Some would liken the private equity and venture capital business to a monkey throwing darts at a dartboard and picking what could be a winner. But there is a lot more science - and art - to it as PE/VC practitioners will tell you.
Given that deep, comparable data is difficult to come by for the industry, it was clear we would need experts from the business to weigh in. So we got in a panel comprising
- Stanford scholar Rafiq Dossani, who was an investment banker earlier
- Deep Kalra, whose company MakeMyTrip went from a VC-backed start-up to being Nasdaq-listed
- Luis Miranda, former chairman of IDFC PE
- Varun Sood, Managing Partner of CapVent, a fund of funds that has invested in 15 funds in India
- Vikram Utamsingh, head of the private equity practice at KPMG, and
- Ranu Vohra, founder and CEO of Avendus Capital, an investment bank
PE/VC tracker Venture Intelligence, which has a database on the industry from 1998, was our data partner for the exercise that ran over six months. In May, the panel and BT drew up a framework categorising funds
with an average investment size of up to $10 million as VC funds, while those bigger formed the PE pool.
To ensure that the funds on our listing were reasonably active, we decided to set a threshold of at least three investment deals for PE funds and five for VC firms in the three financial years ending March 2011. Using these filters, Venture Intelligence came up with a list of 50 PE funds and 15 VC funds.
Other criteria like stability of the team, ability of funds to spot emerging sectors, and conclude innovative deals were left for panel discussions. At the first panel meeting in June, it was decided that PE funds that dealt with special situations, passive public investments or invested from their own books, or whose mandate was beyond the strictly risk-return game, would be excluded. A vigorous discussion yielded a shortlist of seven funds.
The panel, however, was wary of making any decision purely on the basis of perception and publicly available data. A further round of aggregate fund level data was sought from the shortlisted funds. With this, the panel zeroed in on two names. SAIF was the clear choice in the list on the basis of not just the level of information available, but also on the other subjective criteria that the panel members were keen to measure teams against. Sequoia was included as a 'jury's choice'. The panel also held a discussion on the treatment Sequoia deserved, because based on our objective filters it was slotted in the VC space, but from the discussions it was clear that this would not be an appropriate slot for it.
A similar process was followed on the VC side. An initial discussion trimmed the list of 15 funds to eight. But to have a more representative, wide-ranging sample, the jury included a couple of more funds.
Additional data was sought from all 10. Eight responded. Based on the data and jury decision, VenturEast emerged as the unqualified topper. Nexus also drew positive response. Though Accel did not provide the data sought, the jury felt the fund deserved a special mention for the quality of its investments.
The BT listing of India's best PE/VC funds, we believe, is an important first step in setting benchmarks in an industry marked by low level of public information. Further, while this is a listing of funds we deem are good and active, it is by no means the last word on the sector.