FINLATICS INVESTMENT BANKING

EXPERIENCE PROGRAM-
MODULE-3
1.)

First, it is important to understand the meaning and the underlying difference

between sector-agnostic and sector-specific funds. Sector specific funds
concentrate on a particular line of business and make investments accordingly. On
the other hand, a sector agnostic fund is a fund that diversifies its investments into
several sectors. This helps investors minimize risk of loss by reducing the impact of
market volatility.

I would personally prefer to set up a sector-agnostic private equity fund due to the
advantage of having a diverse portfolio which minimises the risk of losses. In my
opinion, setting up a sector-specific fund could be either a huge hit or a major miss.
Also, sector-specific funds are more susceptible to changes in the business
environment. For instance- during the COVID-19 pandemic, the sectors like fashion
and electronics (among others) suffered major losses due to a sharp decline in
people’s expenditures. On the other hand, the earning potential of FMCG and
pharmaceutical companies increased tremendously. So, to sum up, investing in
different sectors ensures that even if there are losses in a few sectors, they are
balanced with profits in the other sectors so that the investors do not face major
losses.

2.)

Though we are setting up a sector-agnostic private equity fund, our main emphasis
would be on the following sectors- education, healthcare, and social network. To
achieve the aforementioned vision, we will need to bring relevant Family offices and
high net worth individuals on board. For this purpose, I have curated the following list
of selected investors:

Family Offices-

1.Catamaran Ventures-
Catamaran Ventures is the family office of Infosys founder NR Narayana Murthy. It
was founded in 2010 and invests in early stage and growing companies in India and
overseas. They are sector agnostic and have invested in 6 companies so far.
Key Investments: Paper Boat, Yebh, Lookup,etc.
Catamaran has made investments across high-growth sectors including e-
commerce, technology, financial services, consumer goods, healthcare and
education. After analysing the investment portfolio of catamaran in great detail, I
concluded that they will be suitable for the proposed PE fund as they are sector-
agnostic and well-known both from the view-point of investment as well as advice.

2. The Three Sisters (Rana Kapoor)

The Three Sisters manages the family wealth of Yes Bank CEO Rana Kapoor. The
name derives from a reference to his daughters – Radha, Raakhi and Roshni. Their
areas of interest are education, tourism, family entertainment centres, and agri-
logistics among sectors.
Key Investments: Presto

They are planning to $150 million, or about Rs 965 crore, to incubate and fund new
businesses in different categories such as education, tourism, family entertainment
centres, agri-logistics, etc. Again, they are a sector- agnostic family office and they
will certainly add value to the PE investment portfolio.

High Net worth Individuals-

1. Aman Gupta: (Net worth-$95 million)

Aman Gupta is an angel investor who has invested in companies including
FREECULTR, Bummer, Skippi Ice Pops, Shiprocket, WickedGud, Anveshan, and
10club. His net worth is approximately $95 million. Along with being the founder and
CMO of boat, he is also one of the seven sharks in shark tank India, the Indian
adaptation of Shark Tank. I believe that Mr. Gupta will prove to be an excellent
investor for the PE fund as he primarily invests in sector-agnostic funds. Also, since he
is already an investor in so many profitable companies, his networks and experience
will add tons of value to the fund.

2. Vijay Shekhar Sharma: (Net worth- $1.3 billion)

Vijay Shekar Sharma, the founder and CEO of Paytm, has invested in over 37
companies and has four exits to date. His experience and resources have aided
firms like Unacademy, sourceeasy, InnerChef, The Ken, and Milaap, and he is
regarded as a top-level counsellor and investor in the field. His immense experience
in the field of education, tourism and tech will surely prove to be significant in setting
up the PE fund.
3. Rajan Anandan: (Net worth- Rs. 3443 cr)
Rajan Anandan is an Indian businessman who previously served as Google India’s
Vice President. Before all of this, he held top positions at Microsoft and Dell, two
well-known companies. Rajan was also a McKinsey & Co. partner. He also invests in
early-stage firms as an Angel Investor. Rajan Anandan has invested in a number of
businesses, including Buttercups, a Bangalore-based online lingerie company, Druva,
Capillary Technologies, Unacademy, TravelKhana, EasyGov., Instamojo,
WebEngage, BOV Capital, and others. Until now, he has invested in and supported
about 80 startups. He intends to invest $1.5 million in South Asian startup companies.
Given his investment portfolio, it becomes clear why he can be immensely useful to
the PE fund.

4. Kunal Shah: (Net worth- $806 million)

Kunal Shah is a popular angel investor who is the founder of Cred, one of the fastest-
growing Indian fintech companies. Earlier, he also co-founded Freecharge, a
payment gateway platform, along with Sandeep Tandon in 2010. Recently, he
invested in the fintech startup Drona Pay, which uses machine learning technologies
to detect and tackle payment frauds. His major investment domains
include- Consumer Internet, Fintech, Health Tech, Edtech, Coworking Spaces, E-
commerce. Some of his key Investments include Razorpay, Unacademy,
ShaadiSaga, Drona Pay, Cookifi, Innov8 Coworking, Bharat Bazaar.

5. Vani Kola: (2.94 million)

She is a venture capitalist from Hyderabad. Vani is the founder of an early Indian
Venture Capitalist firm called Kalaari Capital. At Kalaari, she promotes budding
founders to develop useful products and solutions. She has made investments in
startups like Zivame, Myntra, Curefit, Active, Apps Daily, Dream 11 etc.

3.)

I would personally prefer to invest in early-stage startups. There are many reasons to
invest in early stage startups. The most common reason is the potential for high
returns. Early-stage startups are typically very risky investments, but they also have
the potential to generate a lot of wealth for investors. Another reason to invest in
early stage startups is the potential for social impact. Many early-stage startups are
working on solving important problems in the world. By investing in these companies,
you can help them scale up and make a bigger impact. Finally, investing in early-
stage startups is a great way to diversify your portfolio. Startups are often much less
correlated with the stock market than more established companies. This means that
they can provide downside protection during economic downturns.

In particular, I would like to invest in the following 2 stages-

1.) First stage of commercialisation-
This is the second stage of the company life cycle. At this stage the startup is still new
but has crossed the ideation stage and is looking for an appropriate sales channel
strategy for its up and running product. To ascertain a product-market fit, expert
guidance and experience is crucial, which can be essentially done with the support
of the afore-mentioned Angel investors and Family offices. Also, this is stage which is
generally preferred by the chosen angel investors as there are great chances of
high returns.

2.) Early Growth stage-

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. The main
reason for choosing this stage as the preferred stage of investment is mainly due to
the fact that there is greater trust among the investors for the company and also
there is lesser risk of uncertainty. Hence, the investors who prefer comparatively
stable returns on investments prefer this stage. Also, from the point of view of the
startup, this stage is crucial because this is where the startups start to break-even
and actually earn some profits.

4.)

Scouting is critical for the identification of target companies which is in turn very
important as the success of PE funds depends on this. Scouting is the first step in
identification of target companies. Scouting the market is a complex process as
there are no undefended markets in the present time. The objective is to find
companies that are differentiating their products/services and their value offering to
the customers. As a PE fund manager, I would personally prefer the following 2
methods to scout the market-

1.) Network-based scouting-

Under this method, companies appoint investment bankers to aid their fundraising
process. Fund managers and investment bankers are often in a closely knit network,
which helps fund managers in their scouting process as investment bankers often
introduce fund managers to a plethora of companies looking to raise money.
Network driven scouting can be done through experts in the field, such as
investment bankers. Start-ups reach out to investment banks to help them find
capital. These bankers are well versed with the PE criteria and therefore skim through
the start-ups themselves and provide a list of start-ups that fit among other PE fund
investments. This not only helps save a good portion of time but also aids in finding
good quality start-ups
2.) Competition-driven scouting-
Many PE funds host competitions, where companies can share and show their work
to them. The managers of the PE fund, in collaboration with the HNIs and Family
offices, can organise various sector-specific as well as sector-agnostic case
competitions, which would test the entrepreneurial skills of the start-up founders. The
winners of such competitions may then be given an opportunity to pitch their ideas
to the investors for funding. This will ensure that the most brilliant and deserving
candidates are allocated the funds. Also, since the PE fund will majorly consist of
investments in early-stage companies, this method will be altogether more useful as
the entrepreneurs can pitch their ideas even when their businesses have not scaled.

5.)

The screening process is probably the most significant aspect in the process of
investing. This is because the success of the PE fund entirely depends on it. Under the
screening process, various aspects of the startups are evaluated and the pros and
cons of investing in the startup are determined. There are many points involved in
the screening process, but given the criterions set by me, the 2 main points will be-

1.) Nature of problem addressed by the company and idea-

Since the PE fund focuses on investing in the early-stage companies, I believe that
the nature of problem addressed by the company and idea will be a very important
determinant in the screening process. The success of any startup depends primarily
on the idea that it is based on and the kind of problem that it solves. This is the very
core of the business plan. Hence, having strong foundations in terms of clarity in the
nature of problem addressed and the idea is very crucial for any business to
profitably exist and sustain.

2.) Potential of the company to reach the desired market size:

This point is crucial again because of the reason that the startups are in their early
stages. Hence, for the future growth of the companies, it is necessary to evaluate
this aspect much in detail. To do this, first the market size must be clearly stated and
then the business plan must be thoroughly assessed. After careful assessment of the
business plan, conclusions must be made as to whether the company will be able to
reach the potential market size. If not, certain modifications in the plan must be
made under the discretion of the investors to observe profitable returns in the near
future as satisfactory returns are important for both the entrepreneurs as well as the
investors to profitably exist in harmony.