The event kicked off with
a
Data Filled presentation on "The State of Indian
Private Equity" by Venture Intelligence. The "India Private
Equity Trend Report - 2018" referenced in the
presentation is available
for download
here.
Private
Equity - The Road Ahead
2017
turned out to be the biggest ever year for both Private
Equity Investments & Exits. Does this signal the
beginning of a sustainable resurgence of the PE segment?
What are the potential pitfalls ahead ?
Macro View: Seeing the large investment numbers - $24 billion, etc.
- makes me uneasy and a little nervous. These are the
kinds of times when investors tend to make mistakes on
the valuation side. While those mistakes are
understandable and firm specific, what is not ok are
mistakes on governance, (increased) debt, misalignment
in sectors and exits.
PE is becoming more mainstream in India: i) CEOs of
large companies wanting to startup and ii) Large
business wanting to sell assets
The focus at ChrysCapital & Sectoral View:
We were focused on exits in 2017 - with a 10:1 ratio
emphasis on exits vs investments. We however plan to get
deploy capital in the second half of 2018 in select
sectors where we see reasonable valuation.
The Electronics space - especially light manufacturing -
is a space where Indian companies seem ready to occupy
the space that Chinese companies are vacating. This
however is not happening as much on the auto components
side.
New sectors are rising out the unorganised sector moving
to organized and GST has been a catalyst in that.
Ajay Candade:
Consistent low interest rates have elevated valuations
of all assets. Overall, we will probably see a slow down
in 2018 (vs continuation of 2017 trends).
We will see a larger role for Private Equity in India
due to large conglomerates wanting to become more
efficient on capital allocation and hence sell off their
non-core assets. Also, distressed groups will be forced
to sell off their crown jewels (owing to lack of
interest in their distressed group companies). These
will together lead to substantial de-conglomeration of
Corporate India.
On Chinese Strategic Interest in India: China�s economy
is increasingly focused on its domestic economy and on
being competitive globally. They require IP for global
dominance. And the space being vacated by China in
manufacturing is being occupied by SE Asia.
Indian corporates are not acquiring Indian success
stories like the unicorns because they are not cash flow
generating. Indian unicorns which have cash in the bank
and have niche bits they want to acquire e.g. by
Flipkart in payments and robotics. You are going to see
more of this as the early universe of Flipkart like
startups start maturing.
Pranav Parikh:
One of the significant changes we will see playing over
the next few years is the impact of increasing supply of
capital to Private Equity firms from domestic sources.
Thanks to the Insolvency and Bankruptcy Code (IBC) and
the current environment (where a number of good
businesses with bad balance sheets are available for
acquisitions), it presents an opportunity for more funds
to enter the reconstruction (turnaround) space .
Gopal Jain:
Macro View:
The high growth rates are likely to affect the commodity
prices in the subsequent quarters. India is a net
commodity importer. So when the rest of the world is
doing really well, India does a little less well.�
We are going to see a shift from �Low Touch� Private
Equity in India to �High Touch� Private Equity due to
the rising PE ownership of private company cap tables.
�It has been years since we have seen a company -
approaching us for capital - without some investors
already in their cap table.�
On Exits:
There has been an order of magnitude shift in Exits. In
the past, investors got comfortable with the Public
Markets in India, where they could put in capital and
also take it out. This is now happening in India Private
Equity.
On China:
More Chinese investments will follow in 2018 as China
tries to offset the trade deficit. China wants more
access to India�s capital, but the Indian government is
yet to decide on the same.
On Sectors:
We are going to see kernels of pure tech plays emerging
in India based on domestic consumption of technology.
Indian companies are missing out on two fronts -
Commodities and Electronics.
Which are the sectors that are looking the most
promising for investments in 2018 and beyond? Is the
Fintech Opportunity for real? Are Blockchain and
Cryptocurrencies on the radar of Indian investors? What
are the Opportunities in Distressed Investing? What is
the outlook for innovative companies in the Life
Sciences sector?
Even as
overall PE investments hit record highs in 2017, numbers
in the VC segment slid for the second continuous year.
What are the challenges facing this segment - from the
perspective of both investors and entrepreneurs? What
will the �New Normal� look like?
How Stellaris is differentiating itself as a "2016-era"
firm (vs the two 2006-era firms he worked at
previously):
1) �OFP� (Ola, Flipkart and Paytm) is the "BAT" (Baidu,
Alibaba and Tencent) of India
Stellaris is leveraging such young founders as both
investors in its fund as well as "differentiated deal
flow" generators.
2) Content Creation.
Unlike in the US, where firms like Andreessen Horowitz,
Founders Fund and others create a lot of original
"thought leadership" content, Indian VC firms hardly put
out any content in an organized fashion. Stellaris is
focusing significant efforts in making its investment
theses available in public domain. Apart from overall
branding as a more transparent firm, by shining more
light on the theses, it helps refine the firm's thinking
as well as attracts deal flow from founders who resonate
with the theses.
3) Realization that the VC business is not a scalable
one
A typical operating business scales by adding people,
and that happens when you have a pyramid structure
through which entrepreneurs delegate more and more to
the next levels. A VC business is very on-the-ground
business. If the investors are not meeting entrepreneurs
day in, day out vigorously - even though 99% will not
result in investments - we are going to be irrelevant
within two years.
Changing Role of a VC: From Monitoring to Supporting
Era of "Monitoring Investments" is over. The
differentiator is now how you support your investee
companies.
Ebihara:
The Softbank phenomenon is a creation of the excess
liquidity (in the global financial system)
Arihant Patni:
On the excesses of 2015: Too many entrepreneurs started
turning into angel investors (versus focusing on running
their own businesses). "It's scary - ie, indicative of a
bubble - when this kind of thing happens."
