Private Capital
Not surprised to see so many unicorns emerge; Private investors are ready to pay up for this accelerated growth opportunity”
15 Apr 2021

Q: Let me begin with the first and obvious question. Were you surprised that 2020 was a record year for VC/PE?

A: After the Jio and Reliance Retail deals, not as much. If you take those deals out of the numbers, the private equity and VC fund flows dropped as expected. However, the way flows have resurged in the last six months is surely a bit surprising. Overall, if you remove the Jio and Reliance Retail deals, the fund flow shrunk by 35% or so. Last 4-6 months have seen very active deal activity and if you just look at the run rate in the last few months, one should expect a 15-20% growth this year over the previous year's numbers.

Q: Were lower exits in 2020 on account of poorer valuations? In essence how long does it take for a VC to exit a position in India on average?

A: On an average, holding periods in India are 4-5 years. In some cases, they can stretch up to 6-7 years as well. Lower exits in 2020 were not because valuations would have been poorer. Instead, the valuations are actually growing, and public markets are becoming more open as well. 

Most portfolios had to rework their business plan and have had to underwrite significant digital transformation. Some are also re-thinking about their inorganic strategies.

Q: Could you elaborate on the last point with an example?

A: This is true for most businesses. Without naming a business, if you are a consumer goods player or a baby diapers player or even an apparel brand. One would have seen a significant drop in sales in the first quarter of the fiscal year. Plus, one would not know when the crowds will return to the markets. You would have also put your store expansion plans on hold. You would have instead started focusing on renegotiating your mall rentals. You would now double down on Digital Transformation and getting your ecommerce portal up and your ecommerce connect with e-tailers to be tighter. So, all this is a re-orientation versus what you were doing otherwise. 

I know of businesses which are 30-45 percent down versus what they had budgeted for - largely due to unforeseen demand disruptions and in some cases also supply disruptions. In such an environment, it becomes tough to exit because the future plans have to be re-written.

Q: What is your view on the recent spate of unicorns in India? India had 11 in 2020, we already have 10 in just 4 months of 2021!

A: The investor confidence in the Indian market, and digital businesses, has been strengthened like never before. Consumers are connected and are now also transacting online. Think of Covid as a blessing in disguise in lowering customer acquisition costs for businesses, and in forcing customers of all affluence, age and genders to go online and transact. This has accelerated digital adoption across categories. And, the private investors are ready to pay up for this accelerated growth opportunity, which is once in a lifetime macro-trend you would ride on. Not surprising to see so many unicorns emerging. Confluence of fast growth shift of market shares in favour of digital businesses and availability of capital chasing good quality investments is creating this unique opportunity for Indian start-ups and tech businesses.

Q: In relation to the above what is your view on some of the latest acquisitions in the education space at some hefty valuations. Byjus acquiring similar companies like WhiteHatJr and Akash tutorials?

A: EdTech has benefitted deeply from Covid induced disruptions. Learners (and their parents) are forced to shed their inhibitions from online learning and are clear that online learning is here to stay. Having said this, it is also apparent that the right experience will be omni-channel. For the market leader, it makes sense to consolidate the market and make its offering complete so that when the Covid restrictions open up, the consumers stick to same online providers. Now, couple that with two more effects of Covid. One, offline businesses are struggling from not being digitally ready and facing a tough time acquiring new customers. Two, digital businesses in India now have global aspiration and are expanding beyond in quest for growth. So, for category leaders in any space, this is a sweet opportunity to consolidate your online-offline play and acquire selectively to prepare the growth platform for the future. You would see in brands too. Nykaa acquired Pipa Bella just today - not a surprising acquisition at all, for the same reasons

Q: What spaces do you foresee more deals happening in over the next couple of years?

A: I think you would have a deep flow of deals across sectors. Healthcare/Pharma has already seen resurgence and you should expect to see several $1B+ businesses emerge now. SaaS (Software as a Service) is going to be big. India has several Series B and C businesses which are scaling rapidly globally. B2B spaces (across products, e-commerce and services) will grow rapidly too as the technology enablement trajectory has been accelerated there too. Four, Consumer services and brands will continue to grow at the back of the strongly emerging digital channels. In fact, alternative commerce like Meesho or Dealshare is finding its feet steadily too. And, five, Digital services in new age tech (analytics, automation, AI, Industry 4.0) will see some large businesses emerge. 

Q: Praxis has been hiring aggressively in the past few months. Do you see an uptick in business sentiment largely driven by PE VC money? 

A: We have seen tremendous momentum in our business across verticals. We have emerged as a high-quality management consulting player and the proposition is resonating with clients, investors as well as businesses alike. In fact, even the core incumbents in various sectors are now hiring us because they see our differentiation in digital and our 'get it done' orientation. So, while we have benefitted from the investor led growth, our investor led business is still only 40 per cent of our business. Rest of the work comes directly from incumbents and tech challengers across verticals.

Q: Final question, we had TCS declare their results yesterday and their attrition was at an all-time low of 7.2%. Do you think the pandemic has forced companies to look for even better talent?

A: I think so. While most organizations are trying to be empathetic and supporting their workforce cope with the unintended effects of Covid (mental health issues, lack of teaming and camaraderie, lack of connectedness with the organization), they are also realizing where the pockets of poor productivity lie. And, clients of all businesses also see the quality of service drop in such pockets. So, the organizations will look for talent that is more tech savvy, self-disciplined, has high standards of integrity and professionalism, and ready to serve in the digital future. Punctuality, for example, is suddenly being enforced more strictly. So, yes, some churn in workforce is expected. For IT services companies, this is even more pronounced because the needs of their clients are also changing which are necessitating re-skilling of hard skills as well.

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