“I always have an India-first approach to everything. Whether it is fund raising or investing…India first has an innate appeal to me,” says Gopal Srinivasan, Chairman and Managing Director, TVS Capital Funds Ltd, a growth equity company with nearly ₹1,200 crore under management. The firm’s first two funds were raised from domestic investors and its bet was on the India consumption story, in different sectors. As TVS Capital Funds prepares to raise its third fund – of about ₹1,000 crore – you quiz Gopal on why he prefers domestic investors over overseas investors. “Domestic investors give you a lot of space and freedom to operate the way you trust the business, the way you trust your judgement. Foreign investors come with a lot of prescriptive approaches,” he replies.
Foreign investors allocate assets across countries and their approach is conditioned by that. Domestic investors, on the other hand, are people on the ground with a deep understanding of the country.
“I must, as an investor, do what I understand. I understand the India-first approach. If I took an alternative approach, which I don’t understand, how will I make money for my investors?” says Gopal. The fund’s goal is to make money for its investors, do it ethically and legally, and leave behind some good businesses when it exits.
According to him, he has always been interested in ideas, as an explanation as to why he set up TVS Capital Funds. “I am always the wisdom of the crowds guy. I am able to curate other people’s ideas far more than invent my own,” he adds. Around 1999-2000, he had a fund that invested in a handful of ideas, at least two of which did well. He had sold his contract manufacturing business in TVS Electronics and, on the advice of his professor and mentor, the late CK Prahalad – who told Gopal that he would be better off backing others’ ideas than implement them himself – Gopal set up TVS Capital Funds, in 2007.
The first fund, of ₹600 crore, took off with ₹50 crore each from a clutch of TVS companies and the Shriram Group, with a few individuals and leading public and private sector banks chipping in. The first fund’s focus was food and speciality retail, business services and financial services. At about the same time TVS Capital Funds was all set to begin investing, the global financial crisis hit everybody hard.
The challenging period
Gopal says: “2007-09 is one of the regrettable times in India, where people either didn’t get enough deals or they overpaid. They didn’t get the deals because of the meltdown.” He says that period was like walking on the beach. You see the crabs and when you go near them, they all disappear. Only the weak crabs would get left behind. Investing in those times was almost similar. Recalls Gopal, “we got good promoters to work with us. But we didn’t see the best of deals or we overpaid.”
In 2009-10, TVS Capital decided to raise another fund. Its team had seen some changes. This time too the TVS and Shriram groups were the main sponsors. The new fund raised ₹600 crore with support from investors in the first fund and from new ones, including family offices. With the second fund, says Gopal, they realised that change was in the air and hence decided to place its bets on financial services – City Union Bank, RBL (earlier Ratnakar Bank), Karur Vysya Bank, NSE and IEX. Simultaneously, the fund continued investing in restaurants, agriculture and the earlier sectors. “It has been a good exercise. I am quite pleased with the second fund,” says Gopal.
With the first fund, TVS Capital wrote cheques of ₹50-60 crore in companies, and its stake would vary; it could be a minority stake or a significant minority or even a majority. The portfolio from the two funds included companies as diverse as ReGen Powertech (wind energy), Dusters Total Solutions (facilities management), Papa John’s (pizza), TVS Logistics, Chili’s American Grill & Bar, Prabhat (dairy), Nykaa.com (wellness) and Wonderla (amusement park). Its exit route was either through strategic sale or through the stock exchanges in the case of listed companies.
He explains the strategy: “Over time, we developed two strategies. We call ourselves a bi-modal strategy investor. We are flexible. For example in the second fund, we chose late stage VC as an option. The core investing strategy we have is significant minority, majority or participation in late stage venture capital with active rights. The other one we call classic, which is same sectors, much larger assets, with board seats, without board seats, be flexible…”
Now, as TVS Capital gets ready to raise its third fund, it will continue to focus on domestic investors, but will be open to tapping foreign investors. “We will again follow the India first fund raising strategy. But this time, it makes sense to invite foreign investors. We will certainly do that,” says Gopal. TVS Capital has roped in private equity industry veteran Prasad Gadkari, who will be based out of Mumbai, to lead that fund.
With the third fund too, TVS Capital will continue to look at opportunities in financial services, food and agriculture, speciality retail, and one more sector, which it hasn’t finalised yet. The amount it invests in the companies will increase to about ₹120-150 crore, from ₹50-60 crore in the first fund. “We would be doing growth, late growth, some late stage venture capital,” says Gopal.
On the lessons learnt from the first two funds, Gopal says candidly “we made lot of mistakes. But generally I have not repeated them.”
One category of mistakes was around co-investors. Even if there is a co-investor, he says, you have to make that investment as if it is your only decision. And, when you do co-investment, investor alignment is everything. The second category is somehow believing that by building a superb asset, it will get superb valuation. “
What we find is, it is not necessarily true,” says Gopal. Without naming the company, he adds that it was a wonderful, leading its class, but was not able to get premium because of the nature of the industry.