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February 09, 2009

Indian PE veterans look back and ahead

The Mint traces the history of the Indian PE/VC space via interviews with three industry veterans - Nitin Deshmukh of Kotak PE, PR Srinivasan of CVC International (both of whom were formerly with ICICI Venture) and JM Trivedi of Actis (formerly with GVFL). Here are some extracts on what these managers think about the scenario ahead:

Deshmukh: While it is unfortunate to be caught in this unprecedented financial environment, this will bring in discipline among private equity players on investment processes and valuations. We had seen unprecedented euphoria and excesses in PE investing in India during the last three years. At least 70% of investments in private equity over the past three years is estimated to have gone into PIPEs (private investment in public equity) and pre-IPO placements. This is going to hurt many players. In fact, many first-time funds that have participated in the euphoria will see tough times and find it difficult to raise funds in the future. The number of players, who had increased from just around 40 in 2004 to over 200 in 2007, will therefore see a reduction.

Trivedi: These are challenging times. The short- to medium-term growth could be significantly lower than that projected at the time of investment and PE funds will have to work with the management teams to cut costs and bring about operational improvements to achieve the returns.

Srinivasan: India will have its place, fairly high in the pecking order, as a favourable investment destination. In every down cycle these questions arise: Which fund managers will survive? Who will be able to retain their LPs? Who will be able to raise new funds? As it happens, every time a few managers will exit, a few LPs will cut their India exposure but then new fund managers and new LPs will come.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in