The Collaboration Between Limited Partners and Growth Partners: Investors' Perspective In the past 10 years, co-investments have increased 4-5 times. The VCs and LPs have discovered that they are highly skilled at co-investing and producing returns.
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According to the India Venture Capital Report 2024 by Bain & Company, in collaboration with the Indian Venture and Alternate Capital Association (IVCA), 2023 was a year of ongoing deceleration, with total venture capital funding of USD 9.6 billion raised as opposed to USD 25.7 billion in 2022.
During a panel discussion titled "The changing entrepreneur-investor dynamics" at the Tech and Innovation Summit in Bangalore, which was presented by Entrepreneur Media, a variety of investors came to share their opinions.
"Many of us do not realise that the funding winter is not only for startups, but for venture capitalists (VCs) as well," says Bikram Mahajan, Partner, Unicorn India Ventures.
He adds that global venture capital funding decreased by about 30% in the previous year, despite continued allocations to private markets.
The dynamic interaction between general partners (GPs) and limited partners (LPs) has changed as a result of the current macroeconomic climate.
As per Mahajan, LPs are now expected to work together more. "In the past ten years, co-investments have increased four or five times." The VCs and LPs have discovered that they are highly skilled at co-investing and producing returns, alpha returns from there, or direct investing, as opposed to just investing in VCs. They are collaborating not only on investments but also on operational decision-making.
In the upcoming year, over 40% of investors intend to take advantage of co-investment opportunities, which is the biggest percentage ever recorded and the outcome of a steady increase over time, according to the Private Debt Investor's LP Perspectives 2024 Study.
He also examines LPs' desire for GPs to possess greater ability in the game. "They want GPs to commit more to each fund that they launch. If you look at the secondary market for GPs and VC funds, it is deepening globally."
"Furthermore, we see that the majority of GPs now roll up 100% of their proceeds into continuation funds. And LPs are more than willing to assist these GPs," he shares.
Since venture capital is by nature an opaque asset class, Mahajan claims that there has always been a barrier to transparency and communication between GPs and LPs.
In addition to wanting a voice in their operations, LPs require GPs to provide information such as income-to-expense ratios, fund leverage, and GP leverage ratios. GPs may position themselves for success by standing out and working closely with LPs, says Mahajan.
Rajeev Suri, Managing Partner, India VC, emphasises on two big trends: activism and specialisation. "These two things are going to drive the future of venture capital," he says.
"Apart from financial and legal diligence, we also look at commercial and tech diligence. The expectation of founders is that you will not only fund them but also support them. Roll up your sleeves and be a partner on call for any area that they need help on," Bikram says.
