Peak XV trims fund size and fees as Indian market overheats | TechCrunch

Peak XV, the largest India and Southeast Asia-focused venture firm, is reducing the size of some of its funds and lowering fees as it seeks to become “deeply aligned” with its limited partners.

The firm, which secured capital commitments totaling $2.85 billion in mid 2022, informed its backers on Tuesday evening that it is releasing them from $465 million in obligations from those 2022 vintage funds, according to an investor letter seen by TechCrunch.

The venture group, which remains the largest in the region, isn’t just scaling back its growth and multi-stage funds — it closed five of these in 2022 — but it’s also trimming how much it charges its backers, lowering its management fees to 2% and the percentage of carried interest it collects on profits to 20%, down from 2.5% and 30% respectively.

There is a performance-based caveat. Peak XV will maintain provisions to revise its carried interest up to 30% after achieving a 3x distributed-to paid-in capital ratio, the letter stated. The economics for its seed and venture-focused funds remain unchanged.

Peak XV didn’t comment.

This move comes more than a year after Peak XV’s separation from Sequoia. The storied venture firm said it was splitting from its China and India-Southeast Asia units to avoid market conflicts and confusions amid geopolitical tensions between Washington and Beijing.

Peak XV’s decision reflects a broader trend in the venture capital industry, where many firms have either reduced new fund sizes or struggled to raise their target amounts in recent years following a correction after a 13-year bull run in the tech sector.

Peak XV’s rationale stems from growing apprehension about the frothy public market performance in India and a perceived dearth of venture-scale opportunities in the immediate future. It wrote in the letter that it remains bullish about the region, saying the changes it’s making better aligns the firm with its backers.

Macquarie analysts recently noted that India’s price-to-earnings ratio stands at about 21 times, compared with 10 times for emerging markets overall, 14.5 times for global markets, 17 times for the US, and 8 times for China. India has seen more tech initial public offerings this year than the U.S.

Peak XV’s fund size dwarfs those of its competitors in India. Lightspeed’s latest India-focused fund stands at $500 million, while Accel closed its most recent Indian fund at $650 million. Matrix, Elevation and Nexus have raised $550 million, $670 million, and $700 million, respectively, for their newest funds.

Peak XV began its journey in India more than a decade ago. The firm has made realized and, notably, unrealized gains of $10 billion to date, it disclosed in the letter. Since its separation with Sequoia last year, it has made about $1.2 billion in exits, TechCrunch reported last week.

Peak XV’s dominant position in the region has drawn both praise and criticism. The firm’s Surge program, which offers favorable terms and extensive resources to early-stage startups, has become a coveted launchpad for young startups in India and Southeast Asia, somewhat eclipsing the appeal of Y Combinator’s offering.

The outfit earlier this year also unveiled plans for a perpetual fund backed by its own partners.

Since its inception, Peak XV has amassed $9 billion in assets under management, with an additional $2 billion yet to be deployed. Its portfolio spans more than 400 companies, including over 50 unicorns and about 40 businesses with annual revenues surpassing $100 million.

Since 2020, 15 of its portfolio companies have listed on public markets, outpacing other India-focused venture funds.