Mint reports this morning (surprisingly in its news briefs section) that Erasmic Venture Fund, a Bangalore-based seed fund that counts search giant Google among its investors, is merging (read: has been acquired) with Palo Alto-based Accel Partners, an investor in Facebook among several other technology-related companies. There is no official release up yet on either firm’s websites — update: official release – but the details of the merger, according to the Mint report, are as follows:
- The new entity is being called Accel India Venture Fund
- Will raise a $60 million fund this quarter; invest in seed-to-early stage technology and non-technology companies
- Erasmic’s four-member team stays on as fund managers
The Sequoia Capital-WestBridge Capital Partners merger in May 2006 comes up as instant recall. It was the first acquisition of an Indian venture capital firm by a larger Silicon Valley entity but, the parallel ends there. The Accel-Erasmic merger, from the information available, looks like a portfolio buyout and little else.
Since its launch in early 2007, Erasmic, which has been investing from a $10 million fund, has built a portfolio of 12 companies. The firm was founded by Subrata Mitra and Prashanth Prakash (photos). The buyout gives Accel, which has had no presence in India so far, a ready-made asset base. The deal comes at a time when returns in the US venture capital market in general are on a downtrend. Most of Erasmic’s portfolio companies are very young and in segments such as social networking (Chakpak), search engine optimization (Position2), healthcare (Perfint), food retail (Kaatizone) and mobile (Kirusa). Though the portfolio does seem a bit skewed towards Web 2.0 companies, Accel’s broader focus should balance things out over time. Accel manages $4 billion in funds globally and apart from the US, invests in Europe, Israel and China.
Portfolio buyouts could become a trend as smaller players jostle for space with bigger and stronger firms, notably of the foreign kind. India seems to be finally emerging as a viable venture capital investing market and it is a matter of time before overseas investors from mature markets such as the US and Europe begin to seek a direct presence here. Today, in fact, the Indian market is in the enviable situation of having too many investors and too few deals — making the environment ripe for a shakeout.
Assuming that more such mergers are imminent, the Sequoia-WestBridge relationship definitely wins over the Accel-Erasmic one. Sequoia’s acquisition of WestBridge did bring on board an India portfolio of 30-plus companies but the merger was built on a much deeper relationship. Prior to the 2006 merger, Sequoia had debuted in India in 2003 with a $22 million investment in Bangalore-based business process outsourcing company 24/7 Customer. It followed up with two co-investment deals with WestBridge — Bharti Telesoft in December 2005 and Mauj Telecom in March 2006. The informal working relationship between the two firms in the run-up to the merger made it more of a partnership of equals. Sure Sequoia managed $3.5 billion in funds globally at the time but WestBridge was no small fry either. It already managed $350 million in funds and pretty much dominated the early-stage space in India — an advantage that Erasmic does not have.
It is not clear yet whether Accel and Erasmic shared any such relationship prior to the merger. It may not even matter in the longer term. But as evident from the fortunes of Sequoia Capital India today, it doesn’t hurt either.
VC Circle has more details on the deal in a interview with Erasmic co-founder Prashant Prakash.