Mid-market remains under-served by mainstream PE: Siddharth Parekh

LPs looking for fund managers with differential skill-sets

Earlier this week, Paragon Partners announced the final close of their maiden fund at $120 million. Siddharth Parekh, HDFC Chairman Deepak Parekh’s younger son and co-founder Sumeet Nindrajog share their fund-raising experience with Ranju Sarkar.
 
How significant is this milestone for you? What will be the investment and exit period?

We are very excited to achieve the final closing milestone. The investment period for the fund is four years from our 1st close, i.e., January 2020, and the fund term ends in January 2024.
 

How is the fund-raising scenario? What are LPs looking for?

It is always difficult to raise capital as a first time fund. With certain exceptions, fund-raising among Indian fund managers has also been impacted by performance of the last vintage of funds. However, we believe that investor sentiments have improved since 2015. LPs mainly look out for fund managers who bring differential skill-sets to the table: strong local relationships, experienced operating teams, track record of proven value-add in portfolio, etc.

 
How is the market for mid-market deals? Is there a good pipeline?

We believe that investing in mid-market companies is a good strategy as it remains under-served by the mainstream private equity industry in India. We have a very robust pipeline and will look to close out 2-3 opportunities in the near future.
 
Are their investors in your fund (family offices or others) who are investing for the first time?

While a large portion of our LPs are seasoned and established investors in private equity, we do have some first-time investors also as our LPs.
 
What's your investment criteria? What do you look for in investee firms when you invest?

We typically look for companies that have a demonstrated track record of growth, strong cash flows and high-integrity promoter/management teams. However, each potential investment is different and presents a unique set of opportunities; we evaluate these on a case-by-case basis.
 
What's your exit strategy? Do you target firms that will IPO soon?

We evaluate the exit strategy for each potential portfolio company prior to making the investment. It is not necessary for us to invest in 'IPO-ready' companies, however there should be some tangible avenue for exiting the opportunity given our return obligations to LPs.
 
By when will you start looking at a second fund, what will be the size?

We will look to deploy the majority of capital from our existing fund and also generate meaningful returns to our investors before starting out on our next fund.