Nine Rivers Capital is an India-centric Private Equity Investment Manager/ Investment Advisor focused on providing growth and expansion capital to Small & Medium Enterprises (SMEs). Sandeep has an experience of over 15 years in the areas of private equity investing and corporate finance.
Prior to setting up Nine Rivers Capital, he co-founded Axis Holdings, an India centric private equity firm, where he was a member of the investment committee and played a vital role in fund raising as well as originating deals.
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| Sandeep Daga Director, Nine Rivers Capital |
What are some of the challenges of investing in small and medium enterprises?
In most SMEs, the biggest challenge is to create a management organization that can cope up with the growth. Typically, when we invest, the decision making structure in the company is very founder-centric. While there may be reasonable delegation of day to day activities, both strategic and tactical decision making remain founder-centric and founder’s own bandwidth becomes a big bottleneck in managing growth. As a PE investor, we have to purposefully engage the founder to expedite the process of getting more decision making brains into the company and speeding up the transition to a distributed decision making structure. Additionally, we also often encounter situations wherein business planning and control systems need to be strengthened usually through adoption of modern technological tools and augmentation of relevant human resources.
How has your investment strategy changed in view of the current economic slowdown?
Our investment strategy hasn’t really changed because of the slowdown because the global meltdown was already underway when we started investing. However, over the past 3 quarters, we have tweaked our investment strategy with a sharpened focus on high value added infrastructure ‘enablers’ – companies that supply vital goods and services to various infrastructure segments in India such as energy, transportation, oil & gas, roads, ports, aerospace etc.
How many investments have you made so far? What has been the ticket size?
Nine Rivers Capital made its maiden investment of US$10m in Navi Mumbai based Pranav Construction Systems in Jan 09. Pranav is the leading formworks player in India with its products being used in key infrastructure projects in India and the Middle East.
What do you look for before making an investment? How much money do you plan to invest in the next one year?
Foremost, we look for good people – a set of good promoters and management team and then obviously an attractive business model that exhibits high growth prospects and sustainability (or even expansion) of margins because of certain competitive advantages inherent in the business model. Nine Rivers Capital plans to make 4-5 investment in the next one year typically of around US$ 10m each.
What kind of support do your portfolio companies get from you?
Usually, our portfolio companies appreciate our significant contribution in the areas of strategic planning, identifying senior management talent, identifying inorganic growth opportunities and strengthening financial planning and control systems.
There is a perception that when investors come in they try to have their way. Have you seen your portfolio companies getting skeptical about this?
This is a mis-perception prevailing amongst many entrepreneurs, especially those who seek PE funding for the first time. I firmly believe that if both the PE investor and the entrepreneur clearly understand each others expectations, right upfront, from the relationship they plan to get into, the subsequent journey is smooth, purposeful and value creating for both sides. There are enough PE backed firms in the listed markets or otherwise that bear testimony to this.
What kind of returns do you look at, and what is your exit strategy?
I would not like to talk about numbers but over the life of the investment, we do expect returns that are significantly better than public market returns else we have no business to be doing what we are doing. Our exit strategy is likely to be a mix of IPOs or strategic sale with a slight domination of the former.
Do you plan to invest across sectors or are you focused on some? Which sectors are you betting big on and why?
As such we are sector agnostic but look at businesses that would be direct or indirect beneficiaries of the infrastructure led growth story of India as highlighted in point 2 above.
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