Avigo Capital fund managers including Achal Ghai exit in out of court settlement

MUMBAI: Fund managers of Avigo Capital, including its cofounder Achal Ghai, have agreed on an out of court settlement to part ways and hand over control of the investment fund to a limited partner, two people with knowledge of the development said.
In return, they will get around 60 per cent of 'carry' — or the share of profits investment managers get in excess of the amount they contribute to the partnership — upon exits from the existing portfolio companies.

"Apart from the carry, the stake held by the partners and former employees’ personal investments in the fund worth $6 million will continue to be there. They together will act as investors in the fund till it gets over," one of the person involved in the discussions said.

Mahendra Swarup, Avigo Capital’s India managing director, and Ghai now plan a new venture capital fund for which commitments have already started coming in.

"In line with the vision of Digital India and given the opportunities in the new economy, partners of Avigo Capital have launched a new VC fund to focus on high potential early stage companies," Ghai told ET in an emailed interview.

"A new highly specialised team has been put in place with operating headquarters in New Delhi and will likely follow the AIF structure," he said, adding, "In principle commitments for a first close targeting December 2015 have been received." Initial corpus being targeted is in the range of Rs 150-200 crore.

On Wednesday, ET had reported that one of the limited partners (LPs), Siguler Guff, had taken over the charge of the fund and LPs have sued the general partners on charges of mismanagement and negligence.

Ghai could not be reached for his comments then.

"It is completely wrong that the LPs have sued the GP for negligence and mismanagement…this is totally untrue and there has never been such a case or dispute with the LPs," he said on Friday.

"The understanding to bring Siguler in for managing the exits was arrived at mutually after initial difference of opinions and some court proceedings to implement procedural matters in Mauritius. Avigo and Siguler have been in regular contact to manage the transition," Ghai said.

According to sources, LPs such as Siguler, IFC, CDC, Squadron Capital, Emerald Hill, PPM Ventures and Equitable Life, asked Ghai to quit because they were not happy with the performance of some of the portfolio companies and the fund managers missed out some exit opportunities.

The main problem, according to them, started in the second fund where almost 75 per cent of the fund was invested in Tecpro Group. The general partner (GP) did not sell the stake even when the stock rose five fold. Today its value is down by 60 per cent.

According to Ghai, the life of Fund II expired in August 2015 and it is under liquidation as per the legal provisions in Mauritius. The Fund III’s investment period expired in June 2013 and given the suboptimal economic environment prevailing at the time, it was decided by Avigo team to focus on exits and not extend the investment period, he said.

Ghai also said the general partners of Avigo are considering legal recourse against the LPs for the maligning their reputation and to fight the allegations of mismanagement and negligence.

Avigo Capital raised three funds since its inception in 2003. The GP raised the third fund of $240 million in June 2010 and made investments in 25 companies. It managed to exit only eight investments among these such as Spykar, MJ Biopharm, Super Haze Industries, Vibromech and Moschip Semiconductor.