If You Want to Have Atmanirbhar Bharat, You Need Atmanirbhar Capital, Says Sanjay Nayar
Sanjay Nayar, president of Assocham and founder of venture-capital (VC) firm Sorin Investments, tells Deepsekhar Choudhury and Tarunya Sanjay that while India has seen an explosion of early-stage VC firms, the country continues to lack a deep pool of domestic capital. Edited excerpts
After a career in private equity, what led you to start your own VC firm?
Having seen first-hand how fragile businesses could become without discipline, I felt a responsibility to put my learning into practice. The idea wasn’t just to create a fund, but to build a proper institution; one that placed governance, transparency and rigorous board engagement at the very core.
The idea was to build an institution. Now we have ₹1,400 crore of capital. We are backed by KKR partners, by my family, by the [Harindarpal Singh] Banga family, HNIs [high-networth individuals] and Sidbi [Small Industries Development Bank of India]. So, we have a good, institutionalised pool of capital and 22 investors.
We want to be able to work with the founders who need and appreciate the help we're able to give them. This is a very initial phase of value-added PEs and VCs being born in India. This local industry is still in the first phase. GPs [general partners] like Avana Capital, Fireside Ventures, Blume and Fundamentum have come up over the last decade.
How is having a big domestic PE/VC industry significant to India’s economic ambitions?
When you have foreign PEs/VCs, they're subject to a high degree of volatility. There could be sovereign risk, currency risk, political risk and geopolitical risk. That's why it behoves every country to develop a local pool of private capital that won’t fly away in the face of volatility.
Local funds are extremely valuable, however small they may be, because they understand the local ecosystem.
What are the big challenges for the industry?
Local PEs/VCs still get most of their money from HNIs and through wealth managers. Somehow that sector is still very driven by equity markets. There isn’t that mindset that ‘I want to invest for 10–12 years in a fund, in a start-up’. People still like to make big bucks in quick time.
At a broad level, India needs more savings to come into the real sector. Today, our savings rate is quite low because we are an inflationary economy. So, we import savings in the form of PE and VC.
The investment requirements of our country for the real sector are far greater than the current savings pool. Even if savings were 30% of GDP, we’d still be short. We're at 22% of savings.
It behoves every country to develop a local pool of private capital that won’t fly away in the face of volatility
There has been an explosion of early-stage VC firms in India, but a paucity of growth-stage ones.
Growth funds require larger pools of capital. When you start doing Series C and D, you're getting into growth, and then the average cheque size is going to be $25–50mn. Growth stage, by definition, needs a larger ticket size. It gives exit to the early-stage investors.
For the cheques to be bigger, the fund has to be bigger. For the fund to be bigger, you need bigger LPs for which India yet has to open up bigger pools of domestic capital such as banking, insurance and pension pools.
Otherwise, all our growth deals are going to go to TPG, Carlyle, Temasek...If you want to have Atmanirbhar Bharat, you need atmanirbhar capital as well.
Do founders care whether they are raising money from local or foreign PEs/VCs?
I don't think it makes a difference. However, founders are realising that in the past seven or eight years, all the issues we have had, have been primarily with a couple of foreign VC firms who have basically written cheques and moved on and not paid enough attention.
In a way, a founder can say ‘It’s damn good they don't interfere in my business’. The other way to look at it is ‘Hang on, I want them to look after my business and I want them to give me advice’.
RBI has rules that limit Indian GPs from investing abroad. Shouldn’t Indian GPs have global ambitions?
You can invest only 25% of AIF [alternative investment fund] money overseas. But 100% availability won’t come now. Look, we would love to be global funds, but it would be a bit of a dream to think that we’ll get approvals for complete capital convertibility at this stage. The fact is that India is not ready to use local savings to fund overseas businesses.
What do you think Indian GPs need to do to attract more global institutional limited partners (LPs)?
They will come. It takes time. If you look at KKR and Blackstone, they didn’t get LPs overnight. They have proven their expertise over decades.
Institutional LPs look for a few things. They will look for the track record of the investor. Then they look for how good a team you have built.
Foreign LPs look for institutionalisation of the firm. It can’t be a family firm, a one-man driven firm, a one-man investment committee where 90% of the carry is kept by the founder and 10% is given to the rest.
They’ve got to treat their LPs with respect, with complete transparency and regular reporting. They’ve got to have excellent audits. Then they look for the thesis, what a fund is doing and how it is different from others.