How’s Your Chemistry With Your VC?

Early last week a venture capitalist in Bangalore remarked to me: “I’m a bit concerned that our limited partners have not given us any kind of direction. We’ve heard of other firms in the US having annual meetings with their limited partners and being told to be cautious. Ours have not even said let’s set up a call and talk. I’m wondering whether that is good or bad.” We were chatting about whether limited partners — a high networth and secretive community of individuals and institutions which lend money to venture capital funds — had been delaying the release of committed capital because of the US recession. More than 90 per cent of India’s venture capital money comes from the US, notably from Silicon  Valley.

A couple of weeks ago, while working on a story (on the day job) on whether India’s private equity industry will remain flush with capital in the next 12-18 months, I came into closer contact with limited partners from across the US and Europe. The conclusion, in that story, was that limited partners themselves are scrambling to hold on to whatever money they have left and this means that 2009 will see the private equity industry strapped for cash. Read more about who exactly limited partners are and how their woes could trip India’s private equity party here. Venture capital is a smaller subset of private equity, chiefly in terms of the quantum of money involved. But, if private equity gets squeezed, the same is inevitable in venture capital — they, in fact, often share the same limited partners. The Silicon Valley is already in the throes of an acute funds crunch — read earlier post — and India cannot escape getting scarred.

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