Kalaari Plays Reluctant Bride to SoftBank ‘cos VCs Must Make Money too

“…our VCs want quotas and protection for the bad investments they’ve made,” said Mahesh Murthy in response to a post by Vani Kola, cofounder of Kalaari Capital, who asked for state protection for Indian startups against large foreign entrants.

One of the early investors of Snapdeal, hitherto staunchly against the sale of Snapdeal to Flipkart has been swayed by Snapdeal’s majority shareholder. After weeks of media reports of Kalaari Capital saying no to the Snapdeal sale, SoftBank has finally managed to wrestle a yes from the VC firm.

SoftBank with 33 percent of share in Snapdeal now has to convince the third largest shareholder, Nexus Venture Partners (around 12 percent share) to get onboard.

Question is did Kalaari settle after holding out for so long? The valuation at which Snapdeal would be sold at is still the paltry sum of a billion dollars discussed a few weeks back. It’s not bourgeoisie to call a billion dollars paltry when Snapdeal was valued at more than 6 times that in its heyday. Perhaps Kalaari (share close to 14 percent) held out for so long perhaps because the Vani Kola led cofounded firm was hoping for more secondary sales that would return more than a slice of a billion dollars. Kalaari has already made a 100 million dollars in secondary sales of Snapdeal shares, from the time it sold some its shares to SoftBank when the Japanese VC giant was first foraying into India.

“One possible reason why Kalaari could be saying yes now,” says an investor who had a close alliance with Kalaari investment strategy, “is as simple as VCs having to make money at one point to return some of its to their limited partners.

You will be aghast how little money big VCs make in India. Take a look at the assets under management (AUM) and how much has been returned, it’s a very sad performance,” the former Kalaari ally said.

Compiling news from around the Internet here are some numbers:

Kalaari Capital has AUM of approximately 650 million dollars. According to Crunchbase, Kalaari has made 104 investments in 64 Companies. They have exits via 1 IPO and 4 acquisitions so far. That’s a 7.81 exit percentage from number of companies they have invested in.

Nexus Venture Partners has AUM of approximately 1.2 billion dollars. According to Crunchbase, Nexus has 146 Investments in 79 Companies and exits via 17 acquisitions. That a 21.52 exit percentage from number of companies they have invested in.

Unlike Kalaari, there is no sign that Nexus Venture ever made a secondary sale or recouped any of the money it invested in Snapdeal. So no wonder they still refuse to sell at a paltry billion dollars.

We are aghast.

“More than 90 percent of the deals made by these bigger, very active VCs have boatloads of capital investments attached to the deals but have very low returns. And the sad fact is these big investors set the tone for the whole industry. They set the rules, but still make no profit. With mutual fund investments, an individual investor can track its performance. With venture capital investments, it’s much tougher to track a fund’s performance. It’s all hidden until we hear about mergers and acquisitions when investee company valuations must be disclosed.

These VC are sitting on valuable shares, but none of these shares will give returns until they can be sold for a profit,” the investor explained.

In a picture much larger that it includes an entire portfolio not just Snapdeal, profits are a dim possibility for the VC lot.