The undoing of Helion Venture Partners

It wasn’t a sudden decision. Sanjeev Aggarwal, Ashish Gupta and Rahul Chandra, founders of venture capital firm Helion Venture Partners, had chewed on the problem for three months. In December, they decided to sever ties with Rahul Chowdhri, Ritesh Banglani and Alok Goyal. The three partners constituted the second line of command at the ten-year-old firm.

On 23 December, an hour past noon, Helion issued a terse statement. It said: “Rahul Chowdhri, Ritesh Banglani and Alok Goyal will leave the firm to pursue opportunities outside Helion… The departing executives will separate from the firm over the next few weeks and will cease to provide any ongoing assistance to the portfolio companies.”

There was no room for ambiguity. The departures were not amicable. Serious differences within the core investment team had plunged one of India’s oldest homegrown venture capital firms into a deep crisis.

“The fundamental premise they were coming from was that they should be elevated to managing partners,” said Aggarwal, when Mint met with him and Chandra at the firm’s Gurgaon offices in the middle of April. The elevation would have entitled the younger partners to a larger share of the firm’s profits, commonly known as carried interest, and more influence in dealmaking. The founding partners didn’t think that the three were ready yet for the promotion.

Sanjeev Aggarwal, founder of Helion Venture Partners.

Sanjeev Aggarwal, founder of Helion Venture Partners.

In the months that they took to reach a decision, the founding partners, in a bid to find a middle ground, even considered promoting Chowdhri, who had been with the firm since inception, to managing partner. Banglani had been with the firm for five years and Goyal about three. But that didn’t work out either. “It had to be a package deal. All or none,” said Aggarwal.

That’s one version of events. Mint also reached out to Chowdhri, Banglani and Goyal over email for their version of what had transpired. They declined comment.

By December, the environment inside the firm had turned toxic. A few days before Christmas, the founders of several Helion portfolio companies were caught unawares by a series of telephone calls from the firm’s executives. “Each side wanted to be the first to inform founders about the upcoming changes (the departures of the three partners),” said a person familiar with the matter, who requested not to be named.

The three-month imbroglio may have ended in December but the crisis at the Bengaluru- and Gurgaon-based venture capital firm was far from over.

Ashish Gupta, founder of Helion Venture Partners. Photo: Hemant Mishra/Mint

Ashish Gupta, founder of Helion Venture Partners. Photo: Hemant Mishra/Mint

A second line of leadership had to be built all over again. The portfolio, 60-odd companies, had to be managed and cleaned up. Limited partners, investors in venture capital funds, had to be put at ease. And fundraising for the next fund had to be resumed. “We’ll update you on the next fund in a few days. But yes, there will be definitely be a fourth fund,” Aggarwal said. The firm launched the campaign for raising the fund, which has a reported target corpus of $300 million, early last year.

Despite those odds, it’s far from game over for Helion. However, while the firm may be getting things under control this time around, it won’t be long before they—and this holds true for a majority of Indian venture capital firms—come up against a seemingly insurmountable problem: of managing expectations and succession planning in an environment where the rules of venture capital have changed completely within a short time.

The new rules of venture capital

When Helion raised its last fund, in early 2012, the venture capital market in India hadn’t yet exploded. It would very soon. In August that year, Bengaluru based e-commerce company Flipkart raised a fresh round of funds that valued it at a reported $1.04 billion. India’s venture capital market had its first technology unicorn, the term for start-ups privately valued at a billion dollars or more.

Rahul Chandra, founder of Helion Venture Partners. Photo: Ramesh Pathania/Mint

Rahul Chandra, founder of Helion Venture Partners. Photo: Ramesh Pathania/Mint

The event unleashed an unprecedented rush to back future unicorns, particularly in the consumer Internet sector. The charge was led by hedge funds such as Tiger Global Management, Falcon Edge Capital and Steadview Capital and strategic investors such as Japan’s SoftBank Group. Unlike venture capital firms, these investors had no inhibitions about writing out large cheques and usually at valuations believed to be significantly higher than market. They closed deals faster. Their due diligence process was less cumbersome and time-consuming than that of venture capital firms. Start-ups, needless to add, loved them.

In this altered universe, venture capital firms were compelled to seek out younger start-ups, very often at the seed stage. This necessitated one big change in the way these firms functioned. Fund managers had to be closer to the ground, out in the field, to get access to the best deals. The days when the best entrepreneurs could walk into a venture capital firm’s office to pitch for funds were long gone. Start-up founders, who were now also younger, preferred coffee shops and cafes. The old deal-sourcing networks when firms such as Helion started up were also losing relevance. They had been replaced, to a great measure, by the networks of successful entrepreneurs, who had become prolific angel investors in their own right.

At Helion, a large part of the responsibility for steering the firm through this new world would fall on the second line of fund managers in the investment team—Chowdhri, Banglani and Goyal. The three, however, would only come into their own in late 2014, when Kanwaljit Singh, the firm’s fourth founding partner, decided to quit.

Singh, whose career included a long stint in various operating roles at Hindustan Unilever Ltd, was pivotal in leading Helion into non-technology investments. By the middle of 2014, it had become evident that the non-technology portfolio wasn’t delivering as well as the technology portfolio. In all, about 20% of Helion’s $600 million corpus across its three funds had been invested in 13 non-technology companies (see chart).

“When we looked at the math, the technology numbers looked very different from the non-technology numbers,” said Aggarwal. Non-technology investments, he continued, could only deliver return multiples between three times and five times the original investment. “In technology, it was 10X, even 20X,” he said. So Helion decided to change lanes and focus largely on technology investments.

Singh’s departure, though a blow to the partnership, opened up opportunities for the second line of fund managers. Chowdhri and Banglani were elevated to partners. Goyal had joined as a partner in 2013 from SAP India, where he was chief operating officer. Together, the three were entrusted with the mandate to support Helion’s transition, rather return, to a pure-play technology investor.

The results were evident from the firm’s dealmaking run in 2015. The firm closed about 17 technology deals of which 10 were new. Nine of those were at the Series A stage. These included on-demand home services provider DoorMint, Workspot, which provides workspace solutions, fashion-discovery app Wooplr and dating app TrulyMadly. The founders don’t dispute the critical role the younger partners played. “Our coverage of the technology start-up market improved because of them and our analyst programme fanning out. We would have missed a lot of deals otherwise,” said Chandra.

Alok Goyal, former partner at Helion Venture Partners.

Alok Goyal, former partner at Helion Venture Partners.

Clearly, Chowdhri, Banglani and Goyal felt the same way. And wanted their due. Under Helion’s existing operating structure, profits are distributed among all partners proportionate to their designations. The founding partners, who are also managing partners, take home a larger share of the profits. Partners take home a little less. Just to put what’s at stake into context, venture capital firms typically retain up to 20% of the profits that a fund makes when investments are exited. The rest is returned to limited partners. In addition, fund managers retain 2% of the committed fund corpus as a recurring annual management fee. That is normally used to pay salaries and manage operating expenses.

Helion’s founding partners contend that the firm’s profits are already fairly broadly distributed.

“We have less concentration of carried interest than any other firm,” said Chandra. Further, he added, while not taking away from the contributions of the younger partners, their contention that it was enough to elevate them to managing partners was not entirely justifiable. “Dealmaking is not an individual decision. There are three units based on sector focus led by Sanjeev, Ashish and myself. Each unit includes a partner and analysts. Each of the younger partners worked alongside one of the senior partners,” he said.

Rahul Chowdhri, former partner at Helion Venture Partners.

Rahul Chowdhri, former partner at Helion Venture Partners.

The younger partners may have also taken their cues from what they were seeing in the market. Peers in firms such as Matrix Partners India and Accel Partners had recently moved up the ranks. “At some point, the prince will want to be king and it’s hard if you haven’t planned for that. The Helion incident is a wake-up call for venture capital firms that started up ten years ago and haven’t yet thought about leadership transition,” said a venture capitalist in Bengaluru, who requested not to be named.

Rebuilding Helion

Back at Helion’s Gurgaon offices in mid-April, nearly four months after the crisis erupted, the memories were still fresh. “I’m sure there was something that we missed that led them to feel the way they did. Perhaps they had entrepreneurial ambition that we weren’t able to satisfy,” said Aggarwal.

For now, though, Aggarwal, Chandra and Gupta, who works out of California’s Silicon Valley, cannot afford to sit back and introspect. They have their hands full setting the house in order. Two new venture partners have been added to the team—Piyush Goyal and Rajiv Kataria. The portfolio is under scrutiny. The firm last raised a fund four years ago, the $255 million Helion Venture Partners III, and the reserves have to be used well. The winners in the portfolio are being separated from the rest. Among the rest, some will be written off and others sold.

Ritesh Banglani, former partner at Helion Venture Partners.

Ritesh Banglani, former partner at Helion Venture Partners.

The portfolio clean-up has actually been in progress since early this year. Mumbai-based property search platform IndiaHomes is on the block. Separate reports suggest that it may either be merged with troubled property search platform Housing, in which Helion is also an investor, or sold to Mauritius-based private equity firm Pinnacle Capital. Mumbai-based Housing, whose troubles are well-documented, remains work-in-progress. Other reports suggest that Helion is in talks with strategic buyers to sell its stake in salon services chain YLG. Aggarwal and Chandra declined comment on both deals.

The portfolio clean-up will be an important factor with limited partners when the firm gets back on the road to raise its next fund. Exits have so far been a mixed bag. In all, according toMint’s research, it has exited its investments in 15 companies. Out of those, three ended badly. In 2010, Gridstone Research, an analytics start-up in which it had invested in 2006, shuttered operations and sold its assets to two US-based firms. In 2014, Dhingana, an online music-streaming platform shut down and its assets were sold to US-based Rdio. In 2015, BabyOye, an etailer of baby and kids products was acquired by the Mahindra Group in what is widely understood to be a distress deal. Helion had acquired a stake in BabyOye in 2013 when its portfolio company Hoopos was acquired in a stock-swap deal.

Last year, however, the firm had a more than decent run with exits. TaxiForSure, the radio cab service operator in its portfolio, was acquired by bigger rival Ola in a $200 million cash-and-stock deal. The transaction gave Helion a small stake in Ola, currently valued at over $5 billion. It also sold its 0.2% stake in Flipkart, acquired when portfolio company Letsbuy merged with Flipkart, for a reported $23.5 million in a secondary transaction. This year, it scored another successful exit when microfinance company Equitas went public. Helion scored a 3X return on its original investment and also marked it first successful exit from a non-technology company (see chart).

The non-technology portfolio is not all a drag. Azure Power, the Delhi-based solar energy firm, is headed for an initial public offering on the New York Stock Exchange. It is hoping to raise about $100 million. Eye-Q Vision, the Gurgaon-based eye care hospitals chain, picked up a fresh round of funding last year when World Bank arm International Finance Corporation led an $8.4 million funding round. Helion, an existing investor, participated in the round, its only non-technology investment last year.

This year, so far, dealmaking has been more restrained, partly because the market itself is correcting. The structure of the deal team hasn’t changed too much. Gupta continues to lead enterprise software deals out of Silicon Valley. Aggarwal is focused on e-commerce and the overall consumer Internet sector and education technology. Chandra is in charge of financial technology and logistics. All three continue to look at outsourcing businesses.

“We’ll continue to make investments at the Series A and B stages. But, we’re also looking at category leaders who are in the market for their Series B funding,” said Chandra.

Within its existing portfolio, since resource allocation is a priority, most of the available capital will be reserved for what the firm calls the winners. Bengaluru-based grocery e-tailer Bigbasket is one of those. Earlier this year, Helion participated in a $150 million fresh funding round that was led by Abraaj Group. Delhi based e-tailer Shopclues is another. In February, the company entered the coveted unicorn club following a funding round led by Singapore’s GIC. Helion last invested in the company in 2015 when the company raised a $100 million Series D round led by Tiger Global. Among other winners, it also counts legal services outsourcing firm UnitedLex, gift cards services provider Qwikcilver, which picked up funding from Amazon last year and education technology company Simplilearn.

It will be a while before things at Helion get back to normal. There is, however, one silver lining. The crisis comes at a time when India’s overheated venture capital market is in the midst of a correction. The firm has a small window of opportunity to set its house in order before rivals came breathing down its neck. Among those, soon enough, will be Stellaris Venture Partners, the brand new venture capital firm founded this year by Chowdhri, Banglani and Goyal.

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