Struggling VC funds to cut bonuses, salary hikes

“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,” said Anshul Lodha, head of recruiting firm Page Executive, India.

According to 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 companies. The proposed cuts in bonuses will 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 said.

The VC hikes will 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,” said Ashish Fafadia, managing partner of Blume Ventures.

Fafadia said he had seen VCs over-funding companies 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 firms 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 companies than VC firms.