The poster boy of Indian private equity, Ashish Dhawan of ChrysCapital, tells Sarika Malhotra and Shailesh Dobhal that PE is a business one falls in love with pretty easily

When he set out to raise his maiden fund in 1999, even as the main question was ?will money ever be made in India?, the second was more baffling. ?How far are Delhi and Bombay from the Pakistan border?? Ashish Dhawan, co-founder and managing director, ChrysCapital Investment Advisors, was raising capital in a post-1998 nuclear India, at a time when hostile Western media was declaring India and Pakistan as the most dangerous places on earth. ?I had to take a map to show around, recount how many wars the two countries had fought and their outcome,? recalls Dhawan. But the man who became the poster boy of Indian private equity is today content with the way the industry has evolved in India.

?I feel very gratified,? says Dhawan, as we meet over coffee at his office in The Oberoi, New Delhi, where he explains it?s not just that a lot of capital is available, but that every stripe of capital is available. ?The attitudinal shift for private equity at the other side of the table is evident and heartening.? From a time when it was hard to convince an entrepreneur what PE is, to a time when the power tilt is on the entrepreneur?s side with increased capital supply, Dhawan says it all bodes well for the industry. ?This is the way an industry evolves after fits and starts. Then suddenly something clicks, people start making money, the model works and everyone wants to be a part of the story. The PE industry in India has grown up, and very quickly. In one decade, you have gone from paucity of capital to having diversity, breadth and width of capital.?

Even as the India story is selling well and everybody wants to be part of it, Dhawan says post-slowdown, the big issue is that LPs (limited partners, essentially investors in PE funds) are acutely focused on the cash-on-cash track record of PE firms. ?They believe in the macro picture of India, the Asian century and so the capital keeps coming in. But LPs now want to see real performance and not paper returns. You have to show exits. Firms are wising up to the fact and showing exits to LPs before raising more money, and those who are breaking away from funds and floating new ones are also showing their own track-on-track record. Also, relative to China, India is less sexy today. This was not the case in 2006-07. The belief is that money can be made in China, and cash-on-cash returns in China are better. Also, Latin America has come on the radar.?

Dhawan, who has seen a full circle of successful fund raising (five), investments, failures in the dotcom bust, successful exits (the stellar Spectramind exit in 2002), experimented with new models of investments such as private investments in public enterprises (PIPE), and dabbled in venture before settling for growth, is candid, ?I am not a venture guy, never been trained in the venture business, never started and built a young innovative company. My training was more in private equity and public markets. I am much better at analysing existing businesses than building companies from scratch. It?s a different skill set. So we decided to play in a space more likely to succeed and generate returns.? And that?s the reason why Dhawan has not gone back to the dotcom space even as the business became more real. ?It?s better to admit I made a mistake, exit and move on.? And so it was a complete reboot that ChrysCapital went for. ?When I started out, there was major excitement around exports. People told me not to bother with domestic India, but look at the chocolate market in Malaysia, the export opportunity. Cover stories were all about the IT, BPO industry. People were ignoring the domestic market, and so were we. Many funds started during that time fizzled out in the dotcom wave. We thought this is the opportunity for us to reboot, and the sweet spot for investing in India is growth capital, not venture, as the ecosystem is not ready.? So growth was the way to be for ChrysCapital. ?Be willing to be a minority investor, and recognise that your returns will largely come from sector and company selection. There will be some value addition that you will provide, but you are not going to re-engineer these companies.? Growth equity, sector expertise, focus on local economy became the mantra. Killer investments in IT/ITeS (Global Vantedge, TechTeam, Transworks) banking and finance (Shriram Transport Finance, UTI Bank, Yes Bank), and infrastructure (Suzlon, Gammon, IVRCL) followed suit. What complemented it all was the PIPE play. ?We were always open to flexibility. When we tell someone to cover a sector, we tell them to look at both listed and unlisted companies.? A large part of the portfolio for ChrysCapital now is public markets. ?It?s not a strategic shift. We are investors; we need to generate returns for the fund. In the last three years, we have had a high proportion of public market investments, but that does not mean we have abandoned the private space. It?s always a function of where you can find the best risk reward.? No wonder that by the end of the decade, Dhawan started making pure play public investments, such as the multi-million dollar deals in Infosys and HCL.

?Private equity is a business one falls in love with pretty easily. You are learning something new everyday; intellectual stimulation is very high.? And Dhawan for sure did. After making his money, (he paid advance tax of R55 crore in 2009-10), Dhawan is all set to call it quits. He will step down as senior managing director of ChrysCapital by July 2012, after which he will have three-four years of part-time involvement with ChrysCapital. ?I love the investing business. But I have other interests in life too. I had set certain goals for myself. I wanted to be an entrepreneur when I was 30, for which I quit my job the month I turned 30. I told myself that I want to have a second career in my mid-40s.? Dhawan is now 42. ?I sit on the board of three non-profits that work in the education space. I enjoy fifth grade math and seventh grade science and analyse their curriculum. The bottom of the pyramid is where I want to focus on, the bottom 50% of the children from an income standpoint. My goal will not be to start things directly, but try to fund other non-profits working in the sphere, especially early stage ones.?

So how does Dhawan plan to go about it? ?There are some impact funds concentrating on market-based solutions; I may end up looking at some of them. But the main focus is to start a foundation to do non-profit. I don?t have any grand plans, it?s just like when I started ChrysCapital?you dive in, start small, fail, learn, reboot and find your way.? But is it that easy to let go? ?An investment firm is very different from a real business having thousands of employees and factories. We live fund to fund, so it?s a little easier to walk away in a certain sense.?