Have you seen any of the Shark Tank India episodes?
The show masterfully popularised and glamorised fundraising and entrepreneurship in India.
Interestingly, even a school kid, who can’t even spell entrepreneurship, knows a thing or two about private equity and venture capital.
But what actually created the private equity boom in India? Experts say it was Bharti Airtel’s private equity deal with a PE firm that raised over US$292 million in 1999 and 2001.
This fresh punch of funds exploded the company from just two mobile telecom circles — Delhi and Himachal Pradesh — to around 23 circles in 2004.
This private equity deal’s success accelerated the private equity activity in India.
Well, in 2021 alone, Private equity-VC funds invested over $63 billion in Indian companies — a 57 percent jump, from over $39.9 billion invested in the previous year, as reported by Chennai-based Venture Intelligence.
India is now ranked as one of the topmost-attractive investment destinations for PE/VC investments.
So why are Indian companies, especially SMEs and start-ups welcoming PE/VC over borrowing from the banks?
Here are the 5 main benefits of private equity and venture capital.
1) Selling equity over borrowing – What seems logically fair? Getting into more debt (if you already have), borrowing more, paying more compound interest month after month and a horrendous late fee penalty if you miss the monthly instalment.
Or, offering a certain percent stake of your company in a private equity deal?
No pledging your personal assets, no monthly payments, no compound interest. Instead, companies can reduce the debt ratio (if any) and stabilise their balance sheets.
2) Cash Cushion
Whether you are trying to bring your idea to the market for the first time or at the growing stage or expanding and scaling or struggling, or in heavy debt — you need funds at every stage of the business.
Innovation, R&D, supply chain, marketing, getting and keeping skilled talent, strategic procurement, and everything that supports business growth demands funds, isn’t it?
Not to mention the uncertain situation like the pandemic that turned around the situation overnight, throwing some companies into the dark hole questioning how they will even pay the salary, rent, bills, and overheads and protect themselves from sinking?
3) Mentorship and Expertise
Back then, Bharti Airtel not only raised the capital to grow, but the PE firm supported the company with strategic advice and management mentorship.
After all, in every business there comes a stage where you and your team need a new mindset, new vision, new strategy, new tactical approach, and new skills to move up and compete at the next level.
PE firms have a network of business owners turned investors who had been solving and fixing business problems — building new business models, navigating economic headwinds, creating strategic alliances and more.
So instead of wasting your crucial time, energy and money on trials, errors and wasted experiments, you can leapfrog your growth by capitalising on PE firms’ expertise, experience and collective knowledge.
4) Technology leadership
Technology is advancing at lightning speed. And consumers are expecting an enriched, smoother, upgraded, and modernised experience at every level.
And big giant corporations with deep fat pockets are continuously innovating and advancing their technology at every level — more sophisticated and more robust versions of robotics, artificial intelligence, digitization, quantum computing, virtual reality and the internet of things.
To adopt these innovations and ever-advancing technologies or create new breakthroughs, you latest tech.
PE firms and investors stay at the forefront of new technologies and advancements and are keen on supporting your businesses to build the technology leadership.
5) Connections and network
According to Sony TV, the Shark Tank received 62,000 applications from entrepreneurs.
Obviously, funding is the top reason. The other reason is that these investors have invested years and perhaps millions of rupees in building the network, connections, partners and strategic alliances they have.
Investors tap into the Rolodex of the network, distribution channels, and connection with global vendors… to fasten the growth of the companies they are investing in.
Sometimes we are so close to the tree that we can’t see the forest.
You get crazy busy, put your heart and soul into the business and it gets difficult to zoom out and see your business from a fresh perspective.
To succeed in any business, you have to constantly move up the hill.
The truth is the market is so fiercely competitive that if you are not 100% committed to success, your competition will eat your lunch without a burp.
PE firms want your business to grow because it’s in their interest. You will have expert support at the forefront — thinking, creating strategies, mentoring and coaching you, and building your leadership skills so that you can grow as a business owner and perform at your best.
For instance, PE firm started its process of exiting Bharti Airtel in August 2004 and secured total gains of around US$1.3 billion in the sell-off. Could you now see why PE firms want you to succeed badly?
However, it is difficult to liquidate holdings in private equity because the buyers have to search for the right seller and vice versa.
And unlike public listed companies where the market forces determine the pricing of shares, in a private equity deal, it has to be negotiated between the stakeholders.
This is why you need to reach out to PE firms that have the technical know-how and can connect you to their network of Fund Houses / Angel Investors .
(By Videsh K Totaare, MD & CEO, Archers Wealth Management Pvt Ltd)
Disclaimer: This is the author’s personal opinion. Readers are advised to consult their financial planner before making any investment.