Bhaskar Dasgupta of Apex Group highlights the two key concerns LPs and GPs face in the current market and how to address them
India’s private equity and venture capital market has faced a challenging 18 months, witnessing a decline in both deal volume and value from their peaks in 2021. The outlook for the latter half of 2023 and into 2024 isn't particularly optimistic, as it projects flat growth or even further declines. Within this context, general partners (GPs) and limited partners (LPs) need to consider two crucial themes
1. Shifting investment perspectives among LPs
Despite a cautious outlook, the narrative around investing in India remains compelling for both domestic and international LPs. While traditional sectors such as e-commerce and technology are experiencing a downturn owing to headwinds including rising interest rates, slowing growth, and governance issues in start-ups, other sectors are gaining traction. Real estate, infrastructure, financial services, and healthcare are becoming increasingly attractive for investors.
However, a key challenge we've observed is a strategic shift among LPs. Still recovering from losses in their previous investments, particularly in global real estate and overvalued tech assets, many are reducing the number of partners they work with and focusing on larger investments with more established institutional players.
Our recommendations:
For LPs, we recommend reviewing your investment allocation frameworks to prepare for the anticipated improvement in interest rates in 2024. This is an opportune time to refocus investment allocations accordingly. For GPs, this is the time to build the brand, improve relationships, explore new LP markets and types and substantially invest in your marketing, branding, outreach and engagement activities.
2. Importance of speed to market
For first-time fund managers, launching typically takes around 18-24 months covering everything from regulatory approvals, master feeder structures, deciding on the jurisdiction, legal and tax advice, hiring, setup and the first close. For established firms, the timeframe narrows to about 12-18 months. However, in our rapidly changing economic landscape – marked by interest rate volatility, geopolitical tensions, and impending political events such as the 2024 US elections – this timeline is too protracted.
Prolonged set-up periods carry risks. By the time the GP secures soft commitments and concludes arrangements, six months might pass. In that span, the LP’s situation could change dramatically, risking the fund's closing.
Our recommendations:
Streamline the process: Given these challenges, it’s imperative to focus on efficiency and reduce time-to-market. Consider adopting standard cookie-cutter structures to reduce delays. Streamline your network by reducing the number of partners and suppliers and consider outsourcing where possible. The time saved can be redirected toward engaging a broader range of LPs, enhancing fundraising efforts.
Plan for exits: Moreover, think about exit strategies right from the start. Processes such as block deals, IPOs, or buyouts take time. We've observed firms beginning to plan for exits almost immediately, a practice that's becoming increasingly important in this fast-paced environment.
The investment landscape in India continues to offer promising prospects, but it's also undergoing a significant shake-up. In a market where liquidity is constrained and exits are challenging, only the most prepared and resilient firms will prevail.
About
Dr. Bhaskar Dasgupta is a senior board member and business executive with proven experience in regulatory engagement, strategic business development, fundraising, and business transformation. He is currently a member, observer, or chairman of all boards in the UAE, Saudi Arabia, India, Bahrain, and Israel for Apex Group, a global financial services provider with more than $3tn AUA. He also assists with Apex Group’s strategic development of the MEASA region.