Paragon Partners, which has backed consumer brands such as Chai Point and mCaffeine, has lined up exits for its earlier investments as it prepares to launch its third mid-market PE fund, targeting a corpus of ₹1,500 crore to continue investing in profitable Indian companies.
“We have received Sebi (Securities and Exchange Board of India) approval to raise a ₹2,000 crore fund, which includes a green shoe option, but our ideal size would be ₹1,200-1,500 crore. That’s the sweet spot where we can maintain return discipline while pursuing the kind of opportunities we want to do in the mid-market space,” co-founder and senior partner Siddharth Parekh told Mint in an interview.
The firm will begin fundraising in the next few months and expects to do a final close in a 12-18-month horizon. “Beyond capital raising and deployment, we will also spend considerable time securing liquidity through exits from our first fund and some early investments in our second,” added Sumeet Nindrajog, co-founder, and senior partner at the firm.
“We anticipate 2-3 liquidity events this year and more to follow over the next 12-15 months. This return of capital from Fund I and early Fund II will be the most powerful narrative in our Fund III conversations—LPs back managers who deliver, not just deploy,” Nindrajog said, without disclosing specific details on the exits.
The Mumbai-based investment firm closed its first fund with a corpus of ₹760 crore in 2017, followed by a second fund of ₹650 crore in 2022, during the covid-19 pandemic. As its previous funds attracted a mix of family offices, institutions, and funds of funds from both global and domestic investors, its largest fund will also target a similar investor base.
With eight investments in each fund, Paragon typically focuses on sectors such as financial services, consumer, healthcare, and manufacturing. It expects to complete two more deals over the next six months before wrapping up the deployment of its second fund. Historically, the firm has exited its investments through a mix of initial public offerings (IPOs), strategic sales, and secondary sales to larger investors.
The first fund invested in Capacit’e Infraprojects (partially exited), Maini Precision Products (exited), InCred Finance (exited), Chai Point, InCred Capital, Cravatex Brands (exited), SME Corner and eShakti (exited). The second fund backed companies such as Saarathi Finance, Niva Bupa, Everest, mCaffeine, GoBolt, and Tendercuts (exited).
“Our thesis and evaluation strategy are built on very defensible sectors—financial inclusion, healthcare access, and domestic consumption. These aren’t macro-sensitive growth stories; they are necessities,” Nindrajog said. “Therefore, we have not seen any significant business impact on our companies despite any geopolitical or macroeconomic factors.”
Investment playbook
Meanwhile, the third fund will target 10-12 investments. “For our third fund, the ideal portfolio construction would be financial services and healthcare comprising about 50-60%, manufacturing constituting another 20% and the balance would potentially be consumer and other sectors where we see structural tailwinds and strong unit economics—but only where there is strong pricing power and cash generation,” Parekh said, adding that the aim is to target traditional old-economy businesses.
Parekh added the investment firm avoids capital expenditure-intensive businesses or industries. “We don’t invest in very early-stage businesses or sectors such as real estate that require a lot of capital to grow. For instance, we are bullish on secured lending versus unsecured within the financial services space,” he said.
Paragon Partners typically writes cheques of around ₹60-120 crore. However, ticket sizes for the new fund may increase to ₹100-200 crore, with the flexibility to pursue even larger deals through co-investments. The firm can also make follow-on investments and has earmarked 10% of the overall fund for this purpose.
Nearly 65-70% of its deals have been proprietary transactions in which a buyer approaches a seller directly or through an intermediary before the business is marketed to others or placed in a competitive bidding process or auction.
“This has also enabled us to be extremely disciplined in our entry valuations. The companies we aim to invest in have revenues in the range of ₹150-500 crore—we’re not underwriting a turnaround, we’re backing a proven operator who needs a partner to scale,” Nindrajog said. “We place importance on companies that show good unit economics, cash flow generation and strong competitive moats with the potential to go public or secure strong exits for our investment.”
India's PE boom
The fundraising comes amid a broader revival in private equity and venture capital activity in India. Several firms, including Nexus Venture Partners, Fireside Ventures, Kedaara Capital, ChrysCapital, Stellaris Ventures, India Quotient, Sixth Sense, Elevation Capital, Peak XV, Prime Ventures, Accel, A91 Partners, Cornerstone VC, and Bessemer Venture Partners, have launched new funds in recent months.
Fundraising saw a significant increase over the last year, with capital raised by VC/growth equity funds doubling year-on-year to about $5.4 billion. This was supported by strengthening confidence in exit pathways and rising conviction in the continuing supply of scalable and innovative businesses, Bain & Co said in a 1 April joint report with IVCA.
Even fund sizes have trended upwards, with a growing cohort of larger vehicles reshaping the landscape. Bain estimated that the average fund size rose by over 35% to about $68 million, driven by a sharp increase in $100 million-plus funds. At the same time, thematic focus sharpened around AI, deeptech, climate, space, and industrial technology, reflecting a maturing and broadening venture ecosystem in India, the report added.