Investors should leave enough on the table when they exit, so that the next retail or institutional investor is also able to make money, Sanjay Nayar, senior advisor, KKR said while speaking at the Indian Venture and Alternate Capital Association (IVCA) conclave on Tuesday.
“Exit with grace, (whether) exiting listed entities or unlisted entities. What you leave behind for the next person, whether it is a retail investor or strategic who buys it from you, is extremely critical. That builds your legacy,” Nayar, who is also the former chairman of IVCA and a shareholder in beauty startup Nykaa, said. This also builds comfort for the management team, as it leaves them with time, he added.
Nayar is a shareholder in Nykaa (FSN E-commerce Ltc), through two family trusts, which cumulatively owns over 52% stake in the entity, according to the Bombay Stock Exchange. Nykaa, which was founded by former Kotak investment banker Falguni Nayar, saw its share price nearly double upon listing in November, from its issue price of Rs 1,125 apiece.
Nykaa shares were trading on Tuesday at Rs 1,356 per share, above issue price, despite the market volatility of the last few weeks.
Some of the other new age firms have not been as lucky. One97 Communications, the parent of Paytm, for instance was trading at Rs 739.20 apiece, down from its issue price of Rs 2,150 per share.
Investors have lost over 50% of their investment in new age tech firm because of market volatility, VCCircle reported on 24 February.
Nayar also emphasized that investors need to prioritise for growth, instead of banking on “increase in multiples” for an exit.
“I don't think we can necessarily bank upon increase in multiples as we go in,” he added.
"From a pure private equity perspective, growth is key. Which means for all of us, identifying the right management teams, the right founders is always going to be number one priority. Underwriting growth, underwriting consolidation and rationalization is going to be extremely important upfront,” Nayar said.
As the head of private equity for KKR in India till December 2020, Nayar oversaw the firm’s exits from Alliance Tire Company and Gland Pharma.
Nayar also noted that it is also crucial that the exiting investor leaves the buyer in a better shape, he said.
“You can't have a management team leave financials where the other person discovers that the management team is gone but the financial the not so strong or that, you know, a lot of cash has been taken out,” he added.
A lot more investor exits are going to be driven by the capital markets going foward, he said adding that, investors need to start preparing their portfolio firms from the beginning. Investors need to focus on “fundamentals” going forward, noting that it is easier for companies to do this while they are still public.