Indian GPs tip more PE industry consolidation - AVCJ Forum

In the wake of the global financial crisis - which was preceded by a boom in India private equity fundraising and investment - many managers struggled to deliver exits. A period of consolidation ensued and the industry was whittled down to the set of 15-plus established domestic names that remain in operation.

Now, they appear primed to take advantage of an investment landscape where pockets of value can be found in a variety of areas. Moreover, there is an expectation that control opportunities could accelerate as a result of economic disruption created by COVID-19.

"It helps LPs to narrow in on managers," Sanjay Kukreja, CIO at ChrysCapital Partners, told the AVCJ India Virtual Forum. "Sector overlaps between these [remaining] firms are limited too."

ChrysCapital, which traditionally focuses on financial services, technology and healthcare, is looking at VC-backed start-ups that have scaled and demonstrated a path to profitability. "It is a break from the past for us. The pandemic has been a little bit of a catalyst," Kukreja said. 

Renuka Ramnath, founder and CEO of Multiples Alternate Asset Management, added that the pandemic also offers GPs a way to evaluate Indian corporates from different angles. They can study management teams in terms of their readiness to embrace industry-wide digitization trends, their response to a crisis, and their ability to grow stronger through effective M&A strategies. 

However, Ramnath warned that it remains to be seen whether corporates would turn to private markets for long-term financial and structural support.

"If corporate India is slow and doesn't move quickly enough to consolidate or prefers the traditional IPO route, it would leave the private equity players with limited choices," she said. "The growth in our firms, fund sizes and strategies would be restricted but the multiple rounds of funding for Jio Platforms showed there is plenty of money for a compelling opportunity."

Investors noted that stability in local financial markets and a recent economic recovery means mark-to-market valuations can now be made and some companies are able to forecast near-term earnings. While the situation is better than the worst-case scenarios previously envisaged, capital is still scarce.

For start-ups looking to graduate to later-stage funding rounds, a few growth-oriented VC firms have emerged, but capital still gravitates towards a relatively small number of well-known names.

This problem has been exacerbated by a slowdown in venture capital from sources with links to Chinese entities. A regulatory degree imposing additional bureaucratic hurdles for Chinese investment is primarily responsible. 

"The risk of an anti-China sentiment potentially presents a thinning out of the herd of follow-on investors that could be problematic for the venture capital industry," warned Joe Bryant, an investment director at UCLA Investment.  

Gopal Jain, a managing partner at Gaja Capital, added that it's questionable whether domestic sources can fully replace Chinese capital. As a result, there is the danger that growth within sub-sectors in Indian internet technology could get disrupted.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• South Asia
• GPs
• India
• AVCJ Events
• Gaja Capital Partners
• Multiples Alternative Asset Management
• ChrysCapital Management