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It is the largest PE/VC player in China. It manages the biggest non-sponsored Asia fund. Since 2004, it has invested huge sums in Indian firms. And now, with its ability to spot new opportunities, it hopes to become the Numero Uno PE player in India, says ASIF AHMED
In March, 2006, Ravi Adusumalli, General Partner and India head of SB Asia Infrastructure Fund, better known as SAIF Partners, flew from the US to ink a deal with a media company to invest in a new line of business related to electronic media. In a chat then, Adusumalli, who debuted at 77 in the Forbes’ “The Midas List, 2008,” told us that he believes in a strong ‘local’ team that is fiscally responsible. That was an eye opener as most global Private Equity (PE) and Venture Capital (VC) players used to fly down from their home country, sign an agreement, and return back. So, talking about an India-dedicated team was certainly a rare occurrence.
In fact, SAIF goes a step further: it is one of the few PE/VCs that have separate teams dedicated to the firms that it has invested in. What this means is that investor SAIF Partners has an in-house office inside the investee firm’s headquarters. And this unique strategy works well with the investees. “It’s good to have people, who are more intelligent, around us,” says Vijay Shekhar Sharma, the MD of One 97, which is one of SAIF’s portfolio companies, where the investor’s office is located.
But this is just the beginning of this story. And in the arena of PE/VC segment, it is probably one of the most successful business scripts. When it started in 2001-02 as a Joint Venture between Japan’s Softbank Corporation and America’s Cisco Corporation, the world’s largest router company, the fund’s mandate was to invest and drive technology firms in the Asia-Pacific region. In the beginning, most of SAIF’s investments were in China and South Korea.
From China’s largest home shopping company to the largest mobile gaming company, SAIF has seeded some of the China’s biggest technology companies in recent times. According to the recently-released China Venture Capital & Private Equity Annual Ranking for 2007 by Zero2IPO, a Chinese research house, SAIF Partners has emerged as the number one venture capital firm in the country. It was only a few years ago that the Fund ventured into India. Today, SAIF has investments in 70 firms in the region, through three different Asia funds, and 15 of them are in India. “Since 2005, we are no longer a technology fund. We are more broad-based, and investing in all sectors, except real estate. We have been active in India since mid 2004; before that, we had one investment in Sify, which we have liquidated now,” says Vibhor Mehra, Principal (India), SAIF Partners. Now, SAIF hopes to become the largest in India. If all goes well, SAIF may soon become the next Temasek (the biggest PE/VC firm in India) or Blackstone (one of world’s most powerful PE/VC firm).
Let’s hear the reasons why this can happen from Mehra, who joined SAIF in 2004, and is the senior-most member of the Fund’s India team, and has played an instrumental role in SAIF’s investments in India, with deals with varied investee companies like Home Shop 18, Just Dial, MakeMyTrip.com, and One 97. “There are two differentiators that we have. One is that we are a long-term player. While all investors say that they are long-term players, very few actually can justify this claim by its actions.” That explains why its investment portfolio comprises a host of unlisted companies.
The second factor that has maintained a momentum for SAIF is its “contribution in terms of non-financial inputs to our portfolio companies, through our strategic inputs, board-level contribution, and our ability to drive internationally-accepted corporate governance practices,” says Vibhor, who has worked with Boston Consulting Group prior to joining SAIF. “You may ask any of our (investee) CEOs, and they will be happy to spend time talking about the non-financial values,” he adds confidently.
At present, its India strategy is about to jump to a higher level. The reason: in early 2007, SAIF raised the largest non-sponsored Asia focus fund of over a billion dollars. The PE/VC is in the process of investing out of this third fund. “The (recent) investment in National Stock Exchange came partially from the second and third fund,” says Vibhor, and he hints that India is expected to get anything between 30-35% of the third (billion-dollar) fund. This could be the first major step on part of SAIF to catch up with Temasek, the leading PE player in India with an investment of $3 billion. In addition, SAIF has the advantage that, unlike most of its competitors, it has the ability to spot sunrise opportunities. In fact, one of the reasons for SAIF’s success in China – and India – has been that it has provided the first round of investments in most of the happening sectors today. Take the case of IL&FS, where SAIF was the first investment by PE/VCs in the retail brokerage space. Or consider the cases of MakeMyTrip.com, the first firm in online travel portal, Just Dial, the first in local telephone search, or Home Shop 18, the first in Television shopping space.
Given this strategy, it’s clear that in sectors that have been already identified as promising, SAIF bets on promising companies that have the potential to become future leaders and visionaries. Its investment in One 97 falls in that category; One 97 was one of the 2-3 companies in India, which had their VAS infrastructure deployed inside the premises of telecom operators. This enabled them to not only meaningfully provide existing set of services, but launch new services with a short turnaround time.
“When we invested in One 97, it was in the process of deploying its infrastructure across all the major operators of the country. It had historically been working with just one operator, but it had won new contracts from other national operators. Its performance has been very encouraging and in a short span, we have seen it emerge as a leader,” says Vibhor. The same has been the case with several of its investments, where the investee firm has managed to capture a sizeable market share.
“We make individual equity investments of between $10 million and $100 million, in one or more rounds, and generally seek to obtain a significant minority equity ownership position in the range of 15-40%. Our philosophy is spotting discontinuous growth opportunities in sectors that are going through radical transformation,” explains Vibhor. Take the example of SAIF’s investment in MakeMyTrip.com. “At that time, India had 2-3 airlines, and the ticket prices were fixed. In the last two years, we saw advent of several airlines. So, this was a sector that was undergoing a dramatic transformation because of the number of new airlines, and the fact that fares became variable. There was a clear-cut opportunity for an aggregator to provide fare-related information at one location, and the facility to book tickets by comparing fares of all airlines,” says Vibhor.
Another instance is that of Home Shop 18, which actually happens to be the brain child of SAIF and, therefore, calling it an investee company won’t be right. It’s a JV between SAIF and Network 18, and an example of an idea that the Fund was sure about. The reason: SAIF had already successfully invested in Acorn, China’s largest home shopping firm, which recently got listed on NASDAQ. If one looked at the enablers for home shopping – like TV penetration, telecom penetration and spending power – it seemed the right and opportune time to tap the Indian market. India has approximately 105 million TV households, and mobile penetration of 281 million.
“SAIF partnered with Network 18, one of India’s most reputed media houses, to launch a home shopping channel with our learning and knowledge that we had in China. We knew how to source, what kind of product to sell, how to package it, and so on and so forth. We gained traction by partnering with TV-18, and we targeted TV, which had all the ingredients of success. This company is doing phenomenally well and the rate at which it is growing, it will emerge as one of the largest retail company in India in couple of years across categories, even accounting for offline players,” boasts Vibhor.
However, like all PE/VCs, Vibhor is hesitant and apprehensive to disclose SAIF’s average returns from India investments. “We are the best kept secret in India, both in terms of our returns as well as the size of our non-sponsored fund,” he says. But sources contend that the portfolio that Vibhor has been associated with has appreciated 2.5-5 times in a span of less than two years.
Entering high-growth markets like China & India is a dream for every company. The GDPs of both China & India have risen 120% in the past five years (according to IMF data). With dedicated local offices in China, India and South Korea, SAIF currently manages over $2 billion of portfolio. And as far as India is concerned, SAIF is all poised to be the next big thing, or rather, the biggest PE/VC player. Beware Blackstone and Temasek!
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Source : IIPM Editorial, 2008
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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