After setting up multi-crore businesses from scratch, former bureaucrat-turned-entrepreneur Sanjay Gupta is now planning to help entrepreneurs with his newly-launched private equity (PE) fund Let India Fly for Ever (LIFE).
Aimed at small and medium enterprises in the ‘late start-up phase’, the Rs 250-300 crore fund would provide capital solutions to enterprises for expanding their business. While a Securities and Exchange Board of India approval is being expected within 45-60 days, Gupta aims to wrap up the first round of financial closure within the next three months.
Gupta’s fund differs from other PEs in the market, as here, a conscious decision has been taken not to demand a fixed internal rate of return (IRR).
“In PE, a fixed IRR is debt masquerading as equity,” says Gupta, a former Indian Administrative Services officer and founder and chairman of the Rs 2,000-crore Neesa Group conglomerate that operates 16 companies across the hospitality, agri-tech, food-processing, real estate, education, information technology, infrastructure, health, biotechnology, energy and security solutions segments, employing about 3,000.
The 1,200-room Cambay Hotels and Holidays is the flagship brand of the group, whose assets include six luxury hotels and two golf properties. Other major Neesa Group companies include Neesa Leisure, Neesa Infrastructure, Neesa Agritech and Food, Orient Spa, Neesa Technologies, Neesa Financial Services, Neesa Township & Properties and Cambay SEZ Hotels.
After serving as chairman of the Metrolink Express between Gandhinagar and Ahmedabad (MEGA), for two years, Gupta recently resigned from the post. A special purpose vehicle set up by the Narendra Modi government in Gujarat, MEGA was the nodal agency for the execution of the metro rail project in the state.
Intending to be fully involved in his businesses as well as the new fund, Gupta hopes to cash in on his experience as a bureaucrat, business professional and entrepreneur to identify the right enterprises to invest in, as well as to scout for investors for the LIFE fund across the globe.
“In the past, I have set up businesses and had to access equity, meet venture capitalists and PEs, make presentations and go through rigamarole. Be it Gujarat Petronet, where we were talking to IDFC PE, or the Adani Group, these experiences have taught me in India there is a big gap between what entrepreneurs should look for and what is actually available,” says Gupta, credited with successfully turning around Gujarat State Petroleum Corporation into a blue-chip company as its managing director in the late 90s.
Gupta says as a concept, PE originated in the West. Unlike in the US, PE in India means ‘growth capital’ and focuses only on scaling up. “With the pressure of generating a fixed internal rate of return (IRR), entrepreneurs get into financial engineering instead of focusing on business and profit.
Eventually, they lose sight of the cost structure and profit in the process of scaling and making their ventures ‘IPOable’. Our fund will take a long-term view and help a venture accelerate, rather than put pressure on it to scale up,” says Gupta, who is set to act as mentor for LIFE fund.
The fund would seek to invest in Indian enterprises across sectors such as media and entertainment, hospitality and tourism, healthcare and lifestyle. In part, this is because these are some of the flagship sectors Gupta’s Neesa Group is involved in.
“We are open to raising funds from outside the country as well. My network with banks, financial institutions, government agencies and high net worth individuals will come in handy. My dream is to raise $1 billion for the fund over the next five years,” says Gupta. He hopes hundreds of more such funds come up in the country.
Experts feel the time is right to set up a PE fund. “There is a huge shortage for risk capital in India, which a PE can provide. Also, there are good prospects in India for a PE that looks at a five-eight year horizon. However, the global fund raising environment for PEs is challenging. Nevertheless, it is a good time to invest in enterprises in India since valuations are a lot reasonable,” says Ashesh Shah, managing director, Trans-Continental Capital Advisors.
For LIFE fund, analysts fear Neesa’s troubled background might impact fund raising.
“Though there is a slowdown in the economy, it is the right time to set up a PE fund, as there are good enterprises emerging in the country. Also, Gupta would be managing the fund on a personal capacity and would have a corpus and raise funds on his own, independent of the Neesa Group. However, the recent corporate debt restructuring package Neesa Leisure had applied for might impact the fund’s image, as prospective investors might demand higher scrutiny,” said an analyst on condition of anonymity.
In 2011, the Income Tax Department had reportedly found unaccounted assets during countrywide searches of Cambay’s properties. However, these assets were held as legal by the Gujarat High Court, when approached by Gupta.
In LIFE fund, Gupta intends to infuse capital of Rs 15-35 crore into each venture, apart from providing business advice and domain expertise, after raising funds from varied sources.
Gupta would act as promoter of the fund; a professional asset management company would be responsible for management. “I will try to bring in professionals, experts in their own fields, to manage the fund. I will look at the strategy. On a long-term basis, I will be more involved with my fund business than Neesa, since I already have industry specialists heading each of these businesses,” he adds.
Gupta says LIFE fund wouldn’t act as an angel investor or venture capitalist.
“We will come in at the early-growth or late start-up stage. We can’t take the angel or venture capital risk. Also, we can’t come at a mature growth stage, make money, and just leave. We will come when signs of growth are there and we would take a long-term view of the venture. Our investment horizon will, therefore, be of eight-10 years; from the fourth year, they should be able to make profits and distribute dividends,” he says.
To select potential ventures, the fund would rope in transaction sourcing companies that would help set up an appraisal criteria for LIFE, for a fee.
Gupta is also open to the fund-of-funds route, but only later. “We have initiated the process of obtaining regulatory approvals and are also sensitising potential investors. Upon receiving approvals, full-scale domestic and international fund raising would be undertaken. It is likely we may have to engage in professional fund raising entities,” he adds.
Potential investors include pension insurance funds, family offices, government agencies, banks, financial institutions, companies and high net worth individuals.
JOURNEY SO FAR
* Joined the Indian Administrative Service in 1985 and served in the Gujarat government for 17 years till 2002 in various positions
* Joined the Adani Group as chief executive (infrastructure), where he helped Gautam Adani scale up and diversify investment in infrastructure
* Founded the Rs 2,000-crore Neesa Group that operates 16 companies across the hospitality, agri-tech, food-processing, real estate, education, IT, infrastructure, health, biotechnology, energy and security solutions segments
* Served as chairman of the Gandhinagar-Ahmedabad Metrolink Express for two years