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| Vishal Vasishth SONG Investment Advisors India |
Song Adviors is looking at providing growth capital to Indian SMEs which still have a lot to do to become competitive. Don't you think you are up for a big challenge?
We are an economic development fund and we are focused on investing in SMEs. We are giving growth capital but we are also open to early-stage SMEs as well. Our target spot is to invest between Rs 2-13 crore into a deal over the life of our investment. Finding the right quality companies that are scalable, we have to actively go and search. It is not as if hundreds of them are coming to us. In growth-stage kind of deals, this whole family vs. non-family issue comes to the fore. How do you really partner with the family becomes an issue. In terms of a company which is very small and early-stage SME, the issue of scalability comes in. This is because India still has infrastructure issues. Other big issue is related to the exit strategy. At the operational level, the challenges are on governance, finding human resource, etc.
There is a huge mindset challenge with SMEs. How do you deal with it?
We look at SMEs that are very much keen to professionalize their functioning. We have lot of meetings before we decide to move forward. It is always a challenge. If you have run a business, family or non-family, and if someone comes in to buy a share, how do you really listen to them and incorporate their views? It is ultimately relationship building with the firm you are investing in.
Which sectors are you focusing on?
We are looking at healthcare, education, agriculture and food, financial institutions, basic utilities like waste, water and budget housing. We look for areas which have a mass appeal. Anything that is linked to affordability is something which is interesting to us from a consumption theme. Affordable education, healthcare products are interesting to us. In education sector, we are looking at management companies, technology providers, vocational training institutes, etc.
There are geographical issues relating to the functioning of SMEs in India. How do you deal with this?
If you are doing business in south India successfully it doesn't mean you will be successful in the north as well. So you have to look at the plan to scale and the ground realities. Most SMEs approach banks for funds, and there is lack of awareness relating to other sources.
Is that the gap that you plan to fill?
Equity is not very well understood in the Indian market, so people don't know that this is also a way to raise capital. It is important for SME funds to educate them.
Helping SMEs scale is quite a challenge. How do you deal with that?
We are a more active fund. We get actively involved before we invest. We create a broad three-year plan and a quarter-by-quarter first year plan and look at the key areas to focus on. We get involved in the strategic planning level and business development, HR issues or operational issues, and financial balance sheet, etc. We bring a grounds-up approach whereby we become a partner rather than the financier.
Are you looking at making some investments?
We are looking at closing two transactions as we speak.
There is a sense of interference that comes in when an investor comes on board. How do you allay such fears?
This is an area where one has to manage it well as a mature investor. The mature investor knows that he/she is an investor and not an operator. As long as there is clarity on the role of the investor and the operator, there should not be any issues.
Are you also looking at providing seed capital?
We are open to it.
How much do you stress on the team?
In early stage, it becomes very important because there are no tangible things for you to see. Ultimately everything comes down to people.
What is the exit strategy?
We talk about it very openly with our investee companies.
How long do you plan to stay invested?
We are a patient investor. We can look anywhere from four to seven years.
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written by Nike Sb Dunks, November 18, 2010
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