India’s mid-market has emerged as one of the most attractive segments within private equity, supported by structural tailwinds such as economic formalisation, digitisation, expanding domestic consumption, and a growing pool of long-term capital. Over the next decade, these forces will catalyse many founder-led businesses to scale revenues and profitability.
The principal constraint for sustained value creation is no longer constrained by market access or the availability of risk capital. It is institutional readiness.
While many mid-market companies are commercially strong, they often benefit from the guidance on organisational architecture required to support the next phase of growth. Bridging this gap has become one of private equity’s most important—and differentiated—contributions to the ecosystem.
Institutional readiness as the core mid-market gap
Founder-led companies typically evolve through the management’s intuition, speed of decision-making, and tightly controlled execution. These attributes are considered strengths in the early stages of growth. As scale increases, however, the same characteristics can become limiting.
From an incoming investor’s perspective, common gaps include:
- Over-reliance on founders for strategic and operational decisions
- Limited leadership depth beyond the core promoter group
- Informal governance practices
- Financial reporting focused on compliance rather than insight
- Inadequate preparation for acquisitions or leadership succession
These gaps translate directly into execution risk—slower scaling, integration challenges, key-person dependency, and constrained exit optionality.
Private equity’s role, therefore, is not simply to fund growth, but to systematically help institutionalise businesses so they can scale predictably and sustainably.
Below are the five key levers of institutionalisation:
- Talent Build-Out: Creating Leadership Capacity Beyond the Founder
One of the most persistent constraints in mid-market companies is the limited availability of senior leadership capable of operating at scale. As businesses grow in size, geographic footprint, and organisational complexity, founders often find it difficult to attract experienced CFOs, COOs, business heads, and functional leaders who can operate independently within environments that remain heavily founder-centric.
Private equity sponsors play a catalytic role in addressing this gap by systematically professionalising the leadership structure. This begins with a clear articulation of the company’s next growth phase and the leadership capabilities required to support it. PE investors actively support the recruitment of senior executives whose experience aligns with the company’s trajectory—whether scaling operations, expanding into new markets, professionalising finance, or integrating acquisitions. Compensation structures and long-term incentive plans for key management are aligned with value creation objectives to drive sustained performance.
Over time, this leadership build-out reduces key-person dependency and creates a management team capable of executing strategy at scale. It also materially enhances the company’s ability to absorb complexity without impacting day-to-day performance.
- Governance, Reporting, and Financial Discipline
Governance is a foundational pillar of private equity value creation. For many mid-market companies, this represents a step-change in how performance is measured, decisions are made, and risks are managed.
Private equity sponsors typically drive this transition by strengthening financial discipline and reporting rigor. Independent audits—often conducted by global audit firms—improve the quality, consistency, and credibility of financial statements. This not only enhances transparency for investors but also increases confidence among lenders, customers, suppliers, and future acquirers.
Equally important is the upgrade of management information systems. Reporting evolves from static, backward-looking financial statements to structured dashboards tracking predefined operational and financial KPIs. These systems provide management and boards with timely, actionable insight into unit economics, working capital, customer metrics, and operational efficiency.
As part of this process, the CFO’s role expands beyond transactional reporting to include capital allocation, scenario planning, M&A evaluation, and strategic decision support. From an investor standpoint, these changes materially improve risk management, enable more disciplined deployment of capital, and establish a level of operational visibility that is essential for scaling the business.
- Building a Strong and Effective Board
The establishment of an effective Board is a critical inflection point in the transition from founder-led to institution-ready. In private equity-backed companies, Boards are designed not merely to satisfy governance requirements but to function as a strategic north star for management.
Private equity sponsors typically introduce independent directors with relevant operating / sectoral experience and a complementary skillset. These directors bring an external perspective and challenge entrenched assumptions as the business navigates market challenges. Their presence also signals institutional maturity to stakeholders across the ecosystem.
For founders, this transition represents a shift towards collective governance. While often demanding, it allows the organisation to scale beyond the limitations of individual decision-making and embeds institutional continuity into the business.
- Building Repeatable M&A Capability
As organic growth moderates across sectors, mid-market companies increasingly turn to acquisitions to accelerate scale, expand capabilities, or enter adjacent markets. However, without institutional frameworks, M&A activity often remains opportunistic, and execution risk remains high.
Private equity plays a central role in converting M&A from a series of discrete transactions into a repeatable organisational capability. This begins with defining clear acquisition criteria aligned with the company’s long-term strategy—whether focused on market consolidation, capability enhancement, or geographic expansion.
PE sponsors support disciplined diligence processes, valuation frameworks, and conservative synergy assessment, ensuring that investment theses are grounded in operational reality. Importantly, equal emphasis is placed on integration planning. Standardised integration frameworks are established across finance, operations, technology, people, and customers, with clear ownership and timelines.
- Succession Planning and Long-Term Continuity
Succession planning is among the most sensitive yet critical dimensions of institutional readiness.
In many mid-market companies, leadership transition remains informal or deferred, creating uncertainty for employees, partners, and investors alike. Private equity investors address succession proactively. This involves identifying and developing internal leadership pipelines, redefining roles as the organisation scales, and planning the gradual evolution of founder involvement. In many cases, founders transition from executive roles to positions such as executive chair or strategic advisor, allowing professional management teams to assume operational responsibility.
For investors, credible succession planning reduces key-person risk, improving organisational resilience, and enhancing their exit optionality. For companies, it provides continuity, clarity, and confidence — ensuring that growth and performance are not disrupted by leadership transitions.
Value Creation Without Bureaucracy
Institutional readiness can be a powerful value-creation lever when implemented with discipline and balance. However, it is also important to recognise that institutionalisation must be carefully calibrated. Else it runs the risk of devolving into bureaucracy. Investment partners must therefore calibrate governance enhancements to reinforce strategic priorities without creating unnecessary administrative burden, ensuring structure serves agility rather than replaces it.
PE as a Market-Shaping Force Post-2026
As India’s financial markets deepen, underwriting standards are becoming more selective and governance expectations more stringent. In this environment, private equity’s role as a market-shaping institution builder will become even more pronounced.
Looking ahead to 2026 and beyond, capital is likely to increasingly favour businesses that demonstrate institutional maturity rather than purely headline growth. Private equity will be central to this transition—partnering with founders to build professional leadership teams, robust governance frameworks, and repeatable execution capabilities. In doing so, PE investment will continue to transform founder-led enterprises into industry-grade platforms capable of compounding value across cycles.
Udai Dhawan is the founding Partner, Head of India, Affirma Capital
