Guest Talk on Private Equity Investments in India by Carlton Pereira at IIM Indore

 | September 16,2010 03:55 pm IST

Carlton Pereira, Managing Director of Tano Capital, a Private Equity firm with investments in India and China, delivered a guest lecture on Private Equity in India that was enthusiastically received by the students of IIM Indore. The objective of the interactive session was to demystify the oft-misunderstood world of Private Equity(PE) investments with an Indian perspective.


Eschewing the usual powerpoint slides for a more participative style, Carlton started by describing the organizational structure of a PE firm, introducing the concept of General Partner (GP or fund manager) and Limited Partner (LP or investor) and the dynamics of the relationship between them. He then went on to describe the working dynamics of a PE fund, the terms of the agreement between the LP and GP, the criteria for choosing entrepreneurs to fund and the mechanisms of profit-generation and revenue-sharing between the LP and GP. "The fund manager (GP) earns an annual management fee of 2% of the fund, as well as a 20% share of profits in most agreements”, he said.


Moving on, he then threw light on the investors that invest in PE funds. These investors were broadly grouped into 5 categories - University endowments, Pension funds, High Net-Worth Individuals (HNI's), Fund of Funds, and Family Investors. Carlton then presented his unique insights into the stages of PE investments that happen in India.


The Indian PE space has 300 companies, active in 4 stages of investment, namely Venture Investment Stage (a nascent stage, where the entrepreneur's business plan is operationalized with PE funding), Growth Stage (an intermediate stage where the PE firm provides capital for scaling up the business), Listed Investment Stage (an advanced stage that entails Private Investment in Public Equity, or PIPE) and Buyout Stage (another advanced stage where the PE firm buys out the entrepreneur's company).


According to Carlton, majority of Indian PE investments are made in the Growth Stage. Carlton finally identified exit strategies, key success factors, and risk mitigating mechanisms that would contractually enable the GP to derive maximum benefit by funding the entrepreneur. This was followed by a short Q&A session where he fielded questions from the participants on the above topic.