Sequoia’s former Indian arm reaps benefits of investors moving money from China

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The head of Sequoia Capital’s former India unit says the country is getting a “huge” boost from investors moving their money away from China as geopolitical tensions reshape the global venture capital market.

Shailendra Singh, managing director of Peak XV, one of Asia’s biggest tech investors with $9bn in assets under management, said investment activity had picked up pace and he hoped to this year “double the dollars” deployed in 2023.

“We think a reallocation from China to India is real. There is huge inbound interest from new limited partners to allocate capital to India, and I think all VCs are beneficiaries of that,” Singh told the Financial Times in his first interview since Sequoia Capital separated last year into three companies across the US, China and India amid worsening relations between Beijing and Washington.

Singh, who has been at Peak XV for 18 years and led it since 2011, also said the firm saw opportunities in the US and would continue investing heavily in south-east Asia, where the former Sequoia China unit has opened an office in a sign of future rivalry between the separated businesses.

US-based investors, especially endowment and pension funds, have been facing pressure from American lawmakers to cut their funding for Chinese technology, especially in start-ups focusing on artificial intelligence and semiconductors.

Singh said China allocations for investors had historically been so big and India’s so small that even small shifts “feel very big” for India.

Peak XV, pronounced “Peak 15” to represent Mount Everest before it was named, was the most active investor in India last year, striking 39 deals not including follow-on investments, according to PitchBook.

But India’s start-up ecosystem — second only to China in the region for VC and growth funding — has suffered more than other markets in the most recent downturn. Inflows funding tech fell more than 60 per cent last year to $10.6bn from $27.8bn in 2022, while the US and China VC markets fell by about a third and 45 per cent respectively, according to Tracxn.

Peak XV had blow-ups in its own portfolio amid a tech sector downturn in the past few years, including Indian education company Byju’s and Singapore-based online fashion group Zilingo.

Singh said the excesses of the past several years, during which VCs and start-ups chased breakneck momentum over increasing profits, were not unique to Peak XV or the most recent cycle and everyone had “learned lessons”. Peak XV is currently holding its portfolio at what it described as a conservative 30 to 40 per cent discount to its last round’s price.

“I think we are past the lows,” Singh said. “The quality and amount of deals in the pipeline . . . is up sharply.”

Peak XV is nonetheless striking out on its own as the lesser-known unit of Sequoia, the storied Silicon Valley VC firm that invested in some of the biggest global technology names, including Apple, ByteDance and Zoom. 

Pre-split performance for some of Sequoia Capital’s funds, revealed by one of its limited partnerships last year, showed that some of the India and south-east Asia funds had poorer returns than the group’s China or US funds. Singh said India was at a much earlier stage and did not have huge companies such as China’s Pinduoduo or ByteDance.

“We can’t be compared to US or China performance because the trillions of dollars of market cap in [those countries] doesn’t yet exist in India,” Singh said. “When India’s gross domestic product gets to $15tn, I’m sure we’ll have those [big companies] too.”

Peak XV’s new independence comes as Sequoia’s US and China units similarly flex their muscles as standalone investors. HongShan, Sequoia’s former China unit, has opened a Singapore office — on Peak XV’s turf — and recently invested in Europe.

Singh said he saw opportunities in the US but did not regard this as creating competition with Sequoia’s US business.

“Where we have a right to win is in India and south-east Asia, we don’t have a right to win in the US,” he said, in response to whether Peak XV intended to be a global name. “That said, we may be a complementary investor to an American firm that is looking to become global over time.”

As a next step, Peak XV will invest in US companies with a “strong cross-border component”, he said. Roughly 30 of the group’s portfolio founders have moved to the US in recent years. “We can be a better partner to our cross-border founders because we’re now independent,” Singh said.

In addition to its portfolio of about 400 start-ups, Peak XV holds $1.8bn in public securities after 15 of its companies went public since 2020, including Zomato, Honasa and Truecaller. Singh said Peak XV would distribute most of that back to its limited partners. It hopes to generate a 30 per cent gross internal rate of return from its public holdings and redistribute to investors over two to three years.

With $2bn in dry powder to invest before it needs to fundraise again as an independent firm in a couple of years, Singh’s main focus remains the subcontinent.

“We love how India is developing . . . There is more optimism about our market and our first priority is to continue to win [there],” he said.

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