Knowledge@Wharton has an interesting article explaning why Warburg Pincus is bullish on India. After the usual tale and numbers about the firm’s investment and hugely profitable partial exit from Bharti Televentures, the article goes on to talk about how and why Warburg prefers to stick to investing in alredy listed companies – aka PIPE (Private Investment in Public Enterprises) deals.
Warburg’s other notable holdings in India include Rediff Communication, the country’s largest consumer web portal; Gujarat Ambuja Cement; Sintex Industries, an industrial plastic-goods manufacturer with a 60% share of the market for water-storage tanks; Kotak Mahindra, a financial services conglomerate; Nicholas Piramal India, a major pharmaceutical company, and WNS Global Services, a business process outsourcing company.
As the list shows, Warburg’s bets in India are hardly reckless. The firm generally sticks to the tried, true, big and stock-market listed. That is rarely a winning strategy for a private equity investor in the United States, but can be in India, where the pent-up demands of a billion people leave plenty of room to grow for even the largest conglomerates. So in India, the investment firm is not spending much time seeking out early-stage companies or funky technology. In fact a couple of its forays into tech were jettisoned. They involved minor investments, under $2 million each, Dalip Pathak (the managing director at Warburg who spearheads the firm’s strategy in India) says.
“Larger companies are less risky; listed companies are less risky,” he says, citing the transparency afforded by India’s capital markets. One other reason to pick big over small, in Pathak’s view: Bigger Indian companies are increasingly seeking capital and acquisitions abroad, and if they play foul with Warburg, “they know they will never get investment abroad.”
The article points out how competition for such late-stage deals is increasing – from Citibank VC, Carlyle, General Atlantic, etc. One of the new things Warburg is doing in response is “looking to participate in India’s raging real estate market”.
Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.
Is this a trend in India ?
Investing in an enterprise like Gujarat Ambuja Cement can hardly be called venture capital. This is more like a traditional FDI investment in equities.
Could you elaborate on the reasons behind this trend ? Could it be that VCs who make a beeline to India are simply not finding enough ideas from entrepreneurs.
Venture Capital in India is definitely in short supply right now. Warburg Pincus is a “Private Equity” firm, which typically invests in mature companies seeking growth capital.
End of day, it is difficult to fight market realities. If PE/VC firms find it easier to make good returns
by investing in listed firms they will put their money there. Their job at the end of the day is to deliver good risk-adjusted returns to their investors.