Jun 5, 2024 · 1h 1m · neon-show
Global VC's Honest Opinion About India's Startup Ecosystem Explained | Stepstone Group Partner
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Hunter Somerville, Partner at StepStone Group, joins Siddharth Ahluwalia on The Neon Show to discuss StepStone's multi-strategy investment platform, their renewed bullishness on India's venture liquidity, and the qualitative benchmarks institutional LPs use to evaluate and partner with top-tier venture managers.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. How this is scored →
Siddhartha as informed peer 5.3 Guest teaching 4.0 Guest disagreement 0.2 Siddhartha pushing back 0.4
speaking balance: gold is Siddhartha, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 35:10 Rejection of lottery-ticket seed strategies
Hunter firmly rejects passive, low-ownership seed investing models, arguing they fail to create enduring value or align with institutional LP expectations.
Hardest push from Siddhartha ▶ 27:35 Challenging direct investing limits with single-digit Indian GPsSiddharth presses Hunter on how StepStone can successfully execute direct deals in India when their manager relationships remain strictly in the single digits.
Biggest teaching moment ▶ 23:14 Explaining the Indian domestic IPO advantageHunter provides a comprehensive breakdown of why India's exit market is thriving, detailing domestic IPO scale viability at $100M-$150M ARR compared to higher US barriers.
Siddhartha holds their own ▶ 55:10 Highlighting generational transition failures in 2005-2010 fundsSiddharth demonstrates deep market knowledge by diagnosing the succession planning paralysis facing first-generation Indian and US VC founders entering their sixties.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Siddhartha as informed peer | Guest teaching | Guest disagreement | Siddhartha pushing back | Why |
|---|---|---|---|---|---|---|
| Preview: Indian Venture Insights and Direct Investments | 5 | 3 | 0 | 0 | Siddharth introduces Hunter Somerville and sets the stage with StepStone's AUM metrics and history. Hunter explains Greenspring's background and evolution into a multi-strategy platform. | |
| The Strategic Value of StepStone's Multi-Strategy Approach | 4 | 4 | 0 | 0 | Siddharth asks how StepStone differentiates from traditional fund of funds. Hunter details how direct investing and board observation provide superior diligence over standard LP reference checks. | |
| Global Geographic Footprint and Fund Commitment Sizes | 5 | 3 | 0 | 1 | Siddharth asks about fund sizing preferences and manager addition pacing, synthesizing that StepStone prefers sub-$400M funds. Hunter explains the nuances of backing seed versus growth spinouts. | |
| Key Triggers for General Partner Churn and Disqualification | 5 | 4 | 0 | 0 | Siddharth inquires about GP churn triggers and StepStone's first Indian manager. Hunter explains internal team friction, aggressive fund size inflation, and his historical perspective since backing Nexus pre-2010. | |
| Deep GP Collaboration and Platform Value-Add Dynamics | 6 | 3 | 0 | 0 | Siddharth demonstrates familiarity with StepStone's portfolio by referencing Stellaris, Lightspeed, and Chiratae. Hunter elaborates on providing liquidity solutions and active advisory board support. | |
| Direct Investment Strategy: Zepto and Pocket FM | 6 | 4 | 1 | 1 | Siddharth asks about specific direct investments in Zepto and Pocket FM. Hunter clarifies that StepStone led Zepto but only participated in Pocket FM, detailing their disciplined informational advantage model. | |
| Drivers Behind India's Macro Venture and Exit Renaissance | 5 | 5 | 0 | 0 | Siddharth presses Hunter on why he is more optimistic about India now than ever. Hunter breaks down domestic IPO requirements, earlier path to profitability, and secondary exit mechanisms. | |
| Concentrated Portfolio Strategy for Direct Deals in India | 6 | 4 | 1 | 2 | Siddharth challenges StepStone's direct strategy, pointing out they have only single-digit GP relationships in India. Hunter counters that concentration is deliberate and avoids boiling the ocean. | |
| Micro-VC Strategy and Target Fund Sizes in India | 6 | 4 | 0 | 1 | Siddharth asks about sub-$100M fund commitments in India, noting how established managers have grown to $600M+. Hunter clarifies that StepStone defines micro-VC up to $300M to support evolving top performers. | |
| Asia Allocator Perspective: India Versus Regional Peers | 5 | 5 | 1 | 0 | Siddharth asks how China headwinds affect LP interest in India and what steps emerging managers should take. Hunter rejects lottery-ticket seed strategies, emphasizing the need for 10-20% ownership. | |
| Cross-Border SaaS Dynamics Versus Consumer Investments | 6 | 4 | 0 | 1 | Siddharth asks why StepStone targets cross-border SaaS despite doing consumer directs in Zepto and Pocket FM. Hunter explains SaaS metrics offer recurring visibility while consumer has binary payoff risks. | |
| Fund Liquidity Mechanisms and Secondary Opportunities in India | 6 | 4 | 0 | 0 | Siddharth asks about secondary deals in India and whether StepStone buys into funds where they are not primary LPs. Hunter explains secondary pricing in years 7-10 is purely an asset-level evaluation. | |
| Navigating Elongated Private Cycles and US IPO Hurdles | 6 | 4 | 1 | 1 | Siddharth references $500M-$600M top-line requirements for US IPOs. Hunter adjusts the figure to $200M-$300M and strongly advises early-stage GPs to sell partial stakes into growth rounds for DPI. | |
| Democratizing Venture Capital Across a Global LP Base | 4 | 5 | 0 | 0 | Siddharth asks about StepStone's LP base and the core questions asked to emerging managers. Hunter explains that he avoids gotcha RFP questions in favor of assessing blue-collar work ethic and team alignment. | |
| Essential Attributes of Top 5th Percentile Fund Managers | 4 | 4 | 0 | 0 | Siddharth asks what separates top 5th percentile managers. Hunter points to grit, craft mastery, and resilient partnership chemistry, citing his own long-standing dynamic with his partner. | |
| Generational Transition and Governance Challenges in Venture | 7 | 4 | 0 | 0 | Siddharth offers an informed analysis of succession cliffs in 2005-2010 vintage funds as founders reach their sixties. Hunter elaborates on senior partner economics hoarding and captive junior partners. | |
| Practical Advice for Emerging Managers and Show Conclusion | 5 | 4 | 0 | 0 | Siddharth asks for practical advice tailored to his own fund NEON ($50M-$100M). Hunter outlines concrete relationship-building strategies like informative quarterly updates and macro insights. |
Statements from this episode (41)
StepStone oversees $600B in capital responsibility and $100B in AUM
“They are one of the largest fund investors globally and have more than six hundred billion in capital responsibility and over a hundred billion dollars in AUM.”
StepStone's venture capital team exceeds 100 people
“The venture team is, is over a hundred people.”
StepStone manages relationships with over 200 venture and growth managers
“So in order to fully answer that, you know, we have to factor in what we do on the discretionary side of our business, and then also what we do in separate account and advisory work. And that number of venture growth managers is over 200 at this point.”
Evaluating VC managers solely on DPI causes LPs to miss emerging talent
“If you're waiting around and just judging what people have done on a realized basis or in DPI, you're not going to have a good sense for the momentum in those managers, and you'll probably wait too long to eventually pick
A really interesting up and coming gro…”
Board observation provides better manager diligence than LP reference calls
“And on top of that, because we do direct investing, we're oftentimes board observers within companies, and we actually see the managers in action. So you see who comes to board meetings and who has nothing to say or isn't adding value or doesn't even show up t…”
StepStone's venture investments in China have recently tapered off
“We have done investing in China going back to the beginning, although that's tapered off more recently.”
Smallest venture fund StepStone backs is approximately $40 million
“Smallest fund would probably be around forty-ish million in terms of size.”
StepStone's venture portfolio is heavily biased toward Seed and Series A
“Within the rest of our book, you know, we are very biased towards early stage. So seed in series A has been our approach and where we're the most comfortable.”
Multi-stage platform VC brands always maintain an advantage at Series A
“Particularly like when you look at Series A, those groups always maintain an advantage.”
Younger partner departures typically signal internal dysfunction and inequitable VC carry
“Where we see that spin out activity that I just referred to, where people leave and decide to do something new, and if you then see, like, the interesting younger cohort of the firm leaving, you recognize there's probably some level of internal dysfunction or …”
StepStone has invested in India since pre-2010, starting with Nexus
“So we've been investors in India for a while, going back to pre 2010. I think the first manager we invested with back then was Nexus.”
StepStone is near peak historical optimism on Indian venture DPI and realizations
“And I would say probably within the past three years, we're near the most optimistic we've been around that.”
Indian venture DPI is strengthening through domestic IPOs, M&A, and secondaries
“But I think you're finally seeing, you know, really good DPI performance in numbers. Put out there through a combination of domestic IPO efforts, through some M&A, and then also through more creative secondary structuring, which is obviously close to our heart…”
StepStone targets sub-$300M seed and Series A venture funds in India
“What I will say now is that we are most focused on the smaller end. So I think we've got some of the best Series A performers in our portfolio that are out there. And where we're thinking now is, you know, who makes sense to back that's more Seed early Series …”
Stellaris Venture Partners is StepStone's newest LP commitment in India
“So Stellaris is actually probably the newest commitment in India. And I, you know, I, we literally have just done diligence work on that one.”
StepStone takes advisory board seats on almost all its partner GPs
“We want very hands-on relationships with anyone that we work with on the GP side, and it's because we do secondary and direct investing alongside of them, because we take advisory board seats on pretty much everyone that we work with.”
StepStone led Zepto's investment round and participated in Pocket FM
“Zepto we led. Pocket we participated in. We weren't the lead on it.”
Real VC conviction requires meaningful follow-on capital or growth fund crosses
“People can say they're excited and thrilled about a company and they're doing pro rata or less than pro rata. You know, we're looking for the scenarios where they want to cross it into a growth fund or where they want to invest a really meaningful amount of ca…”
Indian startups can IPO at $100M revenue compared to $200M in US
“From our interpretation, it feels like companies are able to go out at a smaller top line scale. Than you would see in international markets where it's viable maybe in the hundred to one hundred fifty million top line range instead of what seems to be more lik…”
StepStone is discussing secondary liquidity and continuation funds with Indian VCs
“We've been in discussions with a lot of managers in India increasingly that I think are exploring that. And they're either selling single positions to, you know, folks like us who do secondary investing, they're selling to private equity or other financial buy…”
Indian early-stage VCs maintain a strong advantage in cross-border SaaS
“When you look at cross-border SaaS that's really more of a global perspective on investing. And so I think it ties to managers in India and gives them an advantage at earlier stages. But you're going to have significant capital that wants to come into those be…”
India represents 3% to 5% of StepStone's global fund portfolio
“That's prob, that's probably a fair assumption, but I would say on the fund side because we're beginning to be more active on the direct side. So it would not be that high yet.”
StepStone believes India lacks 20 to 30 VC managers worth backing
“We're not gonna suddenly have 20 to 30 managers in India. That, that's not our desire, and I don't think there's 20 to 30 that we would view as worth doing at this point in time.”
StepStone backs no venture fund managers in India under $100M
“No, we do not. I think we have one between a 102 hundred million, but not sub a hundred.”
Secondaries represent StepStone's largest area of capital deployment
“Secondary is the biggest thing that we do at this point.”
StepStone defines micro-VC funds as those under $300 million
“Specific to how we invest in, in the seed category, we define micro as sub-three hundred million, so it's a broader definition than I would say others that maybe would say that it's, you know, 50 to a 150.”
LPs prefer India, Southeast Asia, and South Korea over China exposure
“I think there is increased interest in, in India and in Southeast Asia and in South Korea, specifically as people think of other ways to get exposure in Asia.”
Southeast Asia lags on DPI realizations but will eventually improve
“Southeast Asia is still earlier on its journey and has not actually, in my opinion, shown as much from a realization DPI standpoint. I think that will improve.”
StepStone backs emerging managers seeking 10% to 20% initial ownership targets
“We don't want people who are a clubby deal participant Who come in with, you know, two to three percentage ownership. We want someone that's leading seed rounds or leading series A rounds, getting 10 to 20% ownership, and is seen as that go-to partner, at leas…”
Lottery ticket approaches to seed investing are not an enduring strategy
“We're not as much of a believer in, in lottery ticket approaches to seed investing and, We don't think that it's enduring.”
StepStone plans to add two to three Indian fund managers annually
“We are actively scanning the Indian market. We added a handful last year. We'll continue to do a bunch of managers this year, but we'll be selective about it. It's not like we're going to suddenly start adding a ton of new ones and it'll be, you know, two or t…”
StepStone has purchased secondary stakes from fatigued LPs in Indian funds
“We have bought LP interest purchases where people have been fatigued by those situations that I just described where they're getting into higher years and, you know, they don't want to continue to wait and they'd like to redeploy that capital where we've come …”
StepStone purchases LP secondary stakes primarily in fund years seven to 10
“We're buying LP interest generally in years seven to 10 of the life, I would say, if I had to average that out. So, you know, we're not going to buy secondary interest when it's like two to three years old. That's like almost a season primary and doesn't fit o…”
GP management quality no longer matters much in late-stage fund secondaries
“That is entirely driven by the assets particularly because at that point in time, the GP Can't screw it up either way. You know, there's not really much left to decide on. Reserves have been mostly deployed. It, the GP itself doesn't matter as much.”
Venture-backed tech companies will remain private for 10 to 12 years
“These companies are going to be private for, you know, 10 to 12 years instead of like eight.”
StepStone favors emerging venture managers who possess a blue-collar mentality
“And we always have a bias towards probably the hardest workers out there. We like people with more of a blue collar mentality. That have had to earn something in life that have dealt with difficulty.”
StepStone avoids arrogant spinout VC managers who expect LPs to be passive
“There's nothing worse than a fun one or two know it all. Particularly some of the spin outs where they've left and they feel like they have nothing left to learn. And we're probably not the right partner for that. Cause we're just not going to passively sit an…”
Venture capital firms frequently break up over basic relationship and trust dynamics
“For other people that don't have that depth of relationship or haven't tried to build it you know, those fights can fester. And you don't bounce back from it and it creates resentment or someone feels like they're better than someone else at key parts of the b…”
VC spinouts are currently paused as LPs pull back on new managers
“Right now what I'm seeing is probably more of like a festering kind of situation because it's pretty difficult to spin out and start your own firm right now. You know, people who may want to do that are just going to choose to wait because LPs aren't adding a …”
Excluding junior VC partners from LP relationships creates major succession risks
“In many of these scenarios, the junior partners don't have enough interaction or connection with the LPs because they don't do the fundraising exercises or the fundraising calls. And so you know, if the senior partner leaves, then the LPs get spooked, and you …”