<div><em><strong>Paramita Chatterjee </strong>on how and why it is still a challenge for investors to raise funds even though deal activity is picking up</em></div><div> </div><div>Even as deal activity is picking up in the private equity sector, fund raising continues to be a challenge especially for first timers trying to raise funds. This is primarily due to lack of good quality exits in the overall market in the last few years although year 2015 bucked the trend to record some bumper exits in the last 8 months.</div><div> </div><div>In the January-August 2015, only 3 funds were raised worth $566 million, as per data available with research firm Venture Intelligence. This is way lower than $2351 million that was raised across 7 funds during the corresponding period last year. The three funds that have been raised this year are by venture capital firms SAIF Partners, Sequoia Capital India and angel investor Unitus Seed Fund.</div><div> </div><div>So far this year, SAIF has raised $350 million in March, while United Seed Fund raised $6 million in April. Sequoia has raised $210 million in April and there is already chatter that the marquee investor is in in talks to raise another $800 million over the next 6-8 months for its fifth India-focussed fund.</div><div> </div><div>“Fund raising has become more difficult now. You will only see funds that have a proven track record of exits who will be able to accomplish it,” said Sanjiv Kaul, managing director at home-grown PE biggie ChrysCapital. “While fund raising has been tough given the macro environment and limited success with exits, the outlook seems to be improving if we get our act together,” he added reflecting on the industry positives. With the problem of capital overhang and ‘dry powder’ dissipating and investment opportunities increasing in new age sectors, there may be a few new funds that will come into action over the next 1-2 years. </div><div> </div><div>A host of private equity and venture capital investors had raised money till 2010 and 2011 after which the industry faced a problem of capital overhang as the number of good quality investments were low compared to the capital available. However, in the last 1-2 years, with the number of startups mushrooming and more number of companies coming up in new age sectors like mobile, internet, food and beverages, investors are now parking capital in a lot of them.</div><div> </div><div>So, in an ideal scenario, if the investment opportunities increase, fund raising opportunities should also go up. However, here lies the challenge as investors too should prove their own track record and seal profitable exits. Only then, will they be able to raise additional funds from their limited partners, say experts tracking the sector.</div><div> </div><div>This year the total Venture Capital deals surpassed the total deals of PE companies. In the first half of 2015, as many as 363 VC deals were sealed, three times more than the number of PE deals, which stood at 99, as per data available with Grant Thornton. Traditionally, in terms of the total deal size, VC funding will always be smaller when compared to PE funding. The data collected for this period shows that the total VC funding stood at $1.9 billion compared to $5.1 billion pumped in by PE funds.</div>
