expansion and late-stage finance.
The VC firm was the first venture capital fund to set aside over $2 billion specifically for Indian firms. Almost 700 startups have received backing from Peak XV Partners in India. In a public statement, Peak XV stated, “In the context of a richly priced public market in India, we are investing in a measured manner in our growth fund, while we continue to lean in on seed and venture stage opportunities.”
According to people with knowledge of this development, the VC firm would also reduce the management fee it charges to its Limited Partners (LPs) from 2.5% to 2% for the fund. LPs are usually charged fees by venture capital firms to manage their money. The majority of VCs take fees equal to 2% of the fund’s total value. Moreover, it will lower the carry, commonly known as carried interest, from 30% to 20%—the portion of the total profit that a venture capital fund keeps for itself. Nonetheless, the venture capitalist will keep its 30% carry structure if a fund hits 3X DPI or distributed-to-paid-in-capital.
As per ET, according to a person in the know, Peak XV has exited the market for over $1 billion in 2024 through the selling of public stocks and private market secondaries. The VC firm has supported unicorn firms like Cred, Meesho, Groww, and Razorpay. Among them are the $185 million Indigo Paints stock sale, the $150 million Five Star Business Finance block trade, the $73 million liquidity provided by the parent company Honasa Consumer shares of Mamaearth, and the $40 million stake sale in Truecaller.
Furthermore, the VC firm is now finalizing secondary transactions in portfolio firms, including Rebel Foods, PingSafe, Finova, Healthkart, and Cloudnine Hospitals.
