Contribution by: Gaurav Kaushik, CFA, IAIP Volunteer
The Delhi chapter of IAIP organized a highly interactive presentation on Private Equity and Venture Capital on 6th July 2013 at India Habitat Centre. It was attended by about 50 members and candidates. The session was conducted by Shwetank Patni, a Senior Investment Manager at Jacob Ballas Capital.
As the audience was a mix of students & working professionals, he started with explaining the various types of investors (Angel investors, Venture capitalists, private equity and buy-out funds) and the differences between each of them. He covered the major players in the industry and the broad investment strategies they follow.
Shwetank covered the entire PE process of how a company prepares itself for fund raising, preparation of IMs , role of investment bankers , negotiations & offers, due diligence, documentation, closing, monitoring and finally exit. He made a case on why PE is a better source of capital than raising money through debt or IPO and the various benefits that PE brings to a company.
Patni covered the growing popularity of mezzanine funding instruments such as convertible debentures, preference shares, warrants, options etc. They provide a regular return with equity conversion providing upside. These can be secured by pledge of shares, promoter and corporate guarantees, escrow of cash flow etc. It addresses the concern of PE investors like valuation (debt instruments so no valuation required) and exit (redeemable and can be structured to match the timing of cash flows). These are also beneficial to promoters as there is no equity dilution and it fills the gaps in traditional debt financing.
Shwetank covered a very interesting case of Blackstone’s investment in Intelenet in 2007 for $180m.The investment was done at a high valuation of 3x revenue and was followed by a global financial crisis. He explained how Blackstone turned around the company and managed a 3x multiple on its investment when it sold its stake to Serco in 2011.
Patni covered some of the recent large deals closed and the trends in the industry like increasing proportion of deals in the VC category, deal profile across geographies, India’s share in deals of Asia-Pacific region, cyclical trend in deal volumes, sector preferences etc. He discussed the current macro challenges faced by the country affecting PE performance , views of various GPs and factors due to which PE funds in India has been underperforming etc.
He talked about the pioneering work by Venture sutra and India venture board of connecting entrepreneurs and Investors online. Focused on VC funds, they provide a huge benefit to Tier-2 &3 entrepreneurs who may otherwise have limited access to such funds, intermediaries, legal counsels etc.
He opined that just like any other industry, PE is also going through a cycle and will witness consolidation. LPs will prefer funds with track record and operating history. Funds with wider mandate in terms of deal size , stage of investment etc. will have better prospects. Focus will shift from investment rush to profitable exits. He was hopeful that India, being amongst the fastest growing nations in the world with a young population, dynamic entrepreneurs and low valuations will continue to throw multi-bagger investment opportunities in future.
PS: You could find the presentation on the following link http://www.cfasociety.org/india/Pages/ContinuingEducation-Presentations.aspx