Peak XV cuts fund size and fees as Indian market overheats

Peak XV, the biggest enterprise capital firm operating in India and Southeast Asia, is reducing the size of a few of its funds and lowering fees as it looks to “engage more deeply” with its limited partners.

The company, which secured $2.85 billion in capital commitments totaling $2.85 billion in mid-2022, informed its supporters Tuesday evening that it was releasing them from $465 million in capital commitments from legacy funds, in response to an investor letter obtained by TechCrunch for 2022.

The enterprise capital group, which stays the biggest within the region, is just not only cutting growth and multi-stage funds – it closed five of them in 2022 – but can be reducing the fees it charges sponsors, lowering management fees to 2% and the share of interest it charges from profits, as much as 20%, in comparison with 2.5% and 30% respectively.

There is a caveat regarding performance. Peak XV will maintain its interest adjustment provisions of as much as 30% upon reaching thrice its paid-in capital to paid-in capital ratio, the letter said. The economics of seed and enterprise capital funds remain unchanged.

Peak XV didn’t comment.

The move comes greater than a yr after Peak XV separated from Sequoia. The well-known enterprise capital firm said it was disconnecting from its units in China, India and Southeast Asia to avoid market conflicts and misunderstandings amid geopolitical tensions between Washington and Beijing.

Peak XV’s decision reflects a broader trend within the enterprise capital industry, wherein many firms have either reduced the size of recent funds or have struggled to lift their goal amounts lately following a correction following a 13-year bull run within the technology sector.

Rationale for Peak XV is driven by growing concerns in regards to the uncertain performance of the general public market in India and the perceived paucity of venture-scale opportunities within the near future. The letter said he stays optimistic in regards to the region, saying the changes being made higher align the corporate with its supporters.

Macquarie analysts recently noted that India’s price-to-earnings ratio is around 21 times in comparison with 10 times for emerging markets overall, 14.5 times for global markets, 17 times for the US and 8 times for the case of China. This yr, India saw more technology initial public offerings than the US

Peak XV’s fund size exceeds that of its competitors in India. Lightspeed’s latest India-focused fund is valued at $500 million, while Accel closed its latest India fund at $650 million. Matrix, Elevation and Nexus raised $550 million, $670 million and $700 million, respectively, of their latest funding.

Peak XV began its journey in India over a decade ago. The letter revealed that the corporate has made $10 billion in realized and unrealized profits so far. As TechCrunch reported last week, the corporate has made about $1.2 billion in exits since separating from Sequoia last yr.

Peak XV’s dominant position within the region was met with praise and criticism. The company’s Surge program, which offers early-stage startups favorable conditions and extensive resources, has develop into a desirable place to begin for young startups in India and Southeast Asia, somewhat overshadowing the attractiveness of Y Combinator’s offer.

Earlier this yr, the corporate also revealed plans for an endowment fund backed by its own partners.

Since its inception, Peak XV has amassed $9 billion in assets under management, with a further $2 billion remaining to be deployed. Its portfolio includes over 400 firms, including over 50 unicorns and roughly 40 firms with annual revenues exceeding $100 million.

As of 2020, 15 of its portfolio firms are listed on public markets, ahead of other India-focused enterprise capital funds.