Mumbai-based private equity firm Indgrowth Capital is one of the latest entrants in the investment circuit, having received regulatory approvals to launch its fund earlier this year.
Formed by the current team of India Build Out Fund (IBOF), Indgrowth Capital is out to raise its maiden Rs 500 crore ($78 million) fund targeted at small and medium-sized public listed companies.
The sector-agnostic fund, which got on board former TPG Growth partner head Varun Kapur, is looking to reach the first close of its fund in the next few weeks at around Rs 200 crore.
In an interview with DEALSTREETASIA, Rajesh Singhal, Indgrowth founder and managing partner, talks about his new venture and the road ahead for the fund. Edited excerpts:-
You’re one of the newer funds in the market. How do you view the timing for your entry given the recent ups and downs?
We are playing a differentiated story by investing in businesses which we want to hold on for the next 4-5 years. These are companies on the smaller market cap spectrum or micro, small cap and medium cap companies. We believe there is a large universe of such companies, and our strategy is to only identify growing businesses which compound at a reasonable rate, so that we can invest in their growth requirements. There are about 1,000 such companies out there and right now we would like to build a portfolio of 10-15 companies. We have seen that historically, for the last 15 years or so, the market has always provided reasonable value generating opportunities. In every vintage in the last 15 years, there were enough number of companies which made at least a 3x return in five years. This is a strategy or a pipeline, which is evergreen.
Are you targeting public companies or private firms as well?
We are staying away from unlisted or private firms, our target companies are in the listed domain or the companies which are getting listed. For example, if there is a small or mid-sized company is launching an IPO offering, we could look at coming in as an anchor investor. While this is our prime target area, if we find interesting opportunities, we can pick up block deals.
What are the sectors that you are looking at?
We are thematically more interested in businesses focussed on domestic consumption. However, this fund is sector agnostic. We are defining our boundaries in which we are trying to operate very narrowly and within that we don’t want to get classified and get stuck with only one or two sectors. Our approach is to identify businesses with a fundamental analysis and understand their business plans and trajectory for the next few years. So we don’t have any sectoral allocations as such.
What is the status of your fund now?
We are currently raising funds. We are focussing right now on the Indian institutional investors, a lot of them are either family offices or ultra HNIs. Soon we should be announcing our first closing as well.
What is the total amount that you’re looking to raise and what is the level at which you are targeting your first close?
We are looking to raise around Rs 500 crore in the domestic market given the traction we are seeing for a strategy like this. In smaller companies sometimes liquidity is an issue, so we can see if we can create a transaction opportunity. So we expect that the fund raising should happen rather quickly for us.
By when do you expect your first close to happen?
We are meeting with investors everyday and collecting investments, so it should happen in the next few weeks. The first close will be a reasonable amount, where we can get started off, maybe Rs 150-200 crore.
Have you already started identifying companies to invest in?
Yes, we are looking for opportunities and trying to build up our pipeline of investments, that’s a continuous process. As and when we announce that we have the initial capital, we will look at making transactions.
What is the average ticket size of your potential investments?
A typical sweet spot for us would be around Rs 50 crore. As I said, we will look for a portfolio of 10-15 opportunities from our fund. And for larger transactions, of course, we can get others to participate in the deal. There are people who have shown interest to work and syndicate the amount with us also for larger deals.
How is the experience with Indgrowth different from IBOF?
I would say it’s an extension of what we were doing at IBOF, we continue to manage the last portfolio company from IBOF. IBOF has been a very successful venture for us with a Rs 430 crore fund and we made 6 investments, we have exited five companies already and only the last one is pending in which we are looking at exit opportunities including an IPO for that company.
Historically also, we’ve backed companies that were SMEs. The team that has come together in Indgrowth have backed 80 businesses, most of which were PIPE transactions of companies that had sub-Rs 500 crore valuations. We have substantial experience of working with younger and smaller companies across sectors. We have the experience of seeing young companies becoming large cap companies. That is what we would like to bring to the table. Our approach will be similar to IBOF in terms of diligence and identification to the extent possible and bring our network of contacts and experience into play.
What is your vision for Indgrowth Capital over the next few years?
We think there is a nice positioning and space to be a support and be part of the growth of some of the smaller companies and be more of a value added partner to them. Not many investors are looking at that space. It’s a very patient capital, we are not looking at investing in companies for a few quarters. We are looking at backing businesses, not picking stocks, and participating in their growth story.
What is your strategy for investing in a company? What is the kind of stake that you are looking at picking up in companies?
It will be a financial play, but on a case to case basis if there is an openness on the other side and they see the value of our association, then we will not shy away from taking a board seat or an observer position in the board. Our typical stake would be around 5-10 per cent stake, minority stakes. It’s more of a partnership and collaborative model.