Efficiency over anything, any day

Besides charting a path to profitability, PEs also catalyze the journey by putting in place the right structures. There is a focus on market research, return on investment, supply chain management, and efficiency. According to sources, this is what played out between Alibaba and Big basket.

After leading a $200 million funding round in Big Basket early in 2018, Alibaba advised the online grocer to scale down its 30-minute bike deliveries since the unit economics didn’t work. “Alibaba has said that their price should be lowest [compared to their competitors] for the top 5,000 SKUs (stock-keeping units). In fact, their algorithms are driven by this strategic thesis. They have also advised them (Big Basket) to go and acquire companies,” says this source.

How are the prior experiences?

The wealth of market intelligence PEs bring thanks to the prior experience partners have to invest in different sectors is also a huge boon.

In the case of Nykaa, the online beauty retailer, private equity fund TVS Capital brought in Narayan Ramachandran as a board member. Ramachandran is managing director at L Catterton Asia—the investment arm of luxury retailer LVMH—and was able to advise the company on building its private label.

When Nykaa was still unsure of opening physical stores, it was TVS Capital that advised it to go offline. “We felt that by opening stores, the company could activate customers in malls and increase sales,” says TVS Capital’s Srinivasan. However, he adds, the founder’s vision is of utmost importance. “In this case, we were sure about (Nykaa founder) Falguni Nayar’s vision,” says Srinivasan.

Investors under the sheer pressure

But these PE-instigated shifts aren’t necessarily painless. Logistics unicorn Rivigo is an example where the alignment of PE values and the approach of internet businesses comes at a cost. Reports say that Rivigo—which counts both SAIF Partners and Warburg Pincus among its backers—has been under pressure from investors to cut costs and improve its unit economics. In this case, investors wanted a shift from Rivigo’s asset-heavy business model of owning trucks to an asset-light one. The company recently fired close to 100 people and revoked its campus placement offers.

When their advice isn’t heeded, however, there have been a few cases globally where PE funds are known to replace promoters with professional management instead.

The role reversal

PEs aren’t just changing companies, though, they are also changing the investment ecosystem at large. As PEs become less averse to taking VC-type risks, VCs are also changing tracks. VC money, which typically used to come at a pre-Series A, Series A or B round, is also coming in at later stages. Sequoia Capital, for example, is now writing cheques from the early stage to the late stage.

It recently participated, along with Steadview Capital and a clutch of other investors, in a $50 million Series D round in edtech company Unacademy. It also took part in a Series D fundraise for Rebel Foods, the parent company of brands such as Faasos and Behrouz Biryani. Others like US-based Lightspeed Venture Partners, SAIF Partners, and Accel are also making Series D investments in companies.

“Frankly speaking, lines have blurred in the PE/VC ecosystem. While the large cheques will always be written by SoftBank, PE funds and hedge funds, VC funds are also coming in at a late stage. These follow-on rounds are coming in companies where VCs have seen stellar growth and feel that there is still a lot of potential lefts,” says Pahwa.

With a whole host of investors queued up to fund mature and scaled-up companies, there is an abundance of late-stage capital available. Global PEs have raised large, Asia-focussed funds and are planning to increase their allocation to India. Carlyle, for example, closed its Asia Partners Fund V at $6.55 billion. Last year, Bloomberg reported that General Atlantic had $10 billion as total available capital to invest across growth equity deals.


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