Hedge Funds to Indian startups’ rescue

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Hedge Funds to Indian startups’ rescue
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It’s raining hedge funds all over! Seeing the Indian startups at a crucial juncture , the offshore investment funds are aiming to bank upon early-stage startups such as Zop-Now, Vserv and MobiKwik, says an Economic Times report. But as these investors plant themselves firmly in India's startup landscape, analysts as well as entrepreneurs are doubtful about the funds' potential to abruptly pull out in a crisis, as they did during the economic downturn that began in 2008.

A long-anticipated interest rate hike by the US Federal Reserve, the ongoing Eurozone crisis, and flat economic growth in the Asia-Pacific region could force hedge funds to slow their pace of startup investments in India, experts told the financial daily. "Hedge funds, above all, need liquidity. They have redemption windows. Instead of investing in an unlisted company, if they can get the same risk-reward by investing in a publicly listed entity, they will obviously swap," Srinivas Baratam, managing director at investment bank Kriscore Financial Advisors told the ET.

Overall, 14 hedge funds including new entrants such as Maverick Capital, Tree Line Asia and Dragoneer Investment Group participated in transactions worth about $3.8 billion in Indian companies since the beginning of 2014, according to Tracxn, which tracks startup activity. These deals accounted for 31.3% of the total $12 billion pumped into Indian tech companies in the past 16 months.

Ashish Goel, founder and chief executive of Urban Ladder in which Steadview Capital led a $20 million round in July 2014, believes hedge funds have a capacity to be long-term investors comparable with venture capitalists.

Nonetheless, many startups scampering for hedge fund money are covering bases by also seeking out other classes of investors.
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(Image: India times)