The wider slowdown is about to drive more M&As and consolidation across richly valued Asian tech portfolios as valuations temper, shared Abhinav Sinha, Managing Director and Head of Technology and Telecoms, British International Investment (BII) in an interview with DealStreetAsia.
Series B-C startups have been hit the hardest, shared Sinha. General Partners (GPs) are also actively looking at their own portfolios to see how they can merge their assets to contain losses.
“I’m seeing a lot of M&A action on the B2C side shepherded by investors…But the discussions are still at an early stage, so I would expect it to crystallise more towards Q4 this year as the end of their runways starts looming closer,” shared Sinha, whose $430 million venture portfolio includes 17 funds and 23 direct investments across India and North Africa.
“I think this market correction in VC is deeper than 2008 and potentially the dotcom bust of 2000 to 2002. The increase in interest rates has been a further challenge, partly because people have moved out of equity which has made a lot of investments less attractive,” he added.
This however opens opportunities for cash-rich corporates to snap up good buys which can accelerate market entry, strengthen operational or technical expertise, or even occupy new product/service lines. In India, the likes of Tata and Reliance have already moved in, but Sinha expects to see more cross-border dealmaking unfold in the coming months, whether from the US or the Middle East.
In the meantime, startups and businesses aren’t the only ones affected by the market slowdown. GPs too are also likely to see prolonged fund closes as LPs seek to slow or even reduce their allocations to private capital.
The UK-based limited partner (LP) has noticed a rise in the number of GPs making fundraising concessions such as lower management fees to draw LPs into their funds. GPs typically charge their investors 2% in management fees per year for their funds.
“…We are encouraging GPs to be conscious that this is a different world. The valuations have corrected, cash is really important. So as you think of investments as a GP, you have to think about that trade-off between supporting your portfolio with follow-on rounds versus new ones,” said Sinha.
“We are continuing to discuss, how do we convert TVPI to DPI [total value paid in to distributed paid in]? And how do you make sure this happens in the ecosystem? That features a lot more in our conversations today, but we haven’t pulled back. We’ve been selective, but we are definitely (still) in the market,” he added.
BII is both a fund LP and a direct investor in startups. It counts pi Ventures, Stellaris Venture Partners, 3one4 Capital, Chiratae Ventures, Arkam, Pravega, Omnivore, and Blume Ventures, among its portfolio VCs in India. It has also backed early-stage startups such as Bizongo (B2B platform), Loadshare (logistics player), Betterplace (blue-collar platform), Mintoak (payment solution for MSME retailers), and Wysa (mental health app) among others.
Edited interview transcript with Abhinav Sinha, Managing Director and Head of Technology and Telecoms, British International Investment (BII):