The Economic Times - - Power Of Ideas -

t was the best of times, it was the worst of times…”

If that line, penned by Charles Dick­ens more than 150 years ago, were to be ap­plied to­day to a spe­cific, sin­gu­lar con­text, it would have to be the di­chotomy faced by In­dia’s risk-cap­i­tal sec­tor.

Funds that had turned cagey about back­ing do­mes­tic star­tups are again rais­ing money to in­vest in ven­tures emerg­ing from the Asia’s third-largest econ­omy, ex­pect­ing to find more gems fol­low­ing the whip-crack­ing that’s still re­ver­ber­at­ing through the in­dus­try.

But as they turn to lim­ited part­ners to back their new in­vest­ment ve­hi­cles, they are find­ing these in­vestors still scep­ti­cal about In­dia-spe­cific funds be­cause of a con­tin­u­ing lack of op­tions to sell in­vest­ments, in­flated val­u­a­tion ex­pec­ta­tions, an un­cer­tain reg­u­la­tory regime and the on­go­ing chop­pi­ness in global mar­kets.

Lim­ited Part­ners, or LPs, could be bil­lion­aire in­di­vid­u­als, fam­ily of­fices, sov­er­eign funds, pen­sion funds, en­dow­ments or su­per­an­nu­a­tion funds, to name a few, that pro­vide money to ven­ture cap­i­tal and pri­vate equity firms.

“I don’t ex­pect cap­i­tal al­lo­ca­tions for In­dia to in­crease,” said Gopal Jain, man­ag­ing part­ner of mid-mar­ket pri­vate equity firm Gaja Cap­i­tal. “All the three asset classes of which In­dia is a part—namely Asia, ex­clud­ing Ja­pan; the Mid­dle East and BRIC (the Brazil, Rus­sia, In­dia and China eco­nomic group­ing) —are far­ing badly. I ex­pect the fundrais­ing en­vi­ron­ment for In­dia to re­main chal­leng­ing.”

Jain rep­re­sents one half of a sharply di­vided fra­ter­nity of fund man­agers and lim­ited part­ners ET spoke with to gauge the sen­ti­ment to­wards In­dia, with sev­eral in­dus­try pro­fes­sion­als lean­ing to­wards de­creased cap­i­tal al­lo­ca­tion in the new fi­nan­cial year.

“In­dia con­tin­ues to be an im­por­tant ge­og­ra­phy for us but global LPs are in­creas­ingly look­ing at the coun­try’s reg­u­la­tory land­scape as well, based on which al­lo­ca­tions could get de­cided,” said an in­vest­ment man­ager with a prom­i­nent asset man­age­ment firm that has backed a num­ber of funds that have, in turn, in­vested in prom­i­nent do­mes­tic star­tups.

A slow­down in cap­i­tal al­lo­ca­tion by LPs could not come at a worse time for fund man­agers, a num­ber of whom have an­nounced am­bi­tious plans to launch new funds, among which are a num­ber of de­but in­vest­ment ve­hi­cles. That’s another area of un­cer­tainty.

“A lot of in­vestors are not very fond of de­but funds, and it will be tough for (the funds), un­less, for ex­am­ple, they are spin-out funds of a cer­tain pedi­gree,” said Ma­hesh Para­sur­a­man, part­ner at Am­i­cus Cap­i­tal Part­ners, a pri­vate equity firm launched last year. Among the de­but fund man­agers on the road to raise money from LPs are Alok Goyal, Ritesh Banglani and Rahul Chowdhri, who quit He­lion Ven­ture Part­ners to start their own firm. For­mer SAIF Part­ners prin­ci­pals Mukul Sing­hal and Ro­hit Jain, too, are in the process of set­ting up their own fund, and Mo­hit Gu­lati, co­founder of Oliphans

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