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Guess how much Sequoia executives made from Oyo

The windfall for the fund executives comes on the back of RA Hospitality, a special purpose vehicle domiciled in the Cayman Islands, recently buying Oyo shares worth $1.3 billion from these two venture firms on behalf of Agarwal.

Last Updated: Dec 20, 2019, 11.06 AM IST
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Executives in the domestic venture capital sector said the massive cash payouts to GPs, post the secondary transaction at Oyo, is a rare outcome in an exit-starved technology and internet ecosystem in India.
MUMBAI| NEW DELHI: In one of the largest cash distributions for venture capitalists in India, general partners (GPs) at Lightspeed Venture Partners and Sequoia Capital have collectively earned around $400-500 million as their share of the profits after the two funds part sold their shares in Oyo Hotels & Homes to its founder Ritesh Agarwal.

While GPs at Lightspeed are expected to have mopped up $250 million, Sequoia executives are understood to have taken home around $150 million.

The windfall for the fund executives comes on the back of RA Hospitality, a special purpose vehicle domiciled in the Cayman Islands, recently buying Oyo shares worth $1.3 billion from these two venture firms on behalf of Agarwal. The stock buyback was an unprecedented move by the Indian entrepreneur giving him about 30% ownership in Oyo.

Lightspeed Venture Partners held about 13% stake in Oyo and partially sold its stake for roughly $850 million while Sequoia Capital raked in $450 million, overall.

Second to Flipkart Deal in Returns
“The money hit the bank recently and is one of the largest carried interests for GPs in India. For this kind of distribution among the top team you need at least $1billion in exit,” said a person privy to the development.

GPs are the top-most investment professionals at a fund who actively manage and allocate assets across companies. Carried interest is defined as the profit share earned by GPs in an investment firm, after the fund’s sponsors, or Limited Partners (LPs), receive their share of gains once a fund exits a company following a merger, acquisition or in case of an IPO.

GPs typically draw anywhere between 20-30% of the overall distribution as carry, which is regarded as a performance fee to reward managers for enhancing the value of the investment.

“One must remember that the venture capital game is about a few big moonshots. This is very, very unique. While it’s an outstanding outcome for the funds involved, it’s also an outlier,” said Krishnan Ganesh, promoter of GrowthStory, and an early investor in startups such as online grocery unicorn BigBasket.

Emailed queries sent to spokespersons at Lightspeed and Oyo did not elicit a response at the time of going to press while Sequoia Capital declined to comment.

The Oyo transaction is only second to the cash racked up by partners at New York-based investment fund Tiger Global and Accel Partners, both of which were early backers of Flipkart. The Indian e-commerce major was acquired by American retailer Walmart last year in a $16 billion deal, resulting in huge returns for investors in the company.

Executives in the domestic venture capital sector said the massive cash payouts to GPs, post the secondary transaction at Oyo, is a rare outcome in an exit-starved technology and internet ecosystem in India. “Billion dollar gains are what the venture business models are predicated on. Flipkart was one data point last year and now with Oyo, you can draw a line. This builds the LP and GP’s belief and conviction in the venture capital model in India. We should see greater momentum and capital coming to our market going ahead,” said a veteran venture capitalist who did not want to be named.

The outcome for the two VC firms stands in contrast to the overall performance of the Indian ecosystem in 2019. Till November, while investors poured in $12.6 billion, among the largest in many years, the country’s startup sector only recorded 109 acquisitions and four public offerings, the lowest in the last five years, according to data collated by Tracxn for ET.

The VC business, which has traditionally relied on carry for clocking big money, has in India largely depended on fund managers drawing management fee. The lack of consistent exits and therefore infrequent and spare carry has also led to many firms raising a large corpus dedicated to India, with management fee ranging from 2% to 2.5% annually.

The Indian venture-backed startups have over the last decade grappled with very few exits. However secondary transactions have picked up in the past few years.

Early backers of Byju’s, an edtech platform, food-delivery major Swiggy, logistics firm Delhivery, ticket booking major BookMyShow, among others have sold a part of their shareholding to ring in cash.

ET reported on July 26 that top venture capital funds were set to mop up returns of over $2.5 billion as they sell a portion of their stake in some of India’s hottest startups.

For Sequoia, its investment in Byju’s has also paid off well, as reported by ET. The marquee VC firm is believed to have earned about $180-200 million in total distribution from the partial sale of its shares in the Bengaluru-based ed-tech major, with the accompanying carry estimated at about $55-60 million.

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