Peak XV, a leading venture firm primarily investing in India and Southeast Asia, is streamlining its fund size and minimizing fees in a bid to strengthen its bond with its limited partners.
The firm, which successfully raised a whopping fund of $2.85 billion in the middle of 2022, notified its supporters on a Tuesday evening about its decision to trim $465 million from its 2022 vintage funds. This was revealed in an investor letter that TechCrunch got access to.
The venture capital giant is curbing its growth and multi-stage funds, simultaneously reducing its economic structure for these instruments to a standard of 2% management fee and 20% carried interest, a decrease from the previous 2.5% and 30% respectively.
Nevertheless, Peak XV intends to maintain provisions to recoup up to 30% of carried interest after achieving a 3x distributed to paid-in capital ratio, as stated in the letter. The economic structure for its seed and venture-focused funds will continue to remain the same.
This strategic change comes over a year after Peak XV detached itself from Sequoia. The renowned venture firm decided to separate from its units in China and India-Southeast Asia in order to avoid potential conflicts and confusions amid geopolitical strains between the United States and China.
This move mirrors a wider trend in the venture capital sector, where many firms have either downsized their fund sizes or faced challenges in raising their target amounts in recent years. This follows a correction after a 13-year bull phase in the tech industry.
Peak XV’s decision is fueled by increasing concerns about the volatile public market in India and the perceived lack of venture-scale opportunities in the near future. However, the firm remains optimistic about the region, as mentioned in the letter.
Recent observations by Macquarie analysts revealed that India’s price-to-earnings ratio is approximately 21 times, compared to 10 times for emerging markets, 14.5 times for global markets, 17 times for the US, and 8 times for China. Interestingly, India has seen more tech initial public offerings this year than the US.
Peak XV initiated its operations in India over a decade ago. The firm has to date made realized and unrealized gains amounting to $10 billion, as disclosed in the letter. Since its split from Sequoia last year, it has achieved about $1.2 billion in exits, as reported by TechCrunch last week.
Peak XV’s strong presence in the region has attracted both commendation and criticism. The firm’s Surge program, which provides favorable terms and abundant resources to early-stage startups, has become a sought-after platform for budding startups in India and Southeast Asia, overshadowing the allure of Y Combinator’s offerings.
Earlier this year, the venture capital group announced plans for a perpetual fund supported by its own partners. Since its inception, Peak XV has accumulated $9 billion in assets under management, with an additional $2 billion standing ready to be deployed. Its portfolio extends to over 400 companies, encompassing over 50 unicorns and about 40 businesses with annual revenues exceeding $100 million.
Since 2020, 15 of its portfolio companies have made their debut on public markets, outperforming other India-focused venture funds.
This story is still unfolding. Stay tuned for more updates.
