One of the oldest private equity funds globally, New Silk Route (NSR) Growth Capital, which was co-founded by former Managing Partner at McKinsey & Company, Rajat Gupta, has kept itself away from investing in the highly volatile e-commerce sector. The partners at the fund now feel vindicated as valuations of e-commerce companies are tumbling down. In an interview with BusinessLine , NSR Partner Jacob Kurian, who focuses on private equity opportunities in the Indian sub-continent, shares NSR’s growth plans.

NSR hasn’t made any fresh investments for over two years now, which is quite unusual for a PE Fund…

A typical fund has a 10-year life. In the first five years, you make investments and in the next five, you try to harvest the investments. We are in that phase and are returning the money to our investors. That is what we are paid to do. If you look at the last year, we have had probably a very successful year for most funds in terms of number of liquidity and exits. We sold Destimoney Securities to Carlyle and it was a very successful exit for us. We have had another success story with regard to VRL Logistics of Vijay Sankeshwar. Its IPO was very successful and it was oversubscribed 70 times. We had Coffee Day Enterprises Ltd, which owns Café Coffee Day, which also got listed. Right now, our focus is to get all of our companies ready to either get them listed or exit them.

How much money have you returned to investors so far?

We would have returned about a quarter of the $1 billion we raised. We would have created a liquidity of about a quarter. We have so far done four exits or got them listed. Six more are in the works and they too will either get listed or we will exit them in the next 12-15 months.

You have never invested in the e-commerce space. Is it because you never want to or is it because you didn’t find good ones?

We were, I guess, old fashioned. We looked at the business models of e-commerce companies and couldn’t understand how they work. If you bought something for ₹100 and sold it for ₹80 and never planned to sell it for ₹110… and expect that somewhere at some magical future it will make money, it clearly shows that it contradicts basic common sense. I must also admit that we felt sorry for ourselves whenever we opened the newspaper every morning watching the valuations of e-commerce companies gallop. A colleague told me we have either misjudged the sector completely as we were there when it happened, or in three years we will get to know whether we are geniuses. I don’t think we are still there, but is trending that way. One of the things that you can do in the West is that if a retail venture wants to put up 800 stores, they can. But in India, even to put up 100 stores is a challenge because of a mountain of approvals and licences you will have to get before you start.

Flipkart is getting valued less and less as the days go by. Do you think there are some fundamental issues at work here?

If you are based out of Bengaluru, you know there is a lot of stuff which is not as great as it is made out to be. I am not privy to their (Flipkart) numbers, but I can tell you life is not as rosy as it is made out to be. We have said that when some rationality returns — by which time we hopefully will have our second fund — we will start looking at them. But I think e-commerce industry is here to stay. It has fundamentally changed the way we do business. But it can only work when the economics starts to make sense. Let me give you an example: If you buy food online in the US, you will also have to pay for delivery which is quite hefty. But here, you get free home delivery. So that is the issue. Convenience more than discounts has to be the basis of the business model. We will hopefully have e-commerce companies available at sensible prices soon.

When do you plan to raise another round. Typically, how much do you invest in a company and what kind of stake do you normally take?

We have to adhere to SEC regulations and hence we won’t be able to say when and how much. We are the largest first-time PE Fund and we are on a trajectory where the bulk of the companies are looking much more optimistic than they were 24 months ago. This fund is past its investment period. We usually invest upwards of $30 million. You must also understand that we believe we should not give too much capital — just the right amount from one phase to another. However, over the last three years, the Chinese funds, which have come in, have started investing very aggressively. And that was matched by other players.

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