Top business houses in India looking to invest in startups.
New Delhi | By Biswarup Gooptu, ET Bureau | 10 Feb, 2016, 04.00AM IST.
A wave of Indian family offices are lining up to invest in domestic startups, highlighting the growing attractiveness of the new economy ventures as a viable alternative to traditional asset classes such as equity and real estate.
India’s top business houses are seeking to diversify and increase their exposure to sectors such as technology and consumer internet that have delivered a number of billion-dollar companies in just a few years.
Apart from investing in startups directly or through venture capital firms, family offices are also taking exposure via venture debt. On Tuesday, Aarin Capital, a fund-of-funds started by Manipal Group scion Ranjan Pai and TV Mohandas Pai, along with Unicorn India Ventures, led a pre-Series A round of funding in tech-focused news and events startup Inc42.
Mohandas Pai, chairman of Manipal Global Education, is also setting up a Rs 100-crore family office fund that will undertake seed-stage investments in tech-focused startups. In January, Unilazer Ventures, the multi-stage, private investment arm of media entrepreneur Ronnie Screwvala, led a Rs 15-crore funding round in online insurancepolicy aggregator Easpolicy.
“People are embracing the change, and more so because traditional asset classes are not giving the returns of old,” said Sanjeev Krishan, transaction services and private equity leader at PwC India. India’s Sensex and Nifty indices have both lost more than 8% this year, dragged by a global slump. “Some of the family offices will be investing a lot more because, one, they don’t want to miss out, and also because the (startup) ecosystem is maturing rapidly,” Krishnan said. “It’s an irreversible trend.”
Equity aside, family offices are also backing venture debt, attracted by the shorter redemption periods unlike the 7-10-year lifecycles of venture capital funds. In December, the family offices of the promoters of automaker Eicher Motors and electrical equipment company Havells India and the Patni family office onboarded as limited partners, or investors, in venture debt firm Trifecta Capital’s first fund.
“There is a lot of wealth in India, but, correspondingly, limited investment opportunities,” said Nilesh Kothari, managing partner, Trifecta Capital. “Family offices here are looking for good investment managers, and have no hesitation in writing large cheques.”
While family offices have existed in India for about three decades, it is only since the emergence of PremjiInvest, the personal investment arm of Wipro Chairman Azim Premji, and Catamaran Ventures, the family office of Infosys founder NR Narayana Murthy, that these firms have begun to back Indian startups. “Family offices are now a lot more adventurous.
The landscape will change dramatically over the next decade,” said Gaurav Burman, who leads the Burman Family Office, the private investment arm of the promoters of consumer conglomerate Dabur India.
The Burman Family Office, which counts Easypolicy in its startup portfolio, has also backed StoreMore, a storage service for households and businesses. India’s ‘old-economy’ corporate houses are also taking a leaf out of their counterparts in China, which have earned outsized returns on their bets in companies that have emerged from the world’s second-largest economy. In April, the Wall Street Journal reported that Joseph Tsai, executive vice-chairman of Alibaba Group, was forming a multi-billion dollar family office.