After having worked with Andersen for 11 years as a Director of the Corporate Finance practice, Vishal Nevatia founded India Value Fund (IVF) in 1999. He is actively involved in sourcing and making new investments and supporting portfolio companies in building their businesses. He talks to Vishal Saxena about the business model of IVF and his expectations from an entrepreneur.
Brief us about IVF
In the year 1998 we looked around in India and found out that there were several Industry segment without having any established leader. So we thought it would be great if we could have a strategy to build leaders that would create value.
We found that various conglomerate were there too with the capacity to encourage entrepreneurship and building businesses. But we realized that they could take large businesses to a larger level but could not help the medium sized businesses. We saw that they were only financial engineers but could not nurture the business.
We have a combination of investment team and business management team which helps us in encouraging the entrepreneurs and nurturing their business. We work on two models, one is Invest & Build and the other being Buy & Build. In case of the first model we focus upon the entrepreneur who wants to migrate and have the desire to take the business to a larger level.
We provide a supportive role too. We take a minority stake of 20%-30% and in the case of the latter model we focus upon the business. Out of 100 midsized companies 20%-30% can migrate to a larger level but 70% don’t harbour such desire. In such case we are happy to take 51% stake so that we can take over the driver’s seat. 80% of the due diligence is on business. The entrepreneur can be the chairman or he can be the face of the company as he is the one who has complete knowledge of the business.
What are your expectations from an entrepreneur?
An entrepreneur should understand the business very well or we can say better than anybody else. He or she should have the passion and desire to make it large. An entrepreneur should deeply believe in how business is done and not on how much business is done. Making money should not be the main criteria. There should be a demonstrated track record of the business. He or she should believe in partnership. An entrepreneur should have the desire to do the right things.
What are your exit strategies?
Generally we remain with the company for 10-15 years. In the case of buy& build we sell the business to large multinationals and in the case of invest & build we discuss various options with the entrepreneur. It is possible that some of them are keen for IPO but we go for this option only when the market cap is Rs 2000- Rs 3000 Cr to ensure the liquidity.
What is your expected rate of return?
It differs from business to business but generally it is 20%-30%.
What is your level of involvement in the investee company?
In the case of buy & build we develop the business and we take the majority stake. We are on the driver’s seat and view prevails in case of a difference in opinion. We develop the business and we are concerned about the sensitivity of the entrepreneur while it is the other way round in case of invest & build. We expect that the entrepreneur should be concerned about our issues. We take a monthly review and quarterly board meetings.
Which are the sectors you focus upon?
We don’t do start ups, commodities, natural resources and any business which have a lot of government interference.
What is the future of seed capital in India?
As the market evolves, many seed funds would be there 10 years from now.