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PEs turn early birds, eye firms with big capital appetite

Large PE players increasingly writing small cheques for early-stage firms

Shivani Shinde  |  Mumbai 

In May, internet classified company Quikr received $36 million in one of its largest funding rounds. (PE) entity Warburg Pincus led the way, with existing investors Norwest Venture Partners, and

In December 2011, General Atlantic and existing investor Sequoia Capital invested $108 million in Bangalore-based analytics company Mu Sigma. The investment was considered one of the largest in the data-processing and enterprise-software services industries.

PE and venture capital (VC) firms believe the trend of PEs investing in companies earlier than usual would rise with time, especially in fast-growing and emerging segments.

Consider the case of Fidelity Growth Partner. Though the fund’s core focus area continues to be investment growth, it has, in the last 12-18 months, increased investment activity in the early-stage segment, primarily in technology and life sciences.

“You are increasingly starting to see traditional growth-stage investors like us investing amounts smaller than the typical cheque-sizes into early-stage companies. This is really a part of our evolving strategy to get in early into companies that can absorb more capital over time, while helping us establish a strong relationship with the management teams, as we partner them in each stage of their growth,’’ says Raj Dugar, senior managing director, Fidelity Growth Partners India.

Dugar feels this also reflects the evolution of the entrepreneurial ecosystem, more mature today than in the past. One can see seasoned managers willing to make the transition to entrepreneurship, he adds. Many VC-funded companies have matured and are looking at large-sized funding, available only with PE funds.

Abhay PandeyAbhay Pandey, managing director, Sequoia Capital, says, “It is not unusual for private investment firms to invest across venture growth. You will see increasing PE investments in venture-backed firms in India. A large part of the portfolio firms of VC funds are now three to five years old. It is ready for growth-stage funding. Growth funds are usually more comfortable investing in companies with an existing VC investor, as many boxes around management teams and governance are already checked.”

Niren ShahNiren Shah, managing director, Norwest Venture Partners, agrees. “From a VC standpoint, we are very interested in large PE players investing in our companies. One such instance was the recent investment by Warburg Pincus in our company,,” he says.

Norwest Venture Partners, which focuses on both growth equity and venture capital, is keen to invest in growth-stage firms with VC backing. “It allows us to invest up to $50 million in such companies. Since these companies are VC-backed, we are typically assured of certain pre-requisites such as corporate governance, board management, etc. We are currently looking at a few companies from this viewpoint,” says Shah.

Experts say as PE players start widening their portfolios, the industry would see PE players investing across venture growth. For PE players, VC-backed firms are also a good pool for investment. Shah feels areas such as banking and finance, consumer technology, healthcare and clean technology would attract PEs.

VC-backed firms in talks to raise funds from PE entities include Prizm Payment, a payment services provider. According to reports, the company plans to raise about Rs 500 crore.

Sequoia Capital-funded Vasan Eye Care Hospitals has raised $100 million from GIC.

“Many domestic companies that would have otherwise accessed capital markets are being forced to access private growth capital, owing to market conditions. This is not a bad thing, as historically, many Indian companies have accessed capital markets well before they were ready for it,” says Pandey.

First Published: Thu, June 28 2012. 00:39 IST