Kotak postpones startup fund on weak market

“In PE/VC investing, the vintage of the fund is very important. At present, the valuations are correcting; Hence it is prudent to defer investment for FOF and hold on to better vintage of funds. With this in mind, we have decided to defer the PE/VC FOF,” said a KIAL spokesperson.

The company did not respond to separate queries on whether the fund would start refunding the amount raised so far to investors.

However, a person aware of the development said that KIAL has “started talks with the investors (limited partners) and the money will be returned soon,” the person said.

Kotak India Alternate Allocation Fund was set up last year as an Alternate Investment Fund under SEBI regulations. aims to raise funds 1,500 crore, which includes a greenshoe option 750 crores. The objective of the fund was to diversify into PE/VC funds across sectors such as consumer, technology, healthcare and financial, as well as across multiple stages, from early stage to growth stage and late stage across various vintages. ‘Vintage’ refers to the first year the fund started investing in companies. The fund was launched amid strong interest from High Net Worth Individuals (HNIs) over the past few years to invest in the PE space. For funds with a fixed life cycle, there is a defined deployment period. In case, due to market conditions, the general partner (GP) is not able to infuse the capital, they can return the same along with the fees earned so far.

In the case of Kotak, a second person said, though it has been a year since the fund was launched, the firm decided to withdraw capital from the FoF following poor market conditions and its inability to deploy it.

By introducing a FoF, KIAL aims to address the problem of concentration risk in VC investments due to high minimum investment requirements.

“Lack of knowledge and information in this asset class makes it difficult to make an informed choice. Through Kotak’s Fund of Funds we provide investors access to multiple funds as well as do our institutional due diligence with available benchmarking data We intend to leverage that, coupled with institutional monitoring of long duration funds,” said Nidhi Chawla, Fund Manager, Kotak India Alternate Allocation Fund at the time of fund launch last year.

The venture capital or private market, private debt market place has matured in recent years. In 2020-2021, private markets witnessed exit through secondary markets or public offerings, as a result of which many Indian HNIs see it as a viable proposition for investment.

However, the last one year has been a ‘funding winter’ for startups, given the global macro-economic headwinds that have reduced capital inflows into the startup ecosystem. Fund managers have been slow to launch new funds in this new environment as limited partners or LPs have largely withheld new investments.