Managing director at Norwest Venture Partners (NVP) India, Niren Shah, says that with valuations for private equity (PE) and late-stage investments surging sharply on the back of buoyant equity markets, he is focusing more on investing in early stage startups. In an interview with Nitin Shrivastava, he says that though he is cautiously optimistic on a revival in the economy, he is not betting on cyclicals. He believes the e-commerce space would continue to see exponential growth for at least 5-7 years. Excerpts
What has been your strategy for investing in India?
In India, the fund is focused on both early and late-stage ventures as well as growth equity or PE across sectors. We have been very positive on India ever since we opened our office in 2007. We have been believers in its long-term prospects, investing consistently through the ups and downs, which has held us in good stead. We now have over $550 million deployed in India across 30 companies — by number, two-thirds of the investment is in early stage companies and a third in PE investments. By value, it’s the opposite — a third in venture capital (VC) and two-thirds in PE.
You have invested heavily in banking and financial services. What’s your view on the sector?
The sharp run-up in the markets has had a strong impact on some of our investments done through PIPE (private investment in public equity) in the banking sector. One of our portfolio companies — Shriram City Union — is trading six times the partial stake that we hold. Others like IndusInd Bank and Yes Bank are closing in on a little over 3.5 times and 3 times, respectively.
As the economy starts to turn around, we expect banking to outperform the broader economy.
Also, as interest rates start going down, we feel BFSI should do well where we have additional positions in Ratnakar Bank and ING Vysya Bank, which recently got merged with Kotak Bank and Cholamandalam Finance.
What’s your view on e-commerce, which is consistently seeing PE players cut huge cheques at high valuations?
We are very bullish on the internet space. We feel it’s like a one-time change happening in India, where we are witnessing triple-digit growth at the macro level. Till about 2-3 years ago, when we expected the internet space to touch $10 billion by 2015 -16, a lot of people were questioning it, but it has happened much ahead of time.
We feel there’s another 5-7 years of exponential growth in the internet space. Within that, e-commerce is the space where we feel there is surge right now. A lot of cascading effect — whether it’s word of mouth, a growing number of smart handsets, people having ease, convenience and good experience with online buying, lower cost of data — is behind this exponential growth. Capital is also flowing in, which the sector definitely requires. The number of e-commerce users itself is expected to grow 10 times in the next five years, from around 25 million to 250 million, provided 50% of the overall expected 500 million internet users by 2018-19 engage in e-commerce.
Which sectors do you prefer investing in?
In India, we have invested in areas like internet, technology, banking, finance, healthcare, consumer and infrastructure. Within the internet space, we focus a lot more on verticalised sectors that are either part of e-commerce or cater indirectly to e-commerce firms. We have got multiple companies like Pepperfry, Komli Media, Quikr, Fashionandyou and Suvidhaa, which are performing admirably.
Recently, we have also done a lot in the tech space and companies in the software and Saas space, such as Capillary and Manthan Systems, which are catering to global clients. Healthcare and consumer are also focus areas where we expect robust growth. We are considering some investments in the consumer space right now.
Any exits lined up?
Exit is the outcome and not a necessity — it is driven more by the readiness of a company and its prospects. In the past, we have had multiple exits and,currently, we have quite a few companies in our portfolio that are looking at an IPO, but we are not in a hurry. We are providing support to these companies. In fact, there have been companies in our portfolio that have gone public, but we did not sell any shares.
Any counter or cyclical bets?
We usually don’t like cyclicals because of the simple reason that we are a long-term growth investment firm. We like long-term annuity kind of businesses and, so, even in case of infrastructure investments, we have invested in companies like Sadbhav with an annuity kind of business model.