Peak XV, one of the largest venture capital firms in India and Southeast Asia, announced that it is reducing the size of its $2.85-billion fund by 16%, attributing the decision to soaring valuations in a richly priced public market.
In a LinkedIn post on Wednesday morning, Peak XV said, “In the context of a richly priced public market, we are investing in a measured manner in our growth fund while we continue to lean on seed and venture stage opportunities. As a result, we have decided to resize our 2022 vintage funds by 16%”.
While many funds announce target reductions before raising capital, Peak XV’s move to cut the fund size after already raising the capital is rare. A similar instance occurred in 2010 when ChrysCapital, one of India’s leading private equity firms, reduced its fund size by $300 million, marking one of the few such occurrences in the industry.
According to sources familiar with the matter, Peak XV has been investing cautiously from its growth funds due to the high valuations being demanded by companies, which are often benchmarked against public market valuations.
“Founders are asking for public market multiples because bankers pitch sky-high valuations, even for companies with small revenues. Most companies are also break-even, so they don’t need to raise unless they get the right price,” a source shared. This scenario has led the firm to slow down its capital deployment in growth-stage companies while remaining more active in seed and venture-stage deals.
“Founders are asking for public market multiples because bankers pitch sky-high valuations, even for companies with small revenues. Most companies are also breakeven, so they don’t need to raise unless they get the right price,” a source said.
The strategy adjustment comes more than a year after Peak XV’s former parent company Sequoia Capital announced its split into three independent entities—Peak XV Partners, focused on India & Southeast Asia; China-focused HongShan; and Sequoia Capital targeting the US and Europe. Peak XV is based in Singapore and India.
As part of Sequoia, Peak XV raised $2.8 billion in 2022 — including $2 billion earmarked for India, the largest amount ever for an India-focused fund.
As of now, Peak XV still has approximately $700-800 million available for deployment in its growth-stage investments, with 40% of the total fund already allocated across various stages. Sources indicated that the firm is expected to start raising its next fund around 2026.
According to sources, the higher valuations commanded by Indian startups, driven in part by strong public markets, have led Peak XV to find more opportunities in Southeast Asia, where valuations may be more favourable for growth-stage investments.
In a parallel move, Peak XV has also made adjustments to its fee structure, cutting the management fee charged to its limited partners (LPs) to 2% from 2.5% and reducing the carry (profits from exits) on its growth investments from 30% to 20%.
Peak XV did not respond to a request for comment by DealStreetAsia.
In August, DealStreetAsia reported that Peak XV is in talks to sell stakes in a few portfolio companies to Neo Asset Management, which is a part of wealth management startup Neo Group.
If talks fructify, Neo Asset Management could land up acquiring stakes in at least four portfolio companies of Peak XV, which include beauty retailer Purplle, healthtech firm HealthKart, skincare startup brand Minimalist, and online car search venture CarDekho, the report said.