US-based ePlanet Ventures is raising its second fund of $500 million (Rs1,985 crore), which it started to deploy six months ago after its first closing in August. The firm’s first investment in India from this fund was an undisclosed sum in Chennai-based health care equipment manufacturer and distributor Trivitron Diagnostics Pvt. Ltd. From its first fund of $650 million, it invested in two Indian firms: retail sector software provider Manthan Software Services Pvt. Ltd and online movie rental firm Seventymm Services Pvt. Ltd. The firm works from a global fund and will look to invest $5-10 million in Indian start-ups from its second fund. Chandrasekar Kandasamy, managing director, spoke to Mint about the new fund and its new interests. Edited excerpts:
Has your approach changed in this fund?
In our first fund we invested in technology and health-care companies, and that will remain our focus. But we will also look at auto parts, logistics and distribution, speciality retail and education companies this time around.
We will invest a little bit in early stage start-ups, but our focus will be on mid-stage companies. We will also invest in late-stage companies and in those about to list on the public markets. But not public companies.
Sharper focus: ePlanet Ventures managing director Chandrasekar Kandasamy.
We will look to do buyouts, taking a majority stake.
Given your ideal deal size, what kind of buyouts are you looking for?
Putting $10-20 million in small-cap companies and getting 50-60% stake.
The idea is to take control of the company, but let the management run it and the board is run by the fund. Then, three to four years down the line, the business is sold to a larger company because it would be too small for a public issue.
The interest from private equity is there because the stock market is high and the same for private equity valuations, so better to go and buy companies. This is more prominent in the KPO (knowledge process outsourcing) industry.
Why are we not seeing a lot of earlier stage investment in India?
Seed investment is not really happening. First, start-ups don’t get funding on intellectual property in India. Also, the investors in funds want the money back in a time frame that doesn’t work for start-up investing in India. The firms have larger funds to deploy now, so they want to put more in one company. And the exit opportunity for earlier stage companies is not there. How many technology companies got acquired in the last five years? Funds are now looking at buying out a seed stage investor. That is picking up. But they don’t get typical returns, maybe they get 20-30% IRR (internal rate of return).