New Delhi: Ashish Dhawan, co-founded one of India’s earliest domestic private equity (PE) funds, the $2 billion (Rs9,320 crore) ChrysCapital. He says the current overcrowding of the PE industry is symptomatic of the absence of a proper venture ecosystem in India, but at the same time he wants to navigate Chrys- Capital—after returning $300 million to his limited partners recently—through these competitive times without readjusting its predominant focus on software, outsourcing services and technology. Edited excerpts.
You have built up a good reputation over the years. How did you do it?
We were clearly lucky that we started in 1999 when private equity (PE) was relatively nascent in India. The first PE started 10 years prior (to) us. No one made money in that decade when India’s liberalization process had only just begun and entrepreneurs did not understand this animal called private equity. Moreover, in 1999, GDP (gross domestic product) growth had just started to accelerate from the 5-6% level to 7-8% in the next decade.
Learning curve: Ashish Dhawan says the PE fund space is crowded because everyone is doing the same thing. Pradeep Gaur/Mint
I actually credit the likes of ICICI, Actis Capital Llp (then known as CDC Capital Partners), CBC Capital and Warburg Pincus Llc who made PE capital more acceptable. The turning point, of course, was the early 2000s when Warburg invested in Bharti which started doing really well. Many entrepreneurs took notice that Sunil Mittal, who did not have any money of his own, was running a really good business.
However, I can certainly say we were the first independent fund while the others I mention are arms of existing institutional behemoths. We had more flexibility compared with them. For example, we were the first to invest in publicly traded companies, construction firms and were early investors in BPOs (businesss process outsourcers).
What do you recall as the best period for the fund and for PE?
When businessmen were coming to the view that PE was a good form of capital in 2003-06 and were actually raising money, with the economy kicking into high gear...when GDP growth rate was 8-9%. Valuations were attractive and there was limited competition—that was the golden period from a returns standpoint.
From the point of view of the industry’s growth, 2004-07 was the inflexion point and several global funds came to India. Now, all of the top 20 of the global PE funds have offices in India—which has changed in the last five years. Folks like us were also able to scale up dramatically. People wanted to invest in India. All the global behemoths—$15-20 billion funds —started to believe Asia was the place to be, which I see as a quantum jump.
Do you think it is already too late for new entrants?
I don’t think it is ever too late, but it is hard at this point of time. This is a business where you are as good as your last fund. But I don’t think the space is stitched up yet. It’s crowded because everyone is doing the same thing versus trying to build a differentiator. I expect PE to get segmented into many sub-classes.
Which leading sub-classes do you see sprouting?
You have already seen several infra PE funds take shape— that skill set is different, but I wouldn’t say anyone has expertise in that area yet. Macquarie perhaps. IDFC is further ahead in that space, but more as a lender. No one has a phenomenal track record here. The space is wide open and India needs oodles of capital in it.
Then, real estate which came rushing in around 2006-07, at precisely the wrong time with a spray gun approach—lots of money is trapped there and very few people have had exits or much in returns. Some of these funds were even set up by lawyers who had no experience in real estate. Even PE skills were pretty rudimentary at the time, but we’ve been through a couple of cycles and have learnt.
The real estate industry, on the other hand, has just gone through its first cycle.
The third is venture, which has been disappointing. I think people such as Deep Kalra (of travel bookings website MakeMyTrip) should set up venture businesses such as CTrip’s Neil Shen did in China (founding managing partner of venture firm Sequoia Capital China).
Ventures should be set up by former entrepreneurs who have learnt in the school of hard knocks. But currently, most are run by financial types like myself.
Then, turnarounds—everybody talks about buyouts which are a very small proportion of the industry. If you look at India—no one really wants to sell a good company or one in a good sector such as IT or pharma because they are highly cash-generative businesses.
Any planned exits?
Intas is to go public in the first half of next year, but no other IPO is planned for the next six months and I can’t go into much more detail.