Large PEs try their luck with 'professional' start-ups

Start-ups usually don't reflect on large private equity funds' radar. In fact, investments in start-ups add up to just about one-hundredth of large funds' ticket size. However, of late, investments worth hundreds of crores of rupees have been flowing into a particular kind of start-ups - ventures owned by industry veterans with decades of experience.

In February this year, an investment worth Rs 315 crore was made in a start-up launched by Arumugham Mahendran, former managing director of Godrej Consumer Products. The investment was made by large funds such as Goldman Sachs and Mitsui Global Investments. Mahendran, who quit Godrej Group in mid-2013 after an 18-year stint, is busy setting up his own consumer goods empire, with products ranging from snacks to beverages.

"All start-ups have growth potential, as long as the promoters have the passion to make it happen. The only difference between a first-time start-up promoter and me would be the experience I have in running a business and can predict issues that could crop up before they do and come up with solutions because I've been through it before," said Mahendran.

Prior to its investment with Mahendran, Goldman Sachs had inked a similar deal with Sumant Sinha, former chief operating officer with leading wind turbine maker Suzlon Energy. ReNew Wind Power, founded in 2011 by Sumant Sinha, son of Bharatiya Janata Party (BJP) leader and former finance minister Yashwant Sinha, received investments worth $320 million in three tranches in Goldman Sach's largest investment in Indian power sector.

"The investors back persons in the case of experienced entrepreneurs like us than ideas which is in the case of young entrepreneurs," said Sinha, adding: "Through our decades of experience, we have earned enough domain knowledge as well as organisational knowledge, which will help us grow a large organisation very fast."

Sumant Sinha, who worked as group chief financial officer at Aditya Birla Group and CEO of Aditya Birla Retail, helped refinance Suzlon's debt worth $3 billion. "Tying together our global and local domain experiences and networks, backed by our capital, we look to accelerate growth and innovation in industries with visionary Indian leaders," said Ankur Sahu, co-head of private equity at Goldman Sachs in Asia.

Besides ventures by Mahendran and Sinha, Kiran Energy - founded by former Tata Sons director Alan Rosling - received equity commitment of $50 million from three US-based private equity funds - New Silk Route, Bessemer Venture Partners and Argonaut.

Similarly, Portea Medical, a venture by Tutorvista founder K Ganesh, which aims at providing technology-led home health care services to the Indian consumer, got funding of Rs 48 crore ($8 million) from Accel partners and Ventureast.

Sanjeev Krishan, executive director and leader (private equity and transaction services) at PricewaterhouseCoopers, said: "One of the key investment parameters for global PEs is good and credible management teams. The wide experience these industry veterans have in the sectors in which they seek investment create the 'delta', and this usually makes the difference."

Acquisitions seem to be the best option in front of these veterans for quick growth. According to Mahendran, he explores acquisition opportunities for the new company and will start negotiations for buying out popular brands in the snacks and beverages space. Portea chairman

K Ganesh also said the company was in preliminary talks to acquire a few service providers operating in the health care space.

"I very firmly believe that more PEs should adopt this model in other categories. Most of the entrepreneurs here don't get the chance to build world-class organisations primarily because of the lack of a partner who can fund the company for its growth. This new model gives the opportunity to anyone with the vision and passion in the country to build the next Unilever or Apple," said Mahendran.