Finlatics Investment Banking Experience Program

PROJECT-3
- Hritik Maheshwari

Setting up a Private Equity Fund

Sector-Specific Fund:

Offers specialized expertise and in-depth industry knowledge: Fund managers and teams
often develop deep expertise in the chosen sector, leading to a competitive advantage in
identifying and evaluating investment opportunities.
Concentration risk exists, as the fund's performance is tied to the sector's fortunes: The
fund's performance is closely linked to the performance of the chosen sector. The fund's
returns can be significantly impacted if that sector faces challenges or economic downturns.
Vulnerable to economic downturns or sector-specific challenges: Since the fund's
investments are concentrated in one sector, it is more susceptible to adverse economic
conditions or industry-specific issues that negatively affect returns.

Sector-Agnostic Fund:

Provides diversification, reducing the impact of poor sector performance: Diversification

helps mitigate the risk of poor performance in any one industry, as losses in one area can be
offset by gains in others.
Offers flexibility to adapt to changing market conditions: Sector-agnostic funds can pivot
and capitalize on emerging opportunities across various industries, providing flexibility in
response to market dynamics.
May lack deep industry specialization compared to sector-specific funds: While offering
diversification benefits, these funds may possess a different level of specialized industry
knowledge than sector-specific counterparts.

I would opt for a sector-agnostic approach in establishing this Private Equity Fund. While
sector-specific funds have their merits, they also pose a higher concentration risk as they
are heavily dependent on the performance of a single industry. A sector-agnostic fund, on
the other hand, allows for diversification across various industries, spreading risk and
potentially enhancing returns. This approach provides flexibility to capture opportunities
across multiple sectors, adapting to market dynamics and capitalizing on emerging trends.
Potential Investors
High Net Worth Individuals (HNIs):

N. R. Narayana Murthy

Company: Infosys
Profile: N. R. Narayana Murthy co-founded Infosys, one of India's largest IT services
companies. With a distinguished career in technology, his leadership and vision have been
instrumental in shaping Infosys into a global technology powerhouse.
Value Addition: Narayana Murthy's deep knowledge of the technology sector and his
experience building a global tech giant make him a valuable advisor for technology-related
investments within the fund.

Adi Godrej

Company: Godrej Group

Profile: Adi Godrej is the Chairman of the Godrej Group, a diversified Indian conglomerate
interested in real estate, consumer goods, and industrial engineering. He has led the group
with distinction and is a prominent figure in the Indian business community.
Value Addition: Adi Godrej's vast experience in real estate, consumer goods, and industrial
sectors aligns well with the fund's sector-agnostic approach. His insights and network can be
valuable in evaluating investments across diverse industries.
Mukesh Ambani

Company: Reliance Industries Limited (RIL)

Profile: Mukesh Ambani is the Chairman and Managing Director of Reliance Industries
Limited (RIL), India's largest conglomerate with interests in petrochemicals,
telecommunications, retail, and digital services. His leadership has driven RIL's growth and
diversification.
Value Addition: Mukesh Ambani's expertise spans multiple sectors, including energy, retail,
and technology. His strategic vision and industry insights can be instrumental in identifying
and nurturing investments across various industries.

Kiran Mazumdar-Shaw

Company: Biocon Limited

Profile: Kiran Mazumdar-Shaw is the Chairperson and Managing Director of Biocon Limited,
a leading biotechnology company in India. Her leadership has been pivotal in Biocon's
growth as a global biopharmaceutical player.
Value Addition: Kiran Mazumdar-Shaw's expertise in the biotechnology and healthcare
sectors makes her a valuable asset for evaluating and guiding investments in healthcare
start-ups and companies.

Binny Bansal

Company: Flipkart (Co-founder)

Profile: Binny Bansal co-founded Flipkart, one of India's leading e-commerce companies. His
entrepreneurial journey and experience in the e-commerce and technology sectors have
contributed to Flipkart's success.
Value Addition: Binny Bansal's expertise in e-commerce, technology, and start-ups can be
valuable for evaluating potential investments in these sectors. His entrepreneurial insights
and network could benefit the fund's portfolio growth.

Family Offices:

The Birla Family Office:

Profile: The Birla Family Office represents the prestigious Birla family, known for their
extensive presence in various sectors, including manufacturing, cement, and textiles.
Value Addition: Their insights into manufacturing, infrastructure, and related sectors could
be invaluable in identifying and nurturing investments within these industries. Additionally,
their established network and reputation in the business world could facilitate deal
origination and partnership opportunities.

The TATA Family Office:

Profile: The TATA Family Office represents the renowned TATA family, a prominent business
dynasty interested in sectors such as automotive, steel, technology, and more.
Value Addition: Their commitment to ethical business practices and social responsibility
could provide a unique investment perspective with a sustainable and social impact focus.
Furthermore, their global presence and strategic insights could open doors to international
opportunities and partnerships, enhancing the fund's diversification and growth potential.

Type of Private Equity Investments

Investing in early-stage companies, including seed and Series A stages, presents a unique set
of advantages and disadvantages. Here's an overview of these aspects and how the diverse
nature of our investors and specialists can help mitigate risks and enhance potential
rewards in early-stage investments:

Advantages of Early-Stage Investments:

 1. High Growth Potential: Early-stage companies often possess innovative ideas and
disruptive technologies that have the potential to grow rapidly and capture market
share.
2. Attractive Valuations: Companies at this stage are typically valued lower than their
established counterparts, allowing investors to acquire significant equity at a
relatively lower cost.
3. Active Involvement: Early-stage investors can actively participate in shaping the
company's strategy and operations, providing valuable guidance and expertise.
4. First-Mover Advantage: Investing early in a promising start-up can lead to a first-
mover advantage in emerging markets or industries.
5. Diversification: Early-stage investments offer diversification benefits when
combined with investments in later-stage companies, helping spread risk.
Disadvantages of Early-Stage Investments:

1. High Risk: Early-stage investments are inherently riskier due to product-market fit,
customer adoption, and market competition uncertainties.
2. Lack of Revenue: Many early-stage companies are pre-revenue or have limited
revenue, making it challenging to assess their financial stability.
3. Longer Investment Horizon: These investments typically require a longer time
horizon for potential returns to materialize.
4. Operational Challenges: Start-ups may face operational challenges, including talent
acquisition, market volatility, and resource constraints.
5. Limited Liquidity: Early-stage investments can have limited liquidity, making it
difficult to exit and realize returns.

In conclusion, while early-stage investments come with inherent risks, our fund's diverse
nature of investors and specialists positions us well to leverage industry expertise, spread
risk, and actively support the growth of early-stage companies. This approach enhances our
potential for rewards while mitigating the challenges associated with early-stage investing,
ultimately benefiting our investors and portfolio companies.

Scouting the Market for Companies

Certainly, I recommend utilizing Start-up Incubators and Accelerators as the primary
method for scouting the market for companies. Here's why this approach aligns with our
strategy to invest in early-growth companies:

Reasons for Implementing Start-up Incubators and Accelerators:

Focused Early-Stage Companies: Incubators and accelerators are known for nurturing and
mentoring early-stage start-ups. These programs attract companies at the cusp of growth,
making them ideal candidates for early-stage investments.

Structured Support: Incubators and accelerators provide structured support, mentorship,

and resources to start-ups. This support helps companies refine their business models,
products, and strategies, reducing the risk associated with early-stage investments.
Access to a Pipeline: By collaborating with incubators and accelerators, our fund gains
access to a steady pipeline of start-ups that have undergone a rigorous selection process.
These start-ups are often well-vetted, increasing the likelihood of identifying promising
investment opportunities.

Diverse Industry Exposure: Incubators and accelerators cater to start-ups from various
industries, allowing our fund to diversify its investment portfolio across different sectors.
This diversification helps mitigate risk and capture opportunities in emerging industries.

Due Diligence Simplification: Incubators and accelerators often conduct due diligence on
start-ups before accepting them into their programs. This pre-vetting process streamlines
our due diligence efforts, saving time and resources.

Incorporating Start-up Incubators and Accelerators into our scouting process provides a
systematic and efficient way to identify and invest in promising early-growth companies.
This approach enhances our deal flow and increases our chances of discovering start-ups
that are well-prepared for scaling and capturing market opportunities, aligning perfectly
with our investment strategy.
Screening Process
1. Nature of the Problem Identified by the Company:

a. Market Relevance: Assessing the nature of the problem helps determine whether there is
a genuine need or demand for the company's solution in the market. Investing in a company
that addresses a pressing problem increases the likelihood of market acceptance and
customer adoption.
b. Scalability Potential: Companies that identify and solve significant problems often have
the potential to scale rapidly. A widespread problem may have a large addressable market,
allowing the company to capture a substantial customer base and revenue.
c. Competitive Advantage: A company that effectively tackles a unique or challenging
problem can establish a strong competitive advantage. This can create barriers to entry for
competitors and contribute to long-term sustainability and profitability.
d. Alignment with Fund's Goals: Assessing the problem's nature ensures alignment with the
fund's strategy, particularly when targeting early-growth companies. Early-stage companies
with compelling problem-solving capabilities are well-positioned for rapid growth and value
creation, aligning with our fund's objectives.

2. Background and Qualifications of the Management Team:

a. Execution Capability: A highly qualified and experienced management team increases the
likelihood of effective execution. Their expertise allows them to make informed decisions,
navigate challenges, and capitalize on growth opportunities.
b. Risk Mitigation: A capable management team can proactively identify and address
potential risks and setbacks. This helps mitigate operational and strategic risks, reducing the
likelihood of investment underperformance.
c. Adaptability: A diverse management team is often more adaptable to changing market
conditions and customer preferences. Different perspectives and skills within the team can
lead to innovative solutions and strategic agility.
d. Investor Confidence: A well-qualified management team instils confidence in investors. It
demonstrates the team's commitment to the company's success and their ability to
maximize the return on investment.

These two criteria provide a balanced approach by focusing on both the company's
foundational strength (problem-solving capability) and its ability to execute and grow
(qualified management). They align with our strategy and reflect our commitment to
thorough due diligence while considering the diverse perspectives of our investor team.