Bajaj, who cofounded online marketplace Baazee along with Nexus Venture Partners’ Suvir Sujan and sold it to eBay back in 2004, says the rebranding was a “natural evolution” for the Mumbai-based firm.
“We were always set up very decentralised, so it is a natural evolution for multiple reasons. The past Matrix fund names stay the same and we still use the brand name … We (US and India) never raised funds together … However, we are in the business of venture investing here in India because of Tim (Barrows) and Paul (Ferri of (Matrix US) … They stuck with us across all the downturns along with our limited partners (LPs),” Bajaj told ET in an interview.
Most VC funds in India were established as affiliates of US venture capital firms, in the early 2000s post the dot-com bust. These outfits have undergone significant changes in leadership with several offshoots and splits in partnerships taking place, signalling the shift in the industry.
The reset in the past two years has been unprecedented for the global VC sector. US venture capital heavyweights distanced themselves from China amid geopolitical concerns between the two countries, while Indian franchises found themselves bearing the brunt due to their sub-par performance on cash distribution and paper mark-ups that haven’t translated into real returns. The situation was compounded by interest rate hikes that led to an acute funding crunch after 2022.
“No, LPs (limited partners or sponsors of funds) have not given up on India,” Bajaj said. “While India has disappointed as liquidity continues to be a problem, company performance has shown up in a lot of cases post Covid. LPs are starting to expect India to deliver as companies go public.”
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Z47’s big bet, Bhavish Aggarwal’s Ola Electric, listed on the stock exchanges on August 9, and surged more than 80% in the first two weeks, buoyed by the market’s belief in the electric vehicle sector. The company had launched its public listing at a 25% lesser price compared to its private valuation of around $4 billion. Bajaj first backed Aggarwal in 2013 when Matrix invested in Ola, a ride-hailing startup which competes with Uber and now Rapido.“Ola Electric was the fastest company to go public in the country … There were stories of its valuation going up and down … Beyond our portfolio, there were IPOs of Go Digit, FirstCry, possibly Swiggy which is lined up … These are real businesses. Look at what’s happening with Zomato which is at more than $20 billion market cap. We have very high conviction that this is now compounding in the right direction,” he said.
IPOs, funding
The veteran investor said he is “worried” these recent IPOs may once again stir up the domestic market.
“I think we will see another flood of capital after these IPOs because people are seeing exits. When you see exits, the late-stage investors start feeling rich, they make money and they start investing downstream, then the VCs start feeling good because we’re getting markups … And then they start deploying faster,” he said. “But fortunately everyone has learnt the lessons from the 2021 frenzy and hopefully all of us will keep a level head and focus on doing the right thing.”
It is a bug of the system, and is almost built into the system — these booms and busts, he added.
The Indian venture capital market has been on a downswing for the past few years since the go-go 2021 period. As per Tracxn, which tracks data on Indian startups, funding in local companies stood at $7.5 billion for the January-August period, compared with a full-year funding of nearly $39 billion in 2021 and $26 billion in 2022.
Performance of funds
How has the 18-year performance been for Matrix India? “The quartile and the performance versus our peers, I would think is as good or as bad. It’s been disappointing only on one metric, which is liquidity… I am hoping that over the next two years from now if you ask me this question and if I have the same answer, I won’t be here,” Bajaj said, while pointing out at the meagre exits and cash distributions clocked by VC funds locally.
Some of its recent partial exits have come from listed non-bank financing company Five Star Business Finance, OfBusiness and Dailyhunt.
Matrix India, which raised $550 million for its Fund IV last year, had previously mopped up around $1.4 billion since starting operations here. “We are always going to be far more multiple of capital focused. The aspiration is to generate 3x net repeatedly for our LPs which is not easy. You cannot do that with large fund sizes. You can generate about $2.5-4 billion of value to the fund per cycle which means fund sizes should maximum be $600-700-800 million. That’s how we think of it, and we will not exceed this,” Bajaj said.
Some of the better-known US firms have never exceeded $450 million. Surprisingly, below $250 million the returns are low, while between $250 million and $750 million it is very similar, and anything more than that, the returns drop off,” he said.