IBEP-3

Finlatics Investment Banking Experience
Program - Project 3
1. A sector agnostic fund is a fund that has a diverse set of
investments in various sectors and industries. This can
help the investors to minimize their risk and avoid
incurring any loss due to market dynamics. Even though it
can look like an attractive choice for a fund manager, it
requires the investors to have a broad knowledge of of
different industries. It also requires the fund manager to be
an expert in his or her field as a sector agnostic fund if
consisting a large number of unprofitable investments can
get the investor very less return to his investment. It is for
these reasons I would like to set up a sector specific fund.
Funds which invest in a particular sector or industry are said to
be sector-specific funds. Since the portfolio of such PE funds
consists mainly of investment in one particular type of sector,
they can offer above average returns and are considered to be
risky for the same reasons. These risks can be minimised by
extensively researching and then targeting a particular sector.
Such funds also attract investors with years of experience and
resources in that particular sector.
2. Out of all the sectors, the focus of my PE fund would be
on E-commerce and Digital media sector. After covid-19
and increase in the volume of online content available
people are getting more attracted to consuming data
online and shopping for products online. These particular
sectors have a lot of scope and profitability in the long run.
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Following will be some of the investor types I would look
for :
a) Subrata is an entrepreneur turned VC, and joined Accel
when Erasmic Venture Fund (a firm that he co-founded)
rebranded to become part of Accel.Subrata was the first
investor in CasaOne, Curefit, Flipkart (substantially
acquired by Walmart), Juspay, Moglix, Money View, Mu-
Sigma, Myntra (acquired by Flipkart), Scripbox, Virident
(acquired by Western Digital), WIBMO (acquired by
PayU), and several other category leaders. His knowledge
and experience gained from all these ventures can
provide a lot of insights to the start-ups in my PE Fund.
b) Ekta Kapoor is one of the most popular Television Serials
Producer, Film producer and film maker in India and other
countries. Apart from Television film making, Ekta Kapoor
is also the Joint Managing Director of Balaji Television
Ltd., which is one of the biggest privately held production
house in the country.She has produced more than 50
Television Serials and 30+ Bollywood movies. All this
experience and contacts in the industry can serve as a
great asset for companies entering in the digital media
sector.
c) Ratan Tata is the chairman of Tata Industries, and a
vivacious industry leader, is also an active angel investor
in India.He has mentored and profiled a number of startups,
ventures and businesses with investments, advice
and much more.With names like Urban Clap, Xiaomi,
Moglix and Snapdeal under his hat of expertise, he is
touted as one of the major players in angel investment
community. His vast portfolio and years of built relations
through tata industries can help tremendously in building
the ventures in my fund and will also provide a certain
amount of goodwill and stamp of quality.
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d) Sachin Bansal is an Indian entrepreneur. He is best
known as the co-founder of Flipkart, that was acquired
by Walmart (77 per cent stake) at $16 billion in 2018.
During his over 11 year career at Flipkart, Bansal
was CEO and chairman. In 2018, Bansal exited Flipkart
following the Walmart deal. He founded BACQ
Acquisitions pvt ltd, a venture capital focused on building
and acquiring businesses in diverse industry verticals. He
has also invested in Ola cabs, Grey orange, Unacademy
and Teamindus.
e) Bhushan Kumar Dua is an Indian film producer and music
producer. He is the chairman and managing director of
Super Cassettes Industries Limited, also known as T-
Series. He is known for his works in Bollywood. As
managing director, Kumar diversified the company's
business into electronics, CDs, audio/video tapes and
cassettes and film production. For this and for popularising
Indian music overseas, he was honoured by the
Government of India's Electronics and Software Export
Promotion Council.
f) Premji Invest is a private equity fund owned by Azim Premji,
which manages over $2 billion of Azim Premji’s personal
wealth and his family’s wealth by investing in capital
markets and picking minority stakes in start-ups, including
homegrown e-commerce companies such as Flipkart and
mobile payment companies such as Chennaibased
Financial Software and Systems. Some other
investments by Premji invest are HealthCare Global
Enterprises ltd. , Myntra, Snapdeal and Amagi Media labs.
g) Mahindra Partners is the private equity fund of the
Mahindra & Mahindra Group. It was initiated with an aim
to nurture emergent businesses across various sectors.
Mahindra Partners aims to not only offer financial support
to its portfolio companies but also help them grow with
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their experience and mentorship. There investments
include ZoomCar
3. With new start-ups sprouting every day, the average
success rate for start-ups is falling. That being said, the
criteria for selecting a successful start-up must be
stringent. Out of the 6 stages of the company lifecycle, the
core focus of my PE fund would be the first stage of
commercialization and the early growth stage. This is
because even the most brilliant ideas need guidance to
understand the business ecosystem. Investing at an
earlier stage could help the start-up and thrive and bring
high returns.
First Stage of Commercialization
This is the second stage of the company life cycle. At this stage
the start-up is still new but has crossed the ideation stage and
is looking for an appropriate sales channel strategy for its up
and running product. The perfect product-market fit helps
sustain
the product’s growth and profitability, and is difficult to
determine without the guidance from an expert. With the help
and expertise of the mentioned investors, I intend to target
start-ups at this stage. From an investor’s perspective, this
stage of start-ups is pretty attractive as it is associated with
high risk which may correspond to greater returns. For
example, Sanjay Mehta invested in OYO rooms at an early
stage and earned 280 times returns. Most of my targeted
investors are risk taking and hence inclined towards early-stage
financing.
Early Growth Stage
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This is the third stage of the company life cycle. By now, the
start-ups have found their perfect product-market fit and are
now penetrating the market. Most of my targeted HNIs are core
investors of first stage of commercialization and the targeted
family offices invest in both first stage of commercialization and
early growth stage. However, early growth stage is still my most
preferred stage, this is because investors prefer taking a
different route when investing through PE funds since they
have a bigger ticket size than direct investments. By pooling in
money through various investors, PE funds can make a more
significant impact on growth stage funds corresponding to
larger gains.
4. Start-up scouting is an integral part of any
successful start-up corporate engagement. It's the process
of identifying, evaluating and selecting the best start-ups
to work together. It is a challenge for a PE fund manager
to come across the right companies in the vast world of
entrepreneurship. The number of start-ups worldwide is
constantly growing, as evidenced by the significant
increase in number of start-ups in the past years.
Network Driven Scouting
Network driven scouting is done with the help of professionals
working continuously in this area. One such example of these
professionals are investment bankers. Investment bankers
helping in the screening process by picking out start-ups
suitable for a particular fund and thus saving a lot of time and
cost. A PE Fund can give their requirements like the sector and
stage of company they are looking to invest in.
Institution Driven Scouting
Start-ups can take help from various institution in order to
accelerate their business ideas and models. Incubators help
entrepreneurs solve some of the problems commonly
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associated with running a start-up by providing workspace,
seed funding, mentoring, and training. Accelerators are
programs that intend to accelerate the development of early
stage companies or ideas. Generally speaking, an accelerator
is a fixed term program that usually lasts from three to twelve
months. It provides a combination of education, mentoring, and
networking, often with investment. It is distinct from other forms
of investment and incubation, such as angel investing, grants,
or incubators. Thus, these institutes can help my PE fund by
getting the start-ups to the ideal stage of business lifecycle in
which I would like to invest in. Most of the ventures found in
these institutes are in the first stage of commercialisation. One
of their jobs is to help start-ups get funded so they need PE
investors as much as PE investors need them.
5. The first stage is screening – first contact if you will. This
is when the first call or meeting between the venture
capital firm’s management and the start-up firm’s
management occurs. A bit like political dignitaries meeting
for the first time. The beginning of the process where
pleasantries are made, business cards are exchanged
and top dogs gets to know one another. The VC firm will
be assessing risk, market size and industry to determine it
if the opportunity falls within their business objectives. A
good collaboration platform will offer secure file
sharing and analytics tools to assist with such
assessments. Only around 15 per cent of deals ever
progress past this first screening stage, so the odds are
against both the VC and the start-up. Enterprise
collaboration may tip the odds in a slightly more
favourable direction.
Size of the market
One of the most crucial tasks an entrepreneur has is to
calculate the size of their market, and the potential value that
market has for their start-up business. Without this data you
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can’t create a viable business plan, or be taken seriously when
approaching potential investors. Determining the market size is
critical. It tells you and your partners, team and investors how
much potential business is really out there. It helps calculate
how much value there really is for your individual venture. This
is critical to know, specially if you never plan to raise a dime in
outside capital. Therefore, a startup that is aiming big and can
be durable for a long period of time is preferred. Large market
size would lead to high returns in the future which would
increase the probability of a trade sale. This attracts investors
because it gives them a potential way to exit their investment.
Growth & Performance of the company
Analysing the growth potential and past performance of a startup
plays a key role predicting how future of the company and in
valuation of the company. Ideally a venture capital looks for a
start-up performing efficiently and having great growth
opportunity in the future. This can ensure the investor that the
business will get opportunity to capture significant market share
and thus can appreciate their initial investment.
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