Emphasising that the local arm of Norwest Venture Partners invested in India since 2005, Niren Shah, MD & Head of Norwest India, lays out how the fund will deploy $3 billion it has committed to the country. Edited excerpts: 


This tranche of fundraising is expected to be around $3 billion, and you’re looking at active deployment in India...

Yes. For the last 3 years, we have been deploying approximately $250-300 million every year. We are going to continue that pace. We are much more focused on cheque sizes; more focused on growth equity and late-stage venture. We don’t do much of early-stage ventures. Our cheque sizes end up being about $30-100 million in the growth equity segment; within that, the sweet spot would be $50-75 million. In late-stage venture, we do $20-50 million, and our sweet spot would be $30-40 million. We have a very long fund -- typically 10 years but we have been raising funds between 2-3 years. In India, outside certain sectors like IT services and Pharma, we are trying to build some really large companies here and a lot of the exits end up in an IPO.


A lot of PEs have had a couple of very successful IPO exits including Five Star Business Finance which was yours. You see this trend encouraging to attract more money into India?

Yes, globally and within India, we have reached a very different orbit. Given the sizable GDP we are getting into, the strong reforms we have had and the political stability, India is seen as a large destination for manufacturing. We have done well in IT services and our domestic consumption story. As a country we’re finally very confident about ourselves and the world is very confident about India. Even in Asia, we have occupied the number one spot and there is a lot of interest and capital. Norwest has been very bullish on India since 2005 when we started but I think we are more bullish than ever. There’s a willingness to do buyouts, we are seeing repeat founders, an understanding of unit economics and on the start-up side there is the need to go IPO, have free cash flow, etc. There is a lot of patient capital and people understand that it’s an emerging market that will take time.


Does this whole China plus one theory hold water?

In certain sectors like IT and pharma India has very strong footing.  In the newer sectors when you’re looking at electronics outsourcing it’s still early days. There’s a lot of potential but there’s a long way to catch up to China which has been doing this at scale for 20 years. While China has built some amazing scale, given the extent of what’s happening like the iPhone production in India or the interest of Tesla, some of the changes are happening much faster than we would have ever imagined.


One of the things I also noticed in your financial services portfolio is that you’ve stuck with regulated entities largely and perhaps a few fintech…

Given that we have a very robust regulator we don’t want to do frontier investing where there are people who are very happy to play in areas which are going to be regulated or regulated but they are not clear. We want to say that there is a benefit of having regulation and that regulation is well understood and well laid out. We want to be absolutely within the four corners of that regulation and we care as a fund about governance risk and compliance. We think more about growth equity. If you’re playing on PPI licenses but one knows that it is not the eventual place we stay away from it. We’d rather come in when there is very clear cut regulation and a profit pool, rather than doing very early stage venture where maybe the business does work but sometimes it’s the regulation that doesn’t work. A lot of people today are a little more worried about fintech. Norwest worldwide is known for being very fundamental. We will do a lot of diligence and don’t want to do a spray-and-pray kind of deal.


How big is your exit pipeline for FY25?

We are going to have a bunch of companies filing for IPO like SK Finance, Swiggy. Veritas, OfBusiness and Vastu Housing Finance. Exits in Swiggy and OfBusiness would be in the range of about 15x. Financials would be lower but we put in money around many stages.


There are a lot of bank divestment buzz doing the rounds. Would you participate in these?

We did a lot of banks and NBFCs around 2007-2012 because at that point those were the ones which were growing and we are trying to make 30 per cent internal rate of return. Now we are doing a lot more of fintech and NBFCs. We can see companies growing at 30-40 per cent. I don’t think in the banking space there is something exceptional any longer. Banks will probably be 10-15 per cent growth.