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Our investment philosophy is embellished by detailed research. The following outlines our beliefs:
Need of Fund Managers with Operating Skills as Indian Entrepreneurs Have Limited Scale-Up Experience
Many Indian entrepreneurs lack the required expertise to scale a venture post the seed stage. So understanding the challenges faced by entrepreneurs and businesses at the ground level is key to generating returns. Hence, investment managers with significant operating expertise and ability to manage high growth companies can address the entrepreneurs’ need.
Next wave of technology adoption in India
Technology adoption in India is at an inflexion point similar to the United States in the 1980’s. Increased productivity due to technology adoption fuelled GDP growth in the United States which in turn boosted further demand for technology. This yielded in superior returns for technology buyout funds.
Similarly in India, rapid technology adoption will result in significant productivity gains. Productivity gains will enable supply to match with consumer demand underlying the GDP growth, hence further necessitating technology adoption. This potential increased demand for technology presents the sector as an attractive investment opportunity. Further, technology adoption will be expedited by ground level initiatives and infrastructure development
Buyout and significant minority investment strategy has generated higher returns for the investors
Buyout and significant minority transactions offer significant opportunity for a fund manager to add value to the portfolio companies and harness the true potential of the investments. SMP would want to leverage its existing expertise and experience in scaling high growth companies to generate superior returns for the investors. Historically, Buyout and significant minority transactions have generated higher returns than other strategies.
A significant void exists in the sub $30 million buyout space in India
Historically, the Indian private equity industry has seen a low number of buyouts as compared to other private equity transactions, especially when compared to growth capital transactions. Currently, 90 percent of the growth capital transactions carried out in India are below the size of $65 million while most of the buyout transactions are of the sizes less than $10 million or greater than $20 million. SMP believes that the changed buyout deal size range and continued low number of buyout deals have resulted into a significant void being created in the $10 million to $20 million buyout space.
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