Promod Haque's Norwest Venture Partners India has shifted its gears to growth capital, PIPES, and late stage investing in the country. The firm, which has been investing in tech and consumer internet related ventures, will now expand its focus to include traditional sectors like infrastructure, telecom, manufacturing and finance.
The shift in strategy has been reinfoced with the fact that firm has hired Sohil Chand (in pic above), who was executive director in Goldman Sachs' Asian Special Situations Group, as a Managing Director.
"My role will be to focus on growth investments of the type we have been doing at Goldman, with larger deals across sectors," said Sohil Chand, Managing Director of NVP India, in an interview to VC Circle.
Norwest will now be investing in larger companies, including PIPE deals. It will also look at open market bulk deals, said Chand. However, it will not desert technology, its original focus.
"We will also look at technology sector as we are strong in that," said Chand. On adding people to his growth capital team, Chand said that Norwest will look to expand the team when appropriate. Norwest already has Niren Shah as a managing director in India and Mohan Kumar as an executive director.
Though Norwest does not have a cap on size of its growth capital investments, it plans to make investments of minimum $20 million (Rs 100-125 crore), said Chand. Norwest plans to invest out of its $650 million global fund. The investments will be held for a period of 3-5 years. On being asked if they will raise a new fund for growth capital, Chand said Norwest has got access to funds and fundraising is a continuous process.
Why change in strategy?
There have been a number of Silicon Valley funds operating in India who have taken up growth capital investments and diversified across the sectors. "It is important in India to have a multi-sector focus unlike the US, where the entire venture capital industry has been born and focus is entirely almost on technology," said Chand. "Technology, I don't think is the driver of Indian economy and is already overweight in the stock market as percentage of total market capitalisation," he added.
"I think we have to adjust to reality," said Chand. A lot of other venture funds like Sequoia Capital, Mayfield, Draper Fisher Jurvetson, Matrix Partners and Lightspeed Venture Partners have already adjusted to this reality. "You cannot take a US strategy and bring it in a market where dynamics are completely different and expect it will be the right strategy," he added.
Also in US, investments are either in venture capital segment or big ticket buyouts. Growth capital investments is a strategy that is somewhat unique to emerging markets such as India and China. The kind of opportunities and market that Indian SMEs have for growth is not present in the US.
"There is a lot of opportunity in mid-stage companies in the Indian market," said Chand. "There are a number of mid-stage companies with huge potential for growth with capital requirements which are hard to get," he said.
On current market environment
"With the extreme market correction, there are a lot of companies which require growth capital and for them market access has been shut," said Chand. There has been a dearth of IPOs in the Indian capital markets, with only one IPO in September. A lot of companies have also delayed their IPOs and other capital raising plans. "These companies have now reached a valuation that can give good returns over medium to long term," he said.
The Indian stock markets have recently touched its lowest since 2006 and a lot of private equity funds that invested at markets peak have seen value of their investments erode. Since July this year, some private equity and hedge funds have increased their India activity as valuations have started falling.
"Valuations now look attractive and markets have over corrected relative to fundamentals and there are interesting opportunities," said Chand. "I imagine it will be an interesting opportunity for funds who have raised Asia focused capital to invest in Indian markets," he added. But at the same time people will go out of Indian market, said Chand. He expects that market will recover in six months or a year's time.