How to select the right private equity investor in India?

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A lot of YPO-WPO members would have raised money or are planning to raise money from a private equity investor to expand their business. I am giving below a list of points to watch out for as you go through the list of potential investors:

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Remember that a Private Equity investor is the business of making money from money and therefore his interest will be primarily in getting a substantial return in as short a period of time as possible. He is as interested in doing a deal as you are. You need his money and he needs your company to get a return on his money.

 

What do they bring to the table other than money:

It is very important for you to select a PE player who brings more than simply money to the table. PE players specialise in industries and you should expect them to get you introductions to other players in your business as well as in the circles that may influence your industry. Watch out for “spreadsheet” specialists who will pound away on their computers to deliver valuations to themselves and you!

Do your own due diligence

Just like a PE player will conduct a due diligence on you and your business before he makes the investment. Make sure that you also do your own diligence on the background of the PE player as well as the investments he has made. If you can talk to one of their investee companies, you must do so to understand from a counterpart on their experience with the PE player you are contemplating to give a piece of your business.

Study the term sheet terms very carefully

You will be in a hurry to get the investment. Most promoters do not read the fine print of the term sheet. It is only later when the conditions of the term sheet start to be implemented does the promoter realise what he has signed up to. By then it is too late.

Use a lawyer you trust to get your agreements done

The detailed agreements are critical. The PE player will generally work with the big law firms. Use a lawyer you trust who can guide you through the maze of the legalese in all the agreements. Understand how multiple agreements are linked together as well as all the terms you are signing up to including guaranteed IRR’s, tag along, drag along, QIPO and similar such conditions.

Don’t get pushed into growing your business at a rate that your PE investor wants

Finally, make sure that you grow your business at a rate that you can manage without putting stress on the business or your management team. if your PE player pushes you to grow faster than you believe you can, it is better to push him back earlier than to get caught in a difficult business situation

Ashutosh Garg

Written By

Ashutosh Garg, an MBA worked for ITC Limited for 17 years, leaving in 1995 as Managing Director of one of the ITC group companies, based in Singapore. Thereafter he spent 8 years in the aerospace industry.He founded Guardian Pharmacy in India in 2003 and grew it to the second largest pharmacy chain in India. He also brought in GNC as a partner to India. He exited from the company he founded in August 2016. 

Ashutosh served as a director of the GAVI Vaccine Alliance for 8 years. He is Chairman of Bizdome, a Startup Incubator of the Indian Institute of Management, Rohtak. He has also served on the Advisory Council of the Centre for Policy Research and continues to serve on the boards of several companies.

He was recognized as a Global Leader for Tomorrow by the World Economic Forum, Switzerland. He is an active member of the Young Presidents’ Organization and is the Chairman elect for YPO Gold, South Asia for the period 2017 - 19.

He has written 5 highly acclaimed best sellers titled “The Buck Stops Here – my journey from manager to entrepreneur”;“The Corner Office"; "Reinvent Reboot Rewire. Managing Retirement in the 21st Century"; "The Buck Stops Here - Learnings of a Startup Entrepreneur" and "An Eye for an Eye".He writes regularly for various online publications like Times of India, Business Insider, Inc., Entrepreneur, The Quint and Big Decisions.

An avid golfer, he plays the Indian flute and enjoys reading and listening to Indian classical and vocal music.