Chandrasekar has over 16 years of India-based private equity/venture capital experience. He has worked for five years with The Carlyle Group as a Director and Vice President. Prior to Carlyle, Chandrasekar was with Intel Capital as Manager of Strategic Investments in India. He began his career at ICICI Ventures where he worked for ten years. Chandrasekar was a World Bank-sponsored intern at Poly Ventures in New York, holds a Bachelor of Electrical Engineering from Anna University in Chennai, India, and earned an MBA from the Bharathidasan Institute of Management.
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| Chandrasekar Kandasamy |
When a couple of investors come jointly, put in money, how do talks proceed with the company? How do negotiations happen?
Take the case of Manthan Systems (where FIL Capital Advisors, IDG Ventures and DJF ePlanet Ventures have invested $15 million), it is not a new investment. Both ePlanet as well as IDG Ventures are existing investors. So we entered in 2007 with first round investment and last month we did the second round. In terms of who drove the deal, it was primarily Fidelity because they were the new investors in the company, so they looked independently in the company, the business, the team, etc. Based on that, they set the terms. Once the terms were set by Fidelity, both IDG and ePlanet contributed capital to maintain our old status. We usually get diluted when a new investor comes in. So in order to avoid that, we also contributed capital to maintain our stake. It varies depending on what a company wants. Two things happen as part of this: we maintain our shareholding percentage, and also give the confidence to the investor that when the existing investor is willing to put in more money, on the same terms as the new investor, it shows that the company is doing really well.
In another case where we invest together, one fund takes the lead role. There is always a lead investor and other co-investors. Depending upon who sourced the transaction, etc, that fund takes the lead role. But they discuss with other funds also about the terms, etc and eventually, one fund goes and drives the negotiations with the company. Otherwise, from the company’s perspective, talking to three funds independently and trying to close will be extremely difficult.
So, the onus is not on the company that is seeking investment but it’s among the investors as to who is going to take the lead and how much stake will be taken?
Suppose I meet the company first and I am not able to contribute the full amount that it needs. So I have to bring in other funds. I tell the company that I am trying to drive the deal but I cannot do the deal on my own, and I have to bring in other funds. The company agrees and I bring in the other funds. So from the company’s perspective, I am the prime driver of the discussion. The onus is on me and the company to close the deal. If there are challenges such as the other funds wanting to bring in a new term, which is not acceptable to the company; then I try to resolve the issue. It is a collaborative process. From the company’s perspective, they normally like to work with the fund they are comfortable with. But it is unlikely that all three of us go and sit with the company and try and pull different terms.
You have put in money in Continental Warehousing, which I believe is your first investment in the logistics sector in India. Why are you so upbeat about this sector, and are there some more such investments in the pipeline?
From our perspective, infrastructure as a space itself is very interesting. This is primarily because India is a market where, compared to other developing countries, there are still a lot of things that need to be done. There are certain areas within infrastructure space where we put in a good amount of investment. Obviously we cannot invest in roads, transportation or power generation plants, as it requires huge amount of capital. We have identified some areas within the infrastructure space, where we can invest and move forward. One such area is logistics where Continental Warehousing has created a niche for itself. We found it exciting and that’s how we invested in it along with another investor.
Logistics as a space is quite interesting for us. I still believe there are a lot more companies/areas where we can invest. We primarily focus on companies or segments that are less capital intensive. We are looking at companies in the renewable energy space.
How big is the fund size?
We worked on two funds. First fund was $650 million, which is primarily in the early-stage technology and medical device space. That was the one we did along with another group DFJ. The second fund is a purely an independent ePlanet Fund which is slightly more than $130 million. It is more of a hybrid fund. So we have moved away a little bit from early-stage technology (not completely). We do a little bit of early-stage investments, primarily in the US and the European markets. But in Asia, we predominantly look at more growth capital transactions.
We have also expanded our sectors from being purely technology and health-care to other sectors like logistics, healthcare as a whole, specialty retail, etc. What we do not invest primarily in is real estate, listed companies, and in commodities businesses like cements, steel, etc. Otherwise any sector where the opportunity looks interesting, we will move forward and invest.
Is your $130 million fund solely focused on India or Asia?
We operate on a global fund model. Wherever the market looks interesting, we go and invest. It is not a country-dedicated fund but since its an independent one, it’s a small fund. We wanted to get into the market and start investing. But going forward, this one will be a pretty large fund.
How much of this fund will be invested in Asia?
Asia will probably consume almost 60 percent of our investment. We are on target to achieve that plan.
Although investors bring in money and mentoring, why are they still painted as devils?
It primarily depends on the person. At least now people are aware about venture capital, private equity, etc. In 1989, when we started, no one was aware of it. Most promoters are concerned primarily with the term sheet where we talk of our rights and certain conditions, where a company can’t do anything without our approval. But most promoters also know that these conditions become enforceable only when there is a big challenge within the company. So we have seen situations where promoters have taken the money and then diverted the capital to other businesses and then possibly lose the money. But if you ask me if I have had an experience where we enforced any of these conditions in the last 20 years, I would say no. So these conditions have been put for moral obligation perspective.
This is a high-risk investment. Equities don’t have any security as such. So if the company does well, we make money, and if it doesn’t, we lose money. If the company does badly due to genuine reasons like markets or technology issues, etc, we write off the investment and move on. We try to enforce the clause only when we know that the team is not good or the leader is not good. Only under these circumstances, we try to see how best we can get external management to run the show.
New-age entrepreneurs are open to VC and PE funding but what about family-run businesses? Are there apprehensions among them?
We predominantly play in the growth capital stage. We do very little of early-stage venture capital. Most of our investments are mid-sized companies which already have a track record of investments. Some of the companies where we have invested are family-run businesses. If you look at Continental Warehousing, it was started off as a family-run company and the son is now running the show. Yes, it is little bit challenging to convince the family-run companies as compared to individual promoters. This is because of the decision-making within the family. But we are seeing a big trend where the younger generation, after taking over the business, is willing to work with funds like us to take companies to the next level of growth. That is going to be one focus area for us.
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