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Sandeep Sinha, an alumnus of the Delhi Institute of Technology and London School of Economics, is Managing Partner of Lumis Parnters, a private equity fund. Lumis, with $200 million under management, focuses on three broad sectors — education and human capital services; service and supply chain management; and technology and consulting. In this recent interview in Delhi, Sinha spoke about Lumis Partners, the investment climate and the challenges of investing for private equity funds. Excerpts from the interview:
On Lumis Partners
We are keen and deep investors, fairly involved in the operations of the company. In terms of the sectors, human capital services, education, employability, the whole sector is interesting to us. We also focus on aftermarket services and supply chain segment. We have a keen interest in terms of technology, analytics, the KPO segment. Those are large building blocks. We are sector focused. We invest in growth-stage companies, with at least a couple of million dollars in revenue.
We are an India-based fund. We invest in companies in the US as well, but those with some cross-border relevance between India and the US.
We have $200 million under management. A significant part of that is now committed.
We have been actively investing for the last three-and-a-half years. We have made eight investments so far. It is anywhere between $5 million and $10 million. Stake varies, but most of our stakes would be 25 per cent-plus.
On the appetite for funds in the growth stage
There is significant demand. The entrepreneurial ecosystem has now matured to be able to have a decent balance of good companies looking for funds on one side and decent numbers of investors who want to invest. I would say the early stage is still lacking from an investor standpoint. For growth stage, there are a decent number of companies.
On the challenge of investing
Big challenge is that in India the growth story is so strong, a lot of companies, when they show even a reasonable or a modest amount of growth, they start talking about unrealistic valuations. When you raise money at an unrealistic valuation, investors also have an unrealistic expectation of the growth. It is in some sense tightly interlinked.
When two people are coming together on that standpoint, both on unrealistic expectations, then there is a possibility of the expectations crashing one way or the other. That is a challenge.
The other challenge is that while the entrepreneurial ecosystem is getting a lot of traction, still we don’t see a lot of seasoned professionals, who have experience of running a business, both in small strength and large stage organisations, jump into the ring. That is still in evolutionary phase.
On exits in India and preferred mode of exit
Our time frame for exit is five-years-plus. We have been invested for three-and-a-half years. The next 18 months is when we would start planning the exits.
For the kind of equity stakes we hold, a strategic sale would probably be the best option (to exit). Public listing has its own set of challenges and limitations. That is not something that we would look at.
It is not just driven by our strategy. It is also driven by the aspiration of the entrepreneur. When you are in a partnership in a company, you have to respect both sides. There are a couple of companies in our portfolio which aspire for an IPO, and if that is the way it should be, we will follow something which is in the interests of everyone.
On policy changes and concerns
Some of these factors always have an impact. There are other concerns which are larger and bigger in the scheme of things versus just policy aspects.
In terms of the market size, the uncertainties of the market, how the economy has been going back and forth, how the industry has been taking two steps forward, one step backward kind of things. How the sentiments have been raising high and low. Sentiments move like a pendulum. When they get a little bit positive, they get overly positive. When they get a little bit negative, they get overly negative. You keep on vacillating between the two. There is a whole range of challenges out there.
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