The home-grown mid-market PE firm that raised $240 million as its third fund last year and it is not short of spotting such new investment opportunities. "In the past 3-4 years, there has been phenomenal growth in the Indian venture capital ecosystem. So, a few thousand start-ups who availed of these VCs start-up capital will need growth capital in the near future," says Gopal Jain, managing partner, Gaja Capital.
VC funding peaked to $6.44 billion across 578 deals in 2015 from $2.47 billion across 368 deals in the previous year according to the data provided by VC Circle. "This is a big positive for us as the number of mid-market growth funds is today less than what it was 10 years ago," says Jain. Many mid-market funds could not raise their second fund due to poor return to their investors. Hence, they had to close their shops.
Some of this vacant space has been occupied by VC funds, which raised large corpus and are now not able to deploy because of a slowdown in start-up funding. Jain believes it is not sustainable as growth capital investments require a different mindset compared to early-stage investment that VC funds do. American VC giant Sequoia Capital raised a $920-million fund this year for investments in India.
The domestic PE firm plans to make about 10 investments from its third fund in companies
that target domestic consumption. It is targeting the lower end of the mid-market investment opportunities by keeping focus on companies
with less than Rs 500 crore enterprise value. For financial services firms, this could be up to Rs 1,000 crore enterprise value.
It has already made three investments from its third fund. This includes Rs 30 crore investment in Bakers Circle, a leading producer of frozen bakery and confectionery products for fast-food chains such as Subway, Domino's and KFC. Also, it made and an investment of Rs 65 crore in sports and fitness education venture SportzVillage. It is this kind of differentiated businesses that Gaja wants to invest in early. It also plans to invests in financial services such as Suryoday Micro Finance, which would be growing with rising consumption in India. It made Rs 30 core investment in the small finance bank licence holder this year.
"Our basic investment strategy in the past 11 years remains the same - that is to find the future champions of India's domestic economy. But now, we have built a team that has strong operating capabilities. So today, we take larger stakes and provide more operating value addition to our investments," he says.