Struggling VC funds to decrease bonuses, salary hikes
Venture capital funds are resorting to hefty cuts in bonuses and may provide annual salary hikes of no more than 8-10%, a significant drop from the 25% seen at the height of the investment boom that ended a decade of easy money, amidst challenging times for startup investments.
“FY23 was a tough year for VC funds as their existing portfolio had taken a hit. The VC markets shifted to India in 2019-2021 on the back of big deals. That came crashing, and because of last year, bonuses will be slashed by 40-50%. Bonuses are 100% of fixed pay. FY24 is expected to see an uptick on the back of improvement in consumer tech and SaaS-driven investments," stated Anshul Lodha, head of recruiting firm Page Executive, India.
As per a March report by Bain & Co. and Indian Venture and Alternate Capital Association (IVCA), venture capital investments in India dropped by a third to $25.7 billion in 2022 from $38.5 billion in the previous year.
Although early-stage startup deal activity has persisted, growth and late-stage companies have encountered significant challenges in raising funds, exacerbating the struggles of venture capital funds that have not been able to monetize their bets in firms. The proposed cuts in bonuses would hurt those working in the VC sector the most, as bonuses can rival fixed compensation and, during strong market conditions, can even be triple their fixed salary. Navnit Singh, chairman and regional managing director of executive search firm Korn Ferry, said the impact of a bad year would not just be on the bonus but even on increments.
“It was normal for VCs to roll out 25% raises, but because of the dip in last fiscal, they may give 8-10% hikes," Singh stated.
The VC hikes would be on par with other sectors, where corporates are expected to offer hikes of around 9%.
Interestingly, much like the tech and startup sectors, VCs, too, are suffering from wage inflation, a direct outcome of the hiring frenzy during the pandemic.
“We believe there has been wage inflation in the VC industry in recent years that was probably unnecessary. This was probably due to the fact that the competition for VC roles became as intense as early-stage startups and was attracting similar profiles," stated Ashish Fafadia, managing partner of Blume Ventures.
Fafadia said he had seen VCs over-funding firms and paying team members without commensurate experiences. “We stuck to our salary ranges and definitely faced some challenges in attracting strong candidates," he added. Although Blume Ventures is not revising compensation, it is waiting to close the exits and wants to “share the gains innovatively".
Despite the anticipated cuts in bonuses and salary hikes, executive search companies do not expect these changes to trigger an exodus from VC funds. “The exits are not voluntary. They have been asked to move out," said the country head of a search firm who did not want to be named.
Private equity firms, on the other hand, have fared better amid lucrative exits from older portfolio firms than VC firms.
“FY23 was a tough year for VC funds as their existing portfolio had taken a hit. The VC markets shifted to India in 2019-2021 on the back of big deals. That came crashing, and because of last year, bonuses will be slashed by 40-50%. Bonuses are 100% of fixed pay. FY24 is expected to see an uptick on the back of improvement in consumer tech and SaaS-driven investments," stated Anshul Lodha, head of recruiting firm Page Executive, India.
As per a March report by Bain & Co. and Indian Venture and Alternate Capital Association (IVCA), venture capital investments in India dropped by a third to $25.7 billion in 2022 from $38.5 billion in the previous year.
Although early-stage startup deal activity has persisted, growth and late-stage companies have encountered significant challenges in raising funds, exacerbating the struggles of venture capital funds that have not been able to monetize their bets in firms. The proposed cuts in bonuses would hurt those working in the VC sector the most, as bonuses can rival fixed compensation and, during strong market conditions, can even be triple their fixed salary. Navnit Singh, chairman and regional managing director of executive search firm Korn Ferry, said the impact of a bad year would not just be on the bonus but even on increments.
“It was normal for VCs to roll out 25% raises, but because of the dip in last fiscal, they may give 8-10% hikes," Singh stated.
The VC hikes would be on par with other sectors, where corporates are expected to offer hikes of around 9%.
Interestingly, much like the tech and startup sectors, VCs, too, are suffering from wage inflation, a direct outcome of the hiring frenzy during the pandemic.
“We believe there has been wage inflation in the VC industry in recent years that was probably unnecessary. This was probably due to the fact that the competition for VC roles became as intense as early-stage startups and was attracting similar profiles," stated Ashish Fafadia, managing partner of Blume Ventures.
Fafadia said he had seen VCs over-funding firms and paying team members without commensurate experiences. “We stuck to our salary ranges and definitely faced some challenges in attracting strong candidates," he added. Although Blume Ventures is not revising compensation, it is waiting to close the exits and wants to “share the gains innovatively".
Despite the anticipated cuts in bonuses and salary hikes, executive search companies do not expect these changes to trigger an exodus from VC funds. “The exits are not voluntary. They have been asked to move out," said the country head of a search firm who did not want to be named.
Private equity firms, on the other hand, have fared better amid lucrative exits from older portfolio firms than VC firms.
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