Peak XV cuts largest fund by 16% as it slows growth-stage capital deployment

Peak XV Partners (formerly Sequoia Capital India) has cut the size of its largest fund by 16% as growth-stage funding to the startup ecosystem slowed down significantly over the past two years.

The VC firm, which raised $2.85 billion for its eighth fund in May 2022, will return about $465 million to its LPs, people aware of the matter told YourStory.

Peak XV had earmarked nearly $2 billion for Indian companies from the fund—the largest fund dedicated by a VC for Indian startups.

Peak XV Partners, which spun off from US-based VC Sequoia Capital in June last year, has been one of the most active startup investors in India and has backed nearly 700 companies.

“In the context of a richly priced public market in India, we are investing in a measured manner in our growth fund, while we continue to lean in on seed and venture stage opportunities,” said Peak XV in a public statement.

The firm's decision to reduce the size of its fund reflects the challenges in capital deployment over the past 24 months, especially for growth and late-stage ventures, and the increasing compliance and governance issues faced by startups in India.

Several companies in Peak XV's portfolio, such as GoMechanic, BYJU'S, and Mojocare, have encountered significant difficulties due to these issues. Moreover, startups have also started turning to public markets for growth and late-stage capital for better long-term valuations.

Peak XV will also cut the management fee it charges to its investors or Limited Partners (LPs) to 2% from 2.5% for the fund, the people said. Venture capital firms typically charge fees to LPs to manage funds. Most VCs charge about 2% fees of the total size of the fund.

It will also reduce the carry or carried interest—the share of profit a VC fund takes home from the overall profit—to 20% from 30% presently. However, if a fund achieves 3X DPI or distributed-to-paid-in-capital, the VC will maintain its 30% carry structure. The changes, however, are for growth and late-stage funds, while the economics for early-stage funds remain unchanged, the VC told LPs in a letter sent today, a copy of which YourStory has seen.

Peak XV’s move to make these changes comes at a time when the Indian venture capital industry has undergone many changes in the recent past, with most funds scrambling to show subpar distributed-to-paid-in-capital (DPI). DPI measures the amount of capital a fund has returned to investors in comparison to the capital they invested. In April, The CapTable had written about it in detail.

Earlier this year, The CapTable had reported how Peak XV was pushing for exits and was eyeing exiting health supplement provider HealthKart. Last week, TechCrunch reported that Peak XV had garnered $1.2 billion in exits since its split with Sequoia Capital last year.

(The copy was updated with additional information)