Peak XV, the largest independent enterprise agency focused on India and Southeast Asia, is downsizing a few of its funds and slashing fees in a bid to become “deeply aligned” with its limited partners.
The agency, having secured capital commitments totalling $2.85 billion in mid-2022, informed its backers on Tuesday night that they would be released from $465 million in obligations tied to those 2022 vintage funds, according to an investor letter reviewed by TechCrunch.
The dominant enterprise group within the region is not only accelerating its growth and multi-stage fundraising, but also streamlining its financial structure by reducing its management fees to 2% and the share of carried interest it collects on income to 20%, down from 2.5% and 30% respectively.
There’s a performance-based caveat. Peak XV will reserve the right to adjust its carried interest by up to 30% once it achieves a 3:1 distributed-to-paid-in capital ratio, as confirmed in the correspondence. The economic terms for its seed and venture-focused funds remain unaltered.
Peak XV didn’t remark.
The transfer marks a significant milestone more than a year following the release of Peak XV. As a response to escalating geopolitical tensions between the US and China, the prestigious enterprise agency has announced a strategic decision to separate its China and India-Southeast Asia divisions in order to mitigate market conflicts and confusion.
The venture firm’s resolve reflects a wider trend in the private equity industry, where numerous companies have either reduced new fund sizes or faced difficulties in meeting their target amounts in recent times, as a result of a market correction following a 13-year bull run in the tech sector?
The investment thesis underlying Peak XV is driven by concerns about the sustainability of India’s public markets, coupled with a perceived lack of viable venture-scale alternatives on the horizon for investors seeking attractive returns. Within the letter, the company reiterates its optimism about the region, stating that the adjustments being made bring its operations more in line with the expectations of its investors.
According to Macquarie analysts, India’s price-to-earnings ratio has been noted as approximately 21 times that of its earnings, a significant deviation from the global average of around 10 times. This is in contrast to other major markets, such as the US (17 times) and China (8 times), and even emerging markets in general (14.5 times). This year, India has witnessed more initial public offerings (IPOs) in the technology sector than the United States.
Peak XV’s asset management capabilities far surpass those of its Indian peers. Lightspeed has launched its latest India-focused venture capital fund, while Accel has concluded its most recent Indian investment fund. Matrix Partners, Elevation Capital, and Nexus Venture Partners have collectively secured funding of $1.92 billion across their latest funds, with Matrix raising $550 million, Elevation securing $670 million, and Nexus garnering $700 million.
Founded more than a decade ago in India, Peak XV’s journey began with humble beginnings. The agency has reported a significant achievement, with both realised and unrealised gains totalling $10 billion to date, according to its recent disclosure. Since separating from Sequoia last year, it has been a tumultuous period, according to TechCrunch’s report published just recently.
While Peak XV’s prominent position in the region has elicited both praise and censure. The agency’s Surge program, launched with great fanfare in India and Southeast Asia, has surprisingly outshone Y Combinator’s offering, presenting a wealth of favorable phrases and intensive resources to early-stage startups.
This past year’s outfit, also.
Since its founding, Peak XV has accumulated a staggering $9 billion in assets under management, with an additional $2 billion poised for deployment. Its portfolio encompasses more than 400 corporations, including over 50 unicorn startups and approximately 40 firms with annual revenues exceeding $100 million.
Since 2020, a remarkable 15 of the fund’s portfolio companies have successfully listed on public markets, outperforming other India-focused venture capital funds in terms of speed and scale.
