Fund focus: DSG wins with early-stage angle

In 2004, Deepak Shahdadpuri, then of GEM India Advisors, became the first institutional investor in Sula Wines. The company has since established itself as India’s biggest winemaker, accounting for 65% of the local market. Its subsequent rounds of funding, featuring the likes of Everstone Capital and Verlinvest, have helped shape Shahdadpuri’s subsequent career as founder of early-stage consumer-focused DSG Partners Asia.

Everstone, which led Sula’s Series B, is part-owner of DSG, having acquired a 50% stake in the GP last year. Verlinvest took out Everstone in the Series D round, as well as buying some shares from GEM India. The investor, which represents the families behind AB InBev, subsequently worked with Shahdadpuri on two other deals and is an LPs in DSG’s recently closed second fund.

Fund I, which closed at $24 million in 2012, relied on contributions from high net worth individuals. The successor vehicle has a corpus of $40 million – half from Fund I investors and half from four institutions. In addition to Verlinvest, DSG has backing from Mousse Partners, UK-based multi-family office ACPI Investment, and the Chanrai family, which founded Olam International.

Their confidence is largely built on the performance of Fund I. Of the 21 investments, there have been four full or partial exits – Oyo Rooms, Zipdial, Veeba Foods, and Redmart – that have together realized more than the entire fund size. Half the proceeds have been returned to investors and the rest redeployed in the portfolio. Of the Fund II capital, half is earmarked for follow-ons and the rest for new seed and Series A deals.

“The idea is to go early, often greenfield, writing the business plan with founders and putting in enough capital to develop a product or service and do a pilot launch. If it works, we put in more money and hopefully continue working with the company as it builds. The thesis is to go in with a 10-year horizon,” says Shahdadpuri.

Raw Pressery is near the start of this journey. When DSG identified the company, it was making cold press juices but with no processing, and the shelf life of its products was too short for major retail chains. The GP introduced Raw Pressery to high pressure processing (HPP) technology and it is now in the process of scaling up, distributing juice to retailers nationwide.

From DSG’s perspective, the strategy is repeatable but not scalable. The firm can take advantage of the demand for consumer brands among larger private equity investors and the fact that few early-stage funds want to tackle deals with no technology angle. However, this means a life of writing small checks from small funds, and the costs of running a GP can be daunting. Everstone is the answer.

“The idea was to use the Everstone platform, and they look after everything apart from the investing,” says Shahdadpuri. “They have no first right to anything, but given we are in the same office they get to see companies early and they can engage sooner.” 

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• Topics
• South Asia
• Southeast Asia
• Growth
• Consumer
• India