Indus Balaji, a domestic fund focused on emerging opportunities, with television and film production house Balaji Telefilms as corporate sponsor, is planning to raise $150 million in two years from now, according to its managing partner Mohit Ralhan.
“We want the companies in which we had already invested from our first fund to mature. Also, it is a prudent norm to have two-three years gap between funds. We should be in a position to have the new fund in place in the next two years. The proposed capital will help us in investing in two to three companies every year,” he said.
Incorporated in April 2011, Indus Balaji started raising funds in August that year.
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So far, it has invested in six companies including ICE Creative Excellence Private Limited (media and entertainment/education), MobilArt Mobility Solutions Private Limited (media and entertainment, telecom), Perfect Pincode Property Planners (digital-offline solutions), SmartQ, SmartPrep and The Curriculum Company.
“As a fund strategy, we are looking at early-stage companies. We are not a VC (venture capital) fund. We were a company looking at growth capital but we ended up with smaller companies. Because, the opportunity to grow is much higher in SMEs today, compared with large-cap firms, which are literally struggling to grow now,” he added.
Indus Balaji, with funds to the tune of $35 million, some already invested, typically makes milestone-based investment commitments and parks between $4 million and $5 million in a company, which does reasonably well through the lifecycle of over five years.
Ralhan said while SMEs in the manufacturing space had the opportunity to take loans from banks through collateral, service sector companies struggled to get financial assistance from banks.
“There are too many private equity firms that fund companies in the range of $5 million and $10 million. And, there are as many as 16 million SMEs in India, with a majority of them having an appetite for sub-$5 million,” he said.
According to him, the focus for the next two decades for them would be on automotive, banking, media, education, logistics and agriculture.
Indus Balaji takes a controlling stake of over 50 per cent in the companies it invests in.
“If you look at the last 30 years, there is a recession in every five years. If companies have to grow, change management has to be an integral part of the strategy. Without having a controlling interest in a company, how can a PE fund drive growth and guide a company?” he reasoned.
The fund typically looks at an average holding period of four-five years in a company, Ralhan said, adding Indus Balaji commits its investors an annual compounded IRR (internal rate of return) of 25 per cent.
