Exclusive: Quadria Capital to fully deploy PE, early-stage funds by Dec

Dr Amit Varma, managing partner, Quadria

South and Southeast Asia-focused private equity firm Quadria Capital is aiming to fully deploy its $300-million PE fund as well as its $12-million early-stage investment fund by the end of this year.

Founded in 2010 by former Religare executives Amit Varma and Abrar Mir, health sector-focused Quadria has invested in over 15 companies in six countries through its three funds.

To capture the potential of the healthcare sector at an early stage, the two promoters floated an early-stage investment fund Healthquad last year. They finally closed this India-focused fund at $12 million recently, having invested in four companies already.

In an interview with DEALSTREETASIA, Amit Varma, Managing Partner of Quadria, talks about the evolution of the healthcare investment ecosystem and his experience with early-stage investments.

Edited excerpts:

How has the investment ecosystem in the heathcare space evolved according to you?

Around 10 years back, when we started out, there was a lot of scope for growth capital basically in hospitals infrastructure, with some money going into pharma. Essentially what we’ve seen over the last few years is a lot more money and ideation going into healthcare technology and new innovative ideas in the last-mile delivery and now money is also flowing into healthcare analytics. So brick-and-mortar investments are taking place but it’s becoming smarter. Instead of generic hospitals, we’re seeing money going into tier 2 and tier 3 models and specialised models. On the pharma side, there was initially a push towards generic pharma and now it’s become more innovative. More importantly, now you have to have a niche or a peg for somebody to invest money in you.

The other big change that I’m seeing is that there is a lot of segmentation of investors. We have seed capital providers, true venture providers, early growth providers like Healthquad, and then there are pure growth stage private equity funds like Quadria. The only segment that is probably not available today is large buyout funds, mainly because of the nature of the market.

It’s a maturing of the market, but we’ve seen these cycles take many years in the West and because of the fast moving nature of our market, I see this cycle changing over the next 3-5 years.

How did the idea of Healthquad come about?

Through our parent company Quadria, we invest in pure growth-stage companies. We were getting multiple proposals for early stage investments which we were turning away because it wasn’t part of our mandate. And what we realised, as a team that, turning them away was silly, because these were going to be companies and ideas that would actually become larger at a later stage.

More importantly, there is a whole ecosystem of change in healthcare, and if you don’t invest in these, then you won’t know what’s going on. So, that is how the idea of Healthquad came about. We thought we would do venture stage investments, so we are at the cusp of venture and early stage. The simple philosophy of the fund is show us the proof of concept or show us a steady stream of revenue and then we will be able to provide not only money to grow, but we will also be able to provide you strong domain expertise, which a lot of generic funds cannot provide.

What are the differences between investing in the growth stage versus early stage in healthcare?

The main difference is size. In Healthquad, we can deploy between $1 million to $10 million, and Quadria companies are usually $40-50 million. Second is the maturity of the company. The ones that we are investing in Healthquad are earlier stage, so the mindset and whole ecosystem is a lot more entrepreneurial, driven by the passion of the innovator. And more importantly, they are trying to crack an idea which nobody has proven before. With Quadria, on the other hand, the businesses that we would invest in are mature, steady and know exactly what they want.

I mentioned the areas where Healthquad might be interested in like innovation in pharmaceuticals or healthcare or medical technology, or last mile delivery, there are not a lot of companies out there that can suck up the kind of capital that Quadria will provide. We also have to look at the stage of these companies and how they much money they can absorb.

With healthcare coming up as one of the most attractive sectors for investors, do you see more competition or collaboration now?

There is so much to be done that I don’t see competition ever making a dent in India. There is so much work and unfortunately the public sectors will not be able to provide so much capital, therefore private capital will continue to play a very important role. Secondly, I do believe that healthcare is very attractive and there is a lot of money in it, however, it requires a certain amount of domain expertise. It’s not that easy for generalists.

Raising money for healthcare these days is not a problem, but smart money which also provides domain expertise, very few people can do that.  Lastly, I feel that the companies and entrepreneurs themselves are getting smarter, because now when they come to us, they are not just demanding money but they’re also asking for other elements like domain expertise. Very rarely are we the highest bidders, or go through a process, because we provide a differentiated service.

Do you think $12 million funding for Healthquad would be enough at a time when other funds are raising much more?

Honestly, I wish we had raised more. It started as an offshoot of an idea. We have been lucky that while we have $12-13 million of our own, we also have an LP, Co-invest, which is double or triple that size. For example, if I look at a $10 million cheque then that would be $2-3 million of our own and $7-8 million of the LP’s.

So then for Healthquad, it would be more co-investments or syndicated investments?

So Healthquad would probably have a portfolio which doesn’t have more than 8-10 companies, of which 4-6 companies would be around $1 million mark and remaining would be co-investments, so it would be a 50-50 ratio.

You’ve already invested in four companies through Healthqad. By when do you expect to deploy this fund fully?

I think we’ll be completely deployed by the end of the calendar year.

Would you then look at a new fund? Or top up this one?

We are a pragmatic company. When we are fully deployed by the end of the year, we will think about a new fund. Right now it’s too early for that.

Is this fund only for Indian companies or would you want to extend it to other regions as well?

This particular fund is only for India. In the future who knows, again it’s too early to say.

For Quadria, you are close to full deployment of your fund. Is a new fund in the offing soon?

We haven’t reached that stage yet, but we will reach the full deployment of our fund at Quadria by the end of the calendar year and then we will sit with our LPs and co-investors and work out what we want to do.

There has been a slowdown in the pace of investments in the last couple of months. How do you view the investment ecosystem in healthcare in the short term?

There has been no slowdown in investments in healthcare. No valuations have come down, no deals have slowed down. In fact the deal flow is as exciting as ever. In fact, there is a lot more pragmatism at both ends. The investors are becoming a lot more pragmatic and a bit more diligent in the way they spread themselves and entrepreneurs are becoming more pragmatic about how much more money they want to raise.

Any sector or sub-sector that you think is largely untapped, where you wish to see more proposals from?

Healthcare analytics, especially in the emerging markets. To my mind it’s one of those sectors that require a lot more support. People are not realizing the benefit it can bring to our core businesses. That is something that we are very interested in.

Also Read:

SE Asia-focussed Quadria Capital to fully deploy $300m fund by March-end

India: VC fund Healthquad reaches final close of $12m

Quadria Capital raises $304m for Asia healthcare investments

India: HealthCare at Home raises $40m from Quadria Capital

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.