Leading growth investment-focused private equity firm Matrix Partners India today announced the close of its second fund of $300 million, taking the total funds under management to $600 million across two funds. The company raised its first fund of $150 million in 2006, and announced a re-up of further $300 million in 2007. According to the firm’s co-founder and managing director Rishi Navani, the firm did not call capital worth $150 million in 2009, because they “thought that there was too much money.” Navani talks to VCCircle on the fund-raising environment and how they did it. Here are the excerpts from the interview:
How is the current fund-raising environment?
The fund-raising environment is extremely difficult. In general, there is a lot of scepticism about private equity returns from India. There is perhaps more excitement seen for public market investing than early or growth investing. But there will always be demand for fund managers who have experience, track record and a differentiated investment strategy.
In an environment where preference is being shown towards late stage or public market investing, how did you position the fund?
We are focussed on private companies. We like to say that we do early and growth-stage investing. Our first check in the company will be anywhere up to $20 million and we would typically not like to go beyond $30 million on deals.
So, you are not a classic venture capital outfit, how you started?
I look at it this way that we invest in high-growth companies which are consumption-driven and feel that the companies benefit from the value addition that we provide. Our sector focus is Internet/mobile, education, financial services, healthcare and infrastructure services sectors. We do make early investments in the Internet and mobile companies and scale them to a level which we think is pretty meaningful for them. Venture capital funds in India cannot solely invest in the Internet and mobile as there are not many opportunities. By definition, one has to diversify.
What essentially helped you in fund-raising?
The biggest advantage for us was the Matrix lineage. (Matrix Partners began in Boston in 1977 as Hellman Ferri Investment Associates, one of the first firms on the East Coast to have a start-up technology focus. The firm was a founding investor in Apollo Computer, Stratus Computer and Continental Cable (now Comcast), and an early investor in Apple Computer.)
Matrix has a track record of more than 25 years with its institutional investor base. The other factor that helped us was the high exit visibility in the portfolio, especially by way of two very visible liquidity now – Muthoot Finance, a Kerala-based NBFC whose IPO was subscribed 24 times and the forthcoming IPO of TreeHouse (an education services provider for pre-schools and K-12 school). Also, while we were fund-raising, we had 14 portfolio companies (currently 16 companies) which had showed significant mark-ups in valuations from the previous round.
How should one approach fund-raising?
Frankly, the Matrix lineage really helped us in fund-raising. We had a very detailed investor presentation, which was the chief marketing document.
Can you give us a geographical break-up of the fund-raising?
We have a global institutional investor base. We have investors from Asia, Europe and the USA. However, the fund-raising is heavily skewed towards endowment funds and pension funds in the USA.
Why are investors showing more preference towards late stage or public market investing?
The biggest challenges seen in the early and growth investing from the LPs are quite a few. First of all, entry valuations in the private markets are very high, compared to the entry valuations in other markets. Secondly, there has not been visibility on the exits or returns relative to the capital raised in India. And thirdly, there is an overall perception that there is an oversupply of capital.
So, are you saying that there will be more public market funds now?
What you will see is a clear bifurcation in the market where there will be an appetite and demand for funds run by experienced fund managers with track record and differentiated strategy – be it private or public. A large number of other funds will just not be in demand.
Will there be any shift in your investing style?
Our investment strategy has evolved over the years and we will be doing the same that we have been doing over the last couple of years. Our investment philosophy is not so much guided by the size of investments but the management teams that we support. We feel that entrepreneurs create category leaders.
It’s a difficult fund-raising environment, as you also mentioned, where LPs are calling the shots. So, do you have to compromise on carry or management fee?
We are the first fund post-financial crisis in 2008 which has raised money from the LPs on premium terms. So, there’s no question of any kind of compromise.
