VCCircle

Was it difficult to raise the fund in the current scenario?

No. It wasn't. The institutions that we were focusing on are basically those which got allocations for Asia as in investing in India and other places. These institutions are very long term sellers, these upswings and down swings, I guess they have seen ten – twenty cycles each. They are quite comfortable and base themselves on the process of a judgment which people like us employ which helps them gain confidence. Also, historically all across the world whenever funds have been invested at down time, they perform better, because of better pricing and catching the sector cycles when they rise up.

Has fund raising environment for new players ?

It is but we are not new in a way. There are a few more players who are raising monies now. Some are absolutely new and some have done one or two products in the past.
New players will have to distinguish and differentiate why they are different and what is their strategy to work better than the others. But here experience and track record is seen by the investors, the pension funds, the fund of funds and they base the judgment on that as well.

Did you also have a network of distributors helping you to raise the fund?
We did it primarily through our own contacts because I have been handling pension funds money for last 10-15 years. The contracts have been primarily on our own at this stage. Only now we will be going for a distribution or a placement agent. Because we are going to concentrate our time in investing it rather than spending too much time on marketing it.

Who are your investors? How much of it is foreign and domestic?
All is foreign. This fund does not have a domestic component at all.

We have fund of funds, corporates, family offices, pension funds are also in process with us.

If you could just specify the regions from where you have raised the major chunks of it?

The major chunks have come from Europe at this stage and we have investors in Asia that are in process as well and then the U.S.

Would you be looking at making PIPE transactions? If yes, what will be the share of such deals in your portfolio?

We don't expect more than 20-25 % in PIPE. We will do PIPEs only to the extent that we have Board memberships and we are involved in the strategy of the firm in terms of expanding. Typically we might do a PIPE when we have an investment in an unlisted company, so take up a PIPE stake and do a merger or a roll up. It helps the strategy of work in both firms. PIPE just for the sake of getting exposure to a sector or market, No. We won't do secondary market transactions types.

Funds entering in a bear market like this, if I may call so. Are you hoping to get some value picks?

We have started seeing improvement in value already See, apart from this that the environment is producing a better value, we are typically the first of investors in most of the deals we do and that has a price advantage in itself but given this environment the pricing for us has improved.

So what remains your future outlook on the private equity market now?

Its gone through a very interesting phase. There is more to come. Even if you compare the present date to about seven or eight years back, the depth of sectors that require private equity are more, the number of players have increased and matured. Also companies who take money from us have a better understanding and appreciation of our role and how we should be the shareholders and regard them as partners etc.

Now that the valuations have become realistic. What remain your future outlook on the market?

You make more money .:)

If you could tell us the IRR expectations of your fund and the payback period?

We are in the business for making a few multiples :) laughs . But talking on a conservative basis, we can say that we cant give investors less than 30-35%. Given what we have done in the past and what we are in the business for, its always a few times returns that we generate and give back.

We expect the first returns to go back to investors in about 2.5-3 years. The full payback is about 5-6 years.

What is the life of the fund?
The life of the fund is seven years.

Any particular sectors that you are upbeat about?

We like transport, logistics, financial services. We like the services related to corporate training and education, auto ancillary and sectors that are riding on the current expansion of the consumer market in India etc.

Would you stay out of real estate ?
Pure real estate yaa!!!

And Infrastructure?

Infrastructure we actually invest in the drivers and some of them who are suppliers in the infrastructure companies.

Do you mean infrastructure enabling companies?

Absolutely, service enabling companies other than distributors etc. Electrical transformers or engineering parts or aspects of logistics etc, and all that we do.

In terms of positioning this fund, how would you do that? How is your entry strategy different?

Our partners and me, we have been investing in India since 1990. We have invested in many companies in the past and have seen many investment cycles. Our depth of contact in the market is very deep and we get good deal flow before other people hear of it. These are two differentiators. We are also very good stock pickers in a way so we are able to invest in very good management team. Our typical deal size is between 15 odd million dollars and will be focusing on the midmarkets.

How many investments do you see yourself making in a year?
In one year, we probably be looking at around six.

Do you usually demand Board representation?

Always

What is the kind of value do you see yourself bringing to the portfolio companies?

Based on what we have done in the past we provide inputs both at the strategy level and operational level. We provide value in helping people hire new key level people or getting additional advisory Board members who can help operationally. We help in providing inductions to potential clients, OEM's or distributors . Occasionally, we also do M&A related advice, companies going for listing, the handholding required with the merchant banks and all that.

You just raised your fund. What is the kind of sense that you bring as in how are the foreign investors looking at India? Are they still upbeat on India?

Yaa they are ..although happenings on the home ground have made people a little conservative as everyone is watching. The decision to increase allocations to India have happened over 3-4 years. They are wanting to capture the growth that countries like China and India offer to them. Its the growth that they are looking at. Also looking at asset diversification away from their home markets in Europe or the United States. They look forward to capturing the increase in consumptions which countries like India offer. If you look at consumption or infrastructure or services the low base at which things are being built upon in India, they offer a great deal of attraction. Some of our investors would come down and they are 60-65 years old. They say that they are seeing these trends and that they are comparable to the things that we saw in the 50s or 60s in the U.S. When people say that they have seen that growth, its exciting that they can relate it back to their own lives decade back.

Coming back to your first fund, 2i capital PCC, how much of it has been invested?

We have invested everything. We had a total of approximately 200 million.

Pipavav Shipyard, India Infoline, Titagrah Wagons, Idea Cellular, Excel telecom, Gayatri Projects, most of which have been listed.

When do you see yourself making the first investment?

We are evaluating many deals now. May be in the next month or so.

From the current pipeline of things, what does it look like which sector would it be?

At closed levels we are evaluating six companies and we may invest in one or two Get more money and invest in the rest. Its like touch and go at this stage but it could be services or logistics.

By when do you see yourself making the second closure?

We are targeting something by end of October, November, Also factoring in the degree of assumed slowness in the world. The second closure would be in another 60-70 and the final closure of about 200 odd.