Bajaj, who co-founded online marketplace Baazee with Suvir Sujan of Nexus Venture Partners and sold it to eBay in 2004, says the rebranding was a “natural evolution” for the Mumbai-based company.
“We were always very decentralized, so it’s a natural evolution for multiple reasons. The names of the previous Matrix funds remain the same and we still use the brand name… We (US and India) never raised funds together… However, we are in the venture investing business here in India because of Tim (Barrows) and Paul (Ferri of (Matrix US)… They stood by us through all the downturns along with our limited partners (LPs),” Bajaj told ET in an interview.
Most Indian venture capital funds were set up as subsidiaries of US venture capital firms in the early 2000s, in the aftermath of the dotcom crisis. These firms have undergone significant changes in leadership, with several spin-offs and corporate spin-offs, indicating the change in the industry.
The realignment over the past two years is unprecedented in the global venture capital sector. US venture capital heavyweights distanced themselves from China amid geopolitical concerns between the two countries, while Indian franchises were hit by their poor cash distribution performance and paper profit margins that have not translated into real returns. The situation was aggravated by interest rate hikes that led to an acute financial crisis. funds crisis after 2022.
“No, LPs (limited partners or fund sponsors) have not given up on India,” Bajaj said. “While India has disappointed as liquidity remains an issue, the performance of companies has been evident in many cases post-COVID-19. LPs are beginning to expect India to live up to their expectations as companies go public.”
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Z47’s big bet, that of Bhavish Aggarwal Electric Wavewhich was listed on the stock exchanges on August 9, and increased by more than 80% in the first two weeksdriven by market confidence in the electric vehicle sector. The company had launched its public listing at a price 25% lower compared to its private valuation of around $4 billion. Bajaj first backed Aggarwal in 2013 when Matrix invested in Ola, a ride-sharing startup that competes with Uber and now Rapido. “Ola Electric was the fastest company to go public in the country… There were stories of its valuation going up and down… Beyond our portfolio, there were IPO Go Digit, FirstCry, possibly Swiggy, which is in the crosshairs… These are real companies. Look at what’s happening with Zomato “We are convinced that this is moving in the right direction,” he said.
IPO, financing
The veteran investor said he is “concerned” that these recent IPOs could shake up the domestic market again.
“I think we’ll see another rush of capital after these IPOs because people are seeing exits. When you see exits, late-stage investors start feeling rich, they make money and start investing in later stages, then VCs start feeling good because we’re getting profit margins… And then they start investing faster,” he said. “But luckily everyone has learned the lessons from the frenzy of 2021 and I hope we all keep a level head and focus on doing the right thing.”
It’s a systemic error, and it’s practically built into the system – these booms and busts, he added.
India’s venture capital market has been in a downturn for the past few years since the boom period of 2021. According to Tracxn, which tracks data on Indian startups, Financing in local companies stood at 7.5 billion dollars in the period January-Augustcompared with annual funding of nearly $39 billion in 2021 and $26 billion in 2022.
Fund performance
How has Matrix India performed over the last 18 years? “The quartile and performance compared to our peers, I think it is equally good or equally bad. It has been disappointing only on one metric, which is liquidity… I hope in the next two years, if you ask me this question and I get the same answer, I will not be here,” Bajaj said, while pointing to the meager cash outflows and distributions recorded by venture capital funds locally.
Some of its recent partial exits have come from publicly listed non-bank finance companies. Five Star Business FinanceOfBusiness and Dailyhunt.
Matrix India, which raised $550 million for its Fund IV last yearBajaj had previously raised around $1.4 billion since it started operations here. “We are always going to be much more focused on the equity multiple. The aspiration is to generate 3x net repeatedly for our LPs, which is not easy. You can’t do that with large fund sizes. You can generate around $2.5-4 billion of value for the fund per cycle, which means fund sizes should be a maximum of $600-700-800 million. That’s how we think about it, and we won’t exceed this,” Bajaj said.
“Some of the best-known US firms have never exceeded $450 million. Surprisingly, below $250 million the returns are low, while between $250 million and $750 million it is very similar, and above that the returns fall,” he said.
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