These high-flyers back ideas and products with their money. They finance entrepreneurs in their initial years, invest in their companies and help them grow. When such companies eventually go public, or get sold, private equity (PE) investors usually sell part or all of their stake for three, four, even 100 times the original investment.
The returns in PE can be staggering, so it is a much sought-after profession, though a high-risk one.
Billion-dollar PE funds are typically managed by small specialist teams of 10-15 people. Age is not the only factor that decides hierarchy, and everyone on the team, from the partner to the junior analyst, is in on the action, liaising with the entrepreneur and his “investee” company.
We spoke to three professionals with varied backgrounds about the thrills and stresses of backing businesses.
RAJA KUMAR, 48
Founder and CEO, Ascent Capital, Bangalore
This Bangalore-based CEO of Ascent Capital, which has raised $600 million (Rs 2,736 crore), came to PE through an unusual route. Kumar began his career in 1986 with the Indian Revenue Service, and was deputed to the Securities and Exchange Board of India (Sebi) in 1993. As a regulator, he came in contact with many entrepreneurs. “Because there were no real PE players in the early 1990s,” says Kumar, “the only way an entrepreneur could raise money was through an initial public offering (IPO), even if only Rs 10-15 crore were needed.” Kumar saw first-hand India’s growth story and the opportunity for PE funds to back this growth. So in 2000, after around 13 years in the service, Kumar decided to leave. He worked at setting up a fund for UTI Ventures and then moved on to form Ascent Capital in 2008. Ascent Capital has invested in the infrastructure, power utilities, software, education and healthcare sectors.
The experienced hand: Raja Kumar loves the competition and says he gets to work with the brightest minds. Aniruddha Chowdhury/Mint
Skills needed: Previously, knowledge of investing and finance was enough. “Today, we look for people with operational experience too. If you look at my team, most have have a mix of general skills—a chartered accountancy background, credit-rating background, management consulting. Because it is such a competitive field, you need to be extra smart and need to be on call all the time,” says Kumar. At a very early age, you get to join the board of investee companies, and this can be very demanding. “PE is not about investing only—any fool can invest—it’s about successfully exiting by selling and creating value for your investors,” says Kumar.
The work week:Kumar spends two-three days a week at the Ascent office in Bangalore with his team of 14 investment professionals. These 6am days begin with reading five newspapers to keep up to date, meeting his close-knit team, evaluating strategy and the progress of portfolio companies. Most days are packed with 8-10 meetings with senior managers at portfolio companies, and with associates and intermediaries such as management consultants who may bring investment opportunities.
The rest of the week goes in travel, to Mumbai, Chennai and any other place in India that seems to have promising investment opportunities.
My dream deal: Excelsoft, an e-learning firm Kumar invested in when he was with UTI Ventures in 2001. When the fund exited the company in February 2008, it sold its 35.5% share for 50 times the original investment.
What I love about my job: “The challenge; working with the brightest minds, entrepreneurs, investors and my team; the competition and the risk. In any other profession, either equity, the secondary market, or a hedge fund, if you buy and then for some reason decide to sell, all you need to do is press a button. PE is not like that. Once you invest, you have to work with the promoter and create value, so you can exit successfully.”
One thing I’d like to change:The speed at which the government responds to entrepreneurs.
Money matters:High salaries, profit-sharing and a stake in companies. “In the entire financial services, the highest reward is paid to PE professionals because the risks here are the highest,” says Kumar. At a CEO level, salaries could range from Rs 4-8 crore a year at a foreign fund and Rs 3-4 crore at an Indian one.
NIKHIL KHATTAU, 48
Managing director, Mayfield Advisors, Mumbai
Nikhil Khattau worked in most sectors of the financial markets before he came to PE four years ago, in 2007. He started young. As a 19-year-old, he would work with a stockbroker after morning college at Sydenham, Mumbai. He made himself a tidy sum in the equity market, and then decided to do chartered accountancy (CA) in the UK. “An MBA was too expensive, and I thought doing CA in the UK would give me a bottom-up feel for companies,” says Khattau, who followed up his CA with stints in mergers and acquisitions in the London markets, corporate finance in New York, and then at the Sun F&C Asset Management mutual fund between 1993-2003 in India, before joining Mayfield in 2007. Mayfield India has a fund size of $111 million (Rs 506 crore) and invests in the consumer services, Internet, mobile, technology, technology-enabled services, agri-based businesses and logistics spaces.
A wealth of experience: Nikhil Khattau is a CA who worked in mergers and acquisitions before joining PE. Abhijit Bhatlekar/Mint
Skills needed: “Funnily enough, the skills most important in this profession are not financial skills (though you need them too), it’s the people skills that matter. At the end of the day, you are looking to back the best management, to find the best entrepreneur,” he says. In fact, while recruiting, Khattau looks for “people who ideally have both investing and operating experience”.
The work week: When Khattau is in town, he reaches office by 8.30-9am and runs through what’s on the plate with his team of six investment experts. Besides Khattau, there’s another managing director, two partners and a couple of analysts, all of whom manage the Mayfield India 1 Fund. Khattau and his team meet with portfolio companies and “help them with strategy decisions, hiring, mergers and acquisitions, extending contacts and more financing”, explains Khattau. On work days, lunch is with the team, in the cafeteria. “We are an international firm with offices in California and Beijing, so I am often on the phone with California even after I get home in the evening.” Work-related travel is generally within India, and is usually related to screening investment options and visiting portfolio companies.
My dream deal: BharatMatrimony. Mayfield successfully led a second round of funding for this Internet company in 2008.
What I love about my job : This is one business where you get to learn something new every day. I know of no other business where you get CEOs of businesses coming in to educate you about their business.
One thing I’d like to change:“Nothing. I’ve changed a lot to get to this point. I like it where it is.”
Money matters: Anything from Rs 40 lakh to Rs 5 crore a year.
VISHAL DIXIT, 31
Vice-president, Zephyr Peacock India, Mumbai
“After Stanford Business School there were so many options—investment banking, consulting, working in a corporate job—but I felt PE would give me a chance to do all of these,” says Vishal Dixit. A two-year stint with the UN in Delhi from 2003-05, and with the secretariat for the Prime Minister’s committee on infrastructure in 2005-06, helped him get a PE job at Macquarie in New York in 2008, where he worked for a year before returning to India to his present job. Zephyr Peacock targets investments in sectors such as financial services, education and consumer-related businesses. The fund takes influential minority positions by investing between $5-20 million (Rs 22.8-91.2 crore) in companies that have proven business models.
The maverick: Though Vishal Dixit had many choices after graduating from the Stanford Graduate School of Business, he chose PE. Aniruddha Chowdhury/Mint
Skills needed: The ability to recognize a good investment. “The best deals in India come without a road map, so comfort with ambiguity and “learnability” is key. Also, you need to have exceptional breadth—you have to be a bit of an economist, salesman, financial engineer, lawyer, strategic adviser and agony aunt, all rolled into one,” says Dixit. “Try and start your PE career with the smartest investor you know and get them to love you. If they love you, they teach you the art; if they tolerate you, they teach you the technology.”
The work week: A typical Monday begins with discussing aerospace components, Bollywood productions, heart implants and another 20-odd investment opportunities sourced the week before. The second half is spent reviewing the financial models, research reports and legal contracts of the deals under execution.
Often, Dixit needs to travel on work. A 4.30am ride to the airport can be a perfect time to catch up with colleagues in New York for a global perspective on prospective deals. A day at the portfolio company’s office could cover anything from a formal board meeting, interviewing a CFO candidate and debating the economics of a pharmaceutical research and development project, to a game of table tennis with the CEO or dinner with his family. “These visits are fundamental to PE investing: You need to appreciate the people behind the numbers,” he says.
My dream deal: Acquisition of a stake in 2011 in Aizant, a Hyderabad-based company that invents and enhances drug formulations for almost every leading global pharmaceuticals company.
What I love about my job: “Working with entrepreneurs who lead your portfolio companies. Most of them are brilliant product guys—a bit in the Bill Gates mould. You get to be their Steve Ballmer by helping them build a great business and organization around that great product. A PE job is also the best antidote for boredom—you evaluate more than 500 new businesses a year, some within sectors that you didn’t even know existed!” says Dixit.
One thing I’d like to change: “6am flights!” You may have the nicest, cosiest hotel room in town, but it’s no fun when it comes with a 4am wake-up call.
Money matters: Compensation can range from Rs 1-2.5 crore a year, plus a share in the returns generated by the fund.
Every month, we explore a profession through the lives of three executives at different stages in their careers. Tell us which profession you want to know more about at email@example.com