India Awards: Fundraising of the Year – Kedaara Capital
In India's challenging fundraising environment, GPs – especially first-time fund managers – should expect the marketing process to be difficult and protracted. In 2013, LPs committed just $2.2 billion to domestic managers, down from $2.4 billion the previous year. It is the lowest annual total since 2004.
But Kedaara Capital managed to reach a final close of $540 million on its debut fund, beating the $500 million target. In addition, the GP is waiting to close a rupee-denominated fund for local investors which will invest alongside the US dollar vehicle on a pro rata basis. The combined size of the two entities will not exceed $600 million.
"The bar on India is very, very high today," says Sunish Sharma, co-founder and managing partner at Kedaara. "The biggest issue that always comes back in India is exits and liquidity. While currency has disappointed a lot of people, I think if there had been enough exits out the country, people would be less concerned about it."
The GP's view is that this is the one of the better cycles to invest in the country, and Sharma adds that there are LPs who invest through cycles and have partnered with Kedaara.
Sharma, formerly managing director at General Atlantic, and ex-Temasek India head Manish Kejriwal set up the firm at the end of in 2011 alongside Nishant Sharma, formerly of General Atlantic and McKinsey & Company. Kedaara would provide "solutions-oriented capital" that combined financial backing with strong operating capabilities.
"Based on the nearly 10 years of investing each of us had before we started Kedaara, we felt that one of the things missing was that most people were focused on providing capital and not always helping the portfolio companies with operations," explains Sharma. "Our view is that if you really want to make successful investments in India, capital alone is not going to be sufficient. You need to bring best of breed operating capabilities which are not just local, but global."
In order to increase their ability to influence operations and generate an exit, the firm decided to target buyouts as well as minority growth deals. While control transactions are still relatively few in India, interest in such deals is growing.
"We are seeing a lot of interest not only from family conglomerates, but also from first-generation entrepreneurs facing succession issues as well as multinationals looking to divest their India portfolios," says Kejriwal.
Kedaara sealed a partnership with Clayton, Dubilier& Rice (CD&R) a UK-based firm known for its operational approach to buyouts in March 2012. CD&R helped the firm define its approach to control transactions and develop systems for attracting and deploying operating partners.
The founder and former CEO of Genpact, PramodBhasin, and Sanjeev Aga, ex managing director at Idea Cellular, are operating partners at Kedaara while ex-Hindustan Unilever head VindiBanga is an operating partner with CD&R who spends time with the Kedaara team.
The fund launched in May 2012 and reached first close six months later at more than $325 million, with a commitment from Ontario Teachers' Pension Plan (OTPP) as anchor LP for the fund. It is the Canadian pension fund's first investment in an India-focused fund.
"In India we looked at number of different groups and hadn't found one for which the chemistry felt right," Jane Rowe, senior vice president at Ontario Teachers' Pension Plan, told AVCJ last year. "When we think about the guys at Kedaara, we liked the background they brought to the table - a strong mix of local networks and Western training and skills."
Temasek Holdings and Abu Dhabi Investment Authority are said to be among the LPs in the fund. Kedaara wanted a mix of capital pools and geographic diversification in the LP base, and tapped existing relationships with LPs, introductions through other funds and leveraged CD&R's relationships as well.
A second close followed in March 2013 and the fundraising on the US dollar portion of the fund, bar the paperwork, was wrapped up by August. Kedaara has several investments in the pipeline. The deal ticket size is expected to be $25-30 million, with no upper limit on transactions due to the appetite for co-investment among LPs.
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