Bengaluru: Venture capital firm Lightbox is evaluating a continuation fund with a size of at least $100 million as it looks to back some of its mature portfolio companies such as Rebel Foods, Zeno Health, Furlenco and PayMate, a top executive at the firm told Mint. With this it joins a growing list of investors such as India Quotient, Multiples PE, Kae Capital and Westbridge Capital that have explored similar options, as Mint reported in May.
Typically, continuation funds are created to provide an exit for limited partners (LPs) while allowing investment firms to remain invested in high-performing portfolio companies. These funds support trophy assets that need more time beyond the typical fund cycle to reach their full potential. They also reduce the early risk factor for new investors as they know the assets they will be backing, in contrast to traditional funds that must scout for new opportunities.
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Lightbox’s continuation fund may also invest in other startups such as Amaha, Rooter and Cityflo. “We are in discussions with various individual and institutional investors to explore how to best address liquidity options for Lightbox… the option to create a mix of mature and emerging businesses in a continuation vehicle is definitely one for us to consider,” Sandeep Murthy, Lightbox’s partner and managing director, told Mint in an emailed statement.
The firm is still in early stages of discussions, and the size of the fund will largely depend on the deal structures, Murthy said. It will invest in companies that demonstrate a clear path to liquidity, as well as early-stage businesses that can provide longer-term value creation, he added.
A growing appetite
While such vehicles have been more prominent in overseas markets, there is a growing appetite for them in India, driven by the uptick in secondary markets and several investors at the end of their fund’s life cycle looking to get liquidity.
Examples of such vehicles include Chrys Capital’s $700-million continuation fund for its stake in the National Stock Exchange in April, Samara Capital’s $150-million continuation fund that was raised last year, and venture capital firm Blume Ventures’s ₹200-crore fund.
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Murthy said, “This has been driven by the desire of GPs to retain the further upside in the portfolio while providing existing LPs with liquidity.” He added that it was an “elegant” solution for early investors to lock profits or roll them into a new entity while giving new investors an opportunity to fund mature companies that are not yet at the point of generating liquidity.
A recent Bain India report said the value of exits soared by about 15% to about $29 billion in 2023, while their number rose from around 210 to around 340, making it a marquee year for Indian exits despite a slowdown in deal-making activity. India accounted for 20% of all private equity and venture capital investments last year and is playing an increasingly significant role in Asia-Pacific funding activity, the report said.
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While LPs are becoming more confident about exit routes in India, global investors have been able to raise much larger sums for continuation funds overseas. Examples include early-stage investment firm Antler’s $285-million fund, Investcorp’s $185-million fund, New York-based Hildred Capital Management’s $750-million fund, and Carlyle’s $2.2-billion fund.