On Saturday, Goa State Industries Association (GSIA) and private equity (PE) firm Lauris Capital Partners (HK) Ltd held the first of a two-part event to educate small and medium enterprises (SMEs) on PE and help them access investors.
The event, Introduction to Private Equity and Private Equity Investment Process, preceded India Private Equity Fair, where 25 companies looking for investments ranging from $10 million to $200 million (Rs40 crore to Rs800 crore) will be on showcase to PE firms at Mumbai on Wednesday.
These events are significant, because typically it is venture capital investors who hold showcases and workshops for start-ups. It seems that PE investors are working harder to access SME deals. And they are realizing that SMEs need a similar level of hand-holding through the investment process as start-ups, because they don’t have exposure to PE investors, nor the budget to educate themselves via investment bankers or consultants. This may be the start of a trend to help bridge the gap between SMEs (particularly in smaller Indian cities) and investors.
On Saturday, 55 people listened as Hong Kong-based Harshawardhan Sabale, founder and head of Lauris Capital Partners, which does SME buyouts in India, demystified how funds are set up, how fund managers get paid and how they make investments.
The attendees, who were mostly from GSIA, but some from as far as Kolkata and New Delhi, jotted down notes as Sabale explained terms from the PE world—“A Round” to “Deal Flow” to “Clawback”—to his audience. Less than five of the attendees had any exposure to PE, but the vast majority are preparing to meet investors on their own or through this event.
Between 21 and 22 March, 20 of the companies that attended the Goa event, and which have at least Rs12 crore revenues each and more than three years of operations behind them, will be selected ahead of being presented and introduced to PE investors, who in turn will examine them for funding.
One candidate is Digambar Naik, cardiologist and owner of Vrundavan Hospital and Research Centre, wants to raise Rs70 crore to expand from two hospitals with 200 beds to a national chain. His goal is to develop a new business model that will be profitable while “treating everybody equally at a price they can afford”. He has met two investors through friends, but they haven’t worked out.
Like many at the conference, Dr Naik wanted to arm himself with how to better understand PE investors. Many of the attendees said they find the language PE firms use confusing, and some were concerned about being taken for a ride. They also simply don’t know how to access the investors, and find that there are few resources (including investment bankers) to help them. This gap that the attendees complained about happened to be the catalyst for this event.
GSIA president Atul Pai Kane, also the owner of back-up power company Power Engineering (India) Pvt. Ltd, considers himself a prime candidate for PE-introductory events. Pai Kane had worked for about three years to understand and access funds from firms such as Lauris Capital, which is likely to make its first investment in Power Engineering. Pai Kane had delegated most of his business operations to his managers to focus on fundraising, he said. Despite hiring intermediaries, he found the process unwieldy. So, on Sabale’s suggestion, he helped organize the Goa event.
Investment Process Tips
• Don’t initiate the investment process if you are not serious. If you attempt to test your valuations several times, when you do want money you may get it. It will be seen as a ‘cry wolf situation’.
• Put aside a budget. You’ll need Rs30 lakh maximum to cover legal, documentation and accounting.
• Terms sheets do not equal deals. Nine of 10 terms sheets are non-binding. Most PE firms give term sheets before doing due diligence.
• Remember that the PE community is a small club. Investors talk to each other, and they are likely to know if you are talking to others during an exclusivity period.
• Examine all clauses thoroughly. Consider locking yourself in a room with your potential investor and go through the “what-ifs” on each item.
Source: Livemint