Peak XV determines fund size and cost as the Indian market heats up

Peak XV, a venture capital firm focused on India and Southeast Asia, is downsizing some of its funds and reducing fees as it seeks to “deeply align” with limited partners.

The company, which received $2.85 billion in cash commitments through mid-2022, informed its backers on Tuesday evening that it is releasing $465 million in commitments in those early 2022 funds, according to an investor letter seen by TechCrunch.

The business group, which remains the largest in the region, is not only scaling back its growth and financing several divisions – closing five of them by 2022 – but also reducing what it charges its supporters, reducing its administrative costs to 2% and the percentage of interest it collects on profits to 20% , down from 2.5% and 30% respectively.

There is a caveat based on performance. Peak XV will retain provisions to review its interest of up to 30% after achieving a 3x payout ratio, the letter said. Its seed economics and venture capital remains unchanged.

Peak XV did not comment.

The move comes more than a year after Peak XV split from Sequoia. The construction company says it has been divesting itself of its China and India-Southeast Asia divisions to avoid market conflicts and confusion amid diplomatic tensions between Washington and Beijing.

Peak XV’s decision reflects a broader trend in the venture capital industry, where many firms have scaled back new fund sizes or struggled to raise target prices in recent years following a correction after a 13-year bull run in the tech sector.

The rationale for Peak XV stems from growing concerns about the performance of the frothy public markets in India and the perceived lack of business opportunities in the near future. It wrote in the letter that it is still in good standing in this region, saying that the changes it is making are better suited to the company and its sponsors.

Macquarie analysts recently noted that India’s price-to-earnings ratio stands at around 21 times, compared to 10 times for emerging markets as a whole, 14.5 times for global markets, 17 times for the US, and 8 times for China . India saw more initial public offerings this year than the US

The size of the Peak XV bag is on par with its competitors in India. Lightspeed’s latest India-focused fund stands at $500 million, while Accel closed its latest Indian fund at $650 million. Matrix, Elevation and Nexus raised $550 million, $670 million, and $700 million, respectively, in their new funding.

Peak XV started its journey in India more than a decade ago. The company has achieved and, in particular, unrealized profits of 10 billion dollars to date, it disclosed in the book. Since splitting with Sequoia last year, it has made nearly $1.2 billion in exits, TechCrunch reported last week.

Peak XV’s dominant position in the region has drawn both praise and criticism. The company’s Surge program, which offers favorable terms and extensive resources to early startups, has become a desirable springboard for young startups in India and Southeast Asia, somewhat surpassing the appeal of Y Combinator’s offering.

The property earlier this year also introduced plans for a permanent fund supported by its partners.

Since its inception, Peak XV has raised $9 billion in assets under management, with an additional $2 billion to invest. Its portfolio includes more than 400 companies, including more than 50 unicorns and about 40 businesses with annual revenues of more than $100 million.

As of 2020, 15 of its portfolio companies are listed on the public markets, surpassing other Indian-focused venture capital funds.