Mohammed Alardhi.
Middle East Alternative Asset Manager Investcorp has seen its AUM surge from $ 10 billion to $ 42.7 billion in the last seven years. In India, the Bahrain headquartered firm backs several startups like Xpressbees, Wingreens, FreshToHome and Incred. The company, which counts Abu Dhabi sovereign fund Mubadala as one of its investors, has pumped in more than $ 500 million in India across both the private equity and real estate space.
Moneycontrol’s Ashwin Mohan caught up with the top brass of Investcorp — Mohammed Alardhi, Executive Chairman of Investcorp, and Rishi Kapoor, the Co-CEO of Investcorp — for a chat on their India strategy, the funding winter in the startup ecosystem, and consequent m&a action, top sectoral bets and more….
(Edited Excerpts)
Ashwin Mohan: Mohammed, let’s dive into the ongoing slowdown in funding as far as the Indian startup ecosystem is concerned — a space familiar to Investcorp. You have made several investments in the startup sector across the world. Now, venture funding data, especially in Q3, represents or reflects a very bleak picture when it comes to startup funding in India and this is across various stages of growth. The other factor that we’re noticing is that there are hardly any unicorns this year. It was raining unicorns last year and that rate has gone down drastically. So, from your global lens, when do you think the funding winter in the Indian startup ecosystem will come to an end? Do you have any timeline in mind?
Mohammed Alardhi: We came to India in 2019 and within less than four years, we have deployed money, we have doubled our AUM and we’ve invested in 14 companies, invested in real estate. The macro of your situation in India is really something compelling for us for the long term, vis-a-vis, funding and credit. I mean, we are in the business of raising funds, raising money throughout our geographies. The situation with credit globally at the moment, while there are some tough markets here and there, and obviously that is understandable with the volatility that is happening, with central banks still talking about the increasing interest rate. But we feel that this is not a long-term phenomenon and we see credit and liquidity returning back, probably sometime early next year.
Ashwin Mohan: Thank you for laying the background over there and that’s your prediction as far as the end of the startup funding winter is concerned. Rishi, let me steer the conversation to you. In your opinion, what do you think has been the impact of the global tech sell-off on the valuations of new-age Indian firms? Due to this, there has been extensive restructuring, job losses, and cost cuts. Do you think this environment has led to a scenario wherein there could be a situation where one sees accelerated M&A in the Indian startup ecosystem, wherein the stronger, well-funded peers gobble up the weaker ones?
Rishi Kapoor: As far as the spillover of the global tech correction in the public markets, in particular in the United States and in the developed economies, spilling over into the private markets and in India is concerned, to some extent, it’s healthy, actually. Because one of the things that is built into the private markets is a little bit of a self-correcting mechanism, where you tend to invest through the cycle rather than try to time the market, neither on the way up nor on the way down, right? So, there is a self-regulating regression to the main mechanism built into private markets that I think will actually lead to a healthier ecosystem for startup funding in markets like India, particularly, in the long run.
One of the things that we have experienced specifically in our own history is that when you have situations like what we are experiencing right now, what you call the winter — such situations lead to some of the best vintages for investment activity in the long run. So, we are actually looking forward to deploying capital over the coming months in India and elsewhere in the world as well, because we think that valuations have now come down to levels that are much more reasonable than some of the loftier levels that we had to contend with in the second half of last year and early part of this year. And that’s why you saw us taking a bit of a pause and a breather, and then becoming active all over again.
Ashwin Mohan: The Softbanks and the Tiger Globals of the world at least have pressed the pause button when it comes to big aggressive bets in the startup space in India. Who do you think is filling up the gap that has been left by them? Is it investors from the Middle East like you who are bullish on the Indian startup scene? Do you see more activity coming in from the Canadian pension funds or some of the sovereign wealth funds from Asia?
Mohammed Alardhi: I think, Ashwin, you mentioned the right names. There is an affinity between India and the Gulf; both regions are actually doing well in this global macroeconomic situation because of the energy prices as producers and consumers in India. So, that trade, that affinity is actually helping capital and we’ve seen that because the bridging that we do between the Gulf and India, and vice versa, is very strong. I think coupled with that is really the rewriting of the opportunities in India, the regulatory framework that has produced a safe space for capital in India in the last few years. All these things, I think, definitely will make Gulf investors part of the capital that goes into the opportunities in India. I mean, of course, you’ve seen that with sovereign funds partnering here, investing in India and investing for the long term, looking at solutions for long-term problems in these locations, whether it is in energy security, food security, green investment.
Ashwin Mohan: You know, Rishi, there are several niche verticals in the Indian startup space. Many of them are growing at a frenetic pace. You have consumer tech, you have health tech, you have ed-tech, you have agri-tech. Which of these niche verticals are you most bullish on and any new segments that you think Investcorp could look at exploring in India in the coming months?
Rishi Kapoor: I think you have touched upon thematically how we are approaching our investment strategy in India to start with, Ashwin, because it all stems from following the path and evolution of that relatively young, aspirational consumer that is digitally native and is looking to access goods and services at affordable prices and relatively high quality. That spans all of those sectors that you referenced, Ashwin. Its health and wellness, its consumer goods, including not just the fashionable, latest electronic gadgets, but also things like groceries and education and content media and entertainment. All of that is…, and I am sorry, I should not overlook financial services, right – access to financial products. Hence, all of those are areas of focus for us, and there are two other areas. And those we put under the bucket of consumer enablers. And there are two in particular – the IT services sector and the logistics warehouse sector. And if you look at some of our recent investment activity, Ashwin, you’ll see almost all of those investments have been very consistent with that overarching theme, following the consumer either directly or the consumer-enabler businesses that facilitate that growing consumer demand.
Rishi Kapoor
Ashwin Mohan: Mohammed, what’s the kind of corpus of capital that Investcorp has set aside for investments strictly for India in the next five years? And to what extent do you see the Indian AUM growing in the next five years?
Mohammed Alardhi: As you mentioned at the beginning of your show, we are just over $ 43 billion from 10 billion in 2015. Our target is to go to 100 billion obviously…. to go to 75, then to 100; that is our growth journey. Of course, India, is a big market…. now we are approaching about a billion of AUM, which will only double and triple as we approach our 100-billion target.
Ashwin Mohan: If you look at investors like Blackstone and Brookfield, they have bet really big in the Indian reality space. In fact, they’ve also gone ahead and launched REITs or Real Estate Investment Trusts. Help us understand your real estate strategy in India, what will you focus on – residential, commercial or will it be warehousing? Also, will you be tempted to follow the REIT route like some others?
Mohammed Alardhi: Our core experiences in real estate across the world gives us the conviction that we really bring to the Indian market. And what we see here is obviously a great opportunity in logistics-related real estate (real estate that is around education, maybe healthcare), warehousing, and the like. Those are the sectors that we see as our focus for the time being in the medium term.
Ashwin Mohan: Rishi, can you give us a sense of whether any of your portfolio companies are ripe enough for listing? I understand the likes of NephroPlus are in fact in active discussions with i-bankers. You’ve also got Xpressbees. Any of them likely to list in India in this calendar year or the next calendar year?
Rishi Kapoor: Without getting into specifics for obvious reasons over here, I would say you’re absolutely right. In our portfolio of 13-odd companies that are currently there, there’s inevitably going to be at least two or three companies that are both mature enough and large enough to attract a public listing. And it wouldn’t, therefore, be at all unexpected for us to approach the public markets, provided they are facilitative and open over the course of the next 12 months with potentially a couple of listings.
Ashwin Mohan: Last word to you, Mohammed. We still are a few months away, but what are your expectations from the 2023 budget of the Narendra Modi regime? What do you think the Indian government can do to create a more facilitative and friendlier environment for global investors like you on the policy front?
Mohammed Alardhi: I think the government has really been on the right track supporting this major digital transformation for now and the future, producing this regulatory framework that allows capital to come safely here and safely leave, spending on things like infrastructure, which is a great enabler of any economy. So, I believe this is something the government is going to continue to do, because you can see already the advantages it is producing and the attractiveness it has produced for investing in India.
