At a time when the Indian equity market is trading close to its top and the start-up and venture capital industry in India is unable to deliver desired results, Rajesh Sehgal, ex-Franklin Templeton fund manager, has set-up a venture capital firm, Equanimity Investments. It would focus on investing in early stage growth companies. Sehgal used to handle private equity capital and a part of the emerging market groups at Franklin Templeton.
"I am of the view that going ahead, it will be difficult to deliver alpha (out-performance) in listed equities. However a 10 to 12 per cent is doable for the overall market as a whole," says Sehgal, Founder & Managing Partner at Equanimity Investments. "The unlisted space compared to the listed space is lucrative where internal rate of return (IRR) expected is going to be significantly higher than the listed markets by a factor of 2 or 3," he adds. On Monday, the BSE Sensex ended below 34,000, an overhang of the alleged fraud case at Punjab National Bank that dragged down the entire banking index, especially state-run banks.
Of the $30 million (Rs 200 crore) the fund plans to raise, Sehgal has raised Rs 70 crore. A large chunk of the funds have come from him and it shows that he is serious player in the game. He has also roped in his mentor and investment guru Mark Mobius in the investment committee, who also has put his own personal wealth in the fund. For Mobius, India would be the second country where he is investing in the early stage ecosystem. While he has looked at many emerging and frontier markets, so far he has only invested in Vietnam.
But the fact is venture capital funds in India have not found exits in the past few years, making it difficult to make significant returns from unlisted companies. Sehgal agrees that experience has been poor in terms of deliverables by the funds. However, he still feels the industry is at a nascent stage and he would focus on companies that are already making money or have the ability to scale-up. "We aren't investing in companies that aren't making money. We aren't for charity and not going to invest on ideas but invest in companies that have delivered," says Sehgal, whose ticket size per investment is going to be between half to three million in early stage companies that use technology as their backbone, ensuring scalability and sustainability of their business models. "We aren't going to invest beyond seven companies a year."
The 81-year-old investment guru, Mark Mobius, is also on a road to raise an emerging market equity fund. The open-ended Luxembourg based long-only fund will invest in emerging and frontier market companies focused on environmental, social and governance ideas, which create social impact.