This post was originally meant to illustrate, using placeholder data, the returns made by each investor in Redbus. Then hell broke loose. After all, I am was insider and I am not supposed to analyse information even if it is available in public records. In addition, some of the readers felt that I am doing a disservice to the ecosystem by saying that it was not a big win.
I think $100M plus is a great exit for any founding team in India, its a rare achievement, and to do it in such a short time is even more rare. No compliments will be enough for Phani and team at Redbus. Redbus aggregated a large fragmented market, was capital efficient, profitable, and became a household name.The question I raised was whether the VC industry, and the LPs who invest in the industry, will be happy with the outcome. Given purchasing power parity, such exits are great for founders in India. But the ‘startup’ funds in India are as big as those everywhere else, and that is the point of discussion. One reason is that LPs almost thrust large amounts of money at VCs.
A very good study on this is here : Kauffman Foundation: The venture capital model is ‘broken. If you are still interested in the math for Redbus, find the cap table from the Registrar of Companies and multiply for yourself. Or you could count the number of parties involved – 3 investors and 1 founding team to guess how much each party made. Either way, one conclusion is clear- a $100M exit does not move the needle for a $200M fund, especially when there are 3 or more investors involved.
Since companies like Redbus are rare, a dozen exits like Redbus for EACH $200M+ fund are near impossible. This is just to return the principle amount!! So what will work? Perhaps a $500M exit. But thats a NASDAQ or India IPO. Read MMT or Justdial. So the conclusion is that if you are a large fund, you need to have at least 1 company in your portfolio which goes to an IPO.
Some funds that have grown big have decided to play at both ends- at Series A stage and at a late stage where you have stable companies with clearer path to IPO.And some funds have a simple strategy of chasing headline news making companies and impressing investors and raising larger and larger funds. They usually do this in hordes, to reduce risk. This phenomenon was demonstrated most aptly by a portal selling Fashion, and you know who I am talking about. Afterall, if you thought that your stock options (its called ‘carry’, a more exclusive term) are not worth much, you will definitely go for a higher take home.I am sure every VC has a strategy.