Silicon Valley-based venture capital firm General Catalyst, which has backed global tech giants such as Airbnb, Snap, Canva and Stripe, said it will acquire India-focused early-stage investor Venture Highway as it looks to broaden its presence here.
Founded by former WhatsApp business head Neeraj Arora, the Venture Highway brand will cease to exist, transitioning into General Catalyst India from here on. New Delhi-based Venture Highway counts unicorns such as Meesho and Moglix in its portfolio. Along with Arora, Priya Mohan, Venture Highway’s general partner, will lead the India efforts for General Catalyst.
The development comes amid a larger reset in the global venture capital industry after the exuberance of Covid years. Marquee VC funds like Sequoia Capital decided to pull out of India last year after having set up its India franchise in 2006, signalling the challenges faced by tech-focussed funds in making exits and distributing cash to their limited partners.
Following the merger, Arora and Mohan will become partners at General Catalyst.
The new India entity will be a part of General Catalyst’s global fund, for which it is raising $6 billion, according to a report in the Financial Times. The firm currently manages more than $25 billion in assets globally.
For General Catalyst, which has backed Indian startups such as Cred, Spinny and Uni, the acquisition marks a formal entry into the country with a team on the ground. Last year, Europe’s La Famiglia merged with General Catalyst.
“We will invest somewhere between $500 million and $1 billion in India, which is a substantial amount of capital and far greater than what we’ve done before because now we have a team taking care of it,” Hemant Taneja, chief executive and managing director at General Catalyst, told ET in an interview.
“It’s a single global partnership that will invest across the US, Europe and India. In fact, through this, we learn on how Venture Highway used to serve the founder community at the seed stage as a specialist in that category,” Taneja added.
While Venture Highway has been focused on seed-stage funding, the new India entity will look also at growth-stage investments, he said.
“We (Venture Highway) have been investing from fund-III, and as of now we will ring fence the funds that we’ve already been investing. So, post this, Venture Highway will become General Catalyst India. There is no purchase of portfolio…we will continue to work with and serve our portfolio companies,” Mohan said.
While, going ahead, the firm will operate as a single partnership, the proceeds from exits of Venture Highway’s current portfolio companies will flow back to the India unit’s original limited partners, or sponsors. For its third fund, Venture Highway had raised almost $60 million.
“Interesting thing about our portfolio is that there are a lot of synergies…there are no competing companies and there are a lot of companies in our portfolio that will become interesting for General Catalyst as we go forward,” she added.
India opportunity
Elaborating on Venture Highway’s decision to merge with General Catalyst, Arora said: “We could have continued to make seed investments from a smaller fund, which keeps doing well as it’s a smaller fund and easier to return. But the opportunity and ambition that we have now to participate in the venture ecosystem in India is much larger. That is where this partnership makes a lot of sense.”
Arora said over the past few years, the Indian startup ecosystem has seen a steady flow of exits — a key question for risk capital investors backing Indian funds — through IPOs. “The venture ecosystem in India has gone through its ups and downs over the last ten years. But now it feels like there’s a very sustained flow of companies that are creating meaningful outcomes for their investors, something that didn’t happen for a very long time,” Arora said.
“Once in a while there was a blockbuster Flipkart deal or some company going public but there was no consistent flow of capital that was going back to investors. Now, from that perspective, India is ready. If you look at what has happened in India in the last 1-2 years in terms of companies going public and what is coming over the next few months,” he added.
In October last year, ET reported that Venture Highway sold a part of its stake in ecommerce platform Meesho to WestBridge Capital in a secondary sale. According to people aware of the matter, Venture Highway is set to make a full exit from Meesho.
Venture churn
General Catalyst’s India bet comes at a time when multiple global venture capital firms have either pulled out or slowed down on India over the last 12-18 months. Sequoia Capital’s India partnership was hived off into Peak XV Partners while Ebay founder Pierre Omidyar’s Omidyar Network shuttered operations here.
Notwithstanding the exits, General Catalyst isn’t the first global firm to mark an India entry in the recent months.
Silicon Valley-based investor Tribe Capital recently set up an Indian unit that will not only make investments but also build and buy out companies here – a departure from the typical framework under which global venture capital firms operate in India.
Taneja underscored that General Catalyst is not opting for the route taken by other global firms of having Indian franchises. “To me, if you think about the attempts in the past in the industry…some have worked, some haven’t. I deeply believe that having collaborative partners across our key geographies that are learning from each other and cross pollinating is the best way to go,” he said. Sequoia US had acquired WestBridge Capital for its India entry in 2006, while its Silicon Valley peer, Accel, bought out Erasmic Venture Fund to begin operations here in 2008.
“It is better than having separate pools of capital, separate economics and some (profit) sharing. That model is a way to create more wealth for individuals, but I don’t think it’s a way to create a lasting institution, which is our collective aspiration,” he added.
Source: Economic Times