Lines between PE and VC investors blurring: Panellists at VCCircle LP summit

With private equity (PE) players increasingly going in for small-ticket deals, seen as the preserve of venture capital (VC) firms, the lines between the two are beginning to blur, said panellists at News Corp VCCircle Limited Partners Summit.

Citing their own fund-raising experiences, the panellists said that limited partners (LPs) are concerned about the investment thesis and looking for a differentiated investment model, which is driving this overlap.

John Dougery, managing director of Inventus Capital Partners, said, "We are seeing a trend of growth players expressing interest in early-stage investments. However, I don’t see PE funds taking a bite out of Series A, which is where we focus."

"We’ve had a lot of big global PE players coming to us every month, tracking our portfolio because they’re starting to see that maturity in the portfolio is something that’s attractive. It’s not that the PE [investor] is trying to mask itself as VC—companies are starting to graduate to a stage where they have cash flow and are in a leadership position, 10x the nearest competitor. You don’t have existential risk—that’s anathema to somebody who’s looking to invest.''

Besides, Series A, B and C funding has seen a general mark-up in deal size and received interest from both VC as well as PE investors. However, it remains to be seen if this is one-off, or a trend that's here to stay, the panellists added.

Pramod Ahuja, partner, Tata Capital Growth Fund, said: "This is evolution and everyone has a role to play. We want to provide growth capital for a minority stake investment. We fund early- to late mid-stage growth requirements, so the idea is to identify macro trends and overlay that with good micro because in minority investing we’ve got to get the partner right. The whole evolution is taking place in such a way that there’s fertile ground for everyone to play, and we pass companies off to bulge-bracket PE funds. So it's complementary, not them vs us."

Sameer Nath, managing partner at Iron Pillar Fund, didn't pull his punches, ascribing the rising interest of PE players in early-stage investing to "a bunch of opportunistic investors who dabbled in venture and growth, resulting in a bubble that lasted just five quarters." He said very few of them can be seen in the market now because of the capital crunch. 

"I do see bigger Series A, B, Cs starting to do a few more Bs; maybe they’ll also do a few more Cs," Nath said. 

The panellists were also of the view that emerging tech, such as Internet of Things and blockchain, will attract funds from PE and VC players alike. 

Shashwat Sharma, partner, KPMG, said, "Primary industries around fintech and services companies, and new tech will attract funds. Small finance banks or payment banks are a one-off investment opportunity. In e-commerce also, the number of deals has fallen significantly."

Ahuja added that a few years ago there used to be VC, PE and buyout, but now "we’ve got lost in this alphabet soup, which is, maybe, a sign of maturity". 

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