Alternative credit platform BlackSoil Capital expects 20 per cent of its portfolio companies to achieve operational profitability in the next six to nine months.
In a conversation with businessline, Ankur Bansal, Co-founder and Director, BlackSoil Capital, says the firm has invested ₹3,300 crore in over 180 companies in the past seven years. More than 150 of these companies are start-ups, which accounted for ₹3,000 crore of the deployed funds. Edited excerpts from the interview:
Where does BlackSoil Capital choose to invest?
The idea is to build sustainable businesses because, as a lender, we don’t have the same return ratio as VCs, and hence we exercise great caution. This also translates into a sector-agnostic strategy, where we try not to invest more than 30-40 per cent of our AUM [assets under management] in any sector. As for profitability, for some reason we’ve been able to attract those kinds of businesses all the time. In 2021, the first five deals from our latest fund were all cashflow-positive — EBITA [earnings before interest, taxes, and amortisation]-positive.
How many off-the-portfolio firms are near profitability?
Currently nearly 40 per cent of our portfolio companies are EBITDA-positive. Another 20 per cent is expected to reach EBITDA-positivity within six to nine months. Notable companies on this path include Yatra, LS Digital (digital marketing services), Batterysmart (EV battery maker), Upstox (which has been EBITA-positive for a while), and Genworks (medical device distributor). This emphasis on profitability has contributed to their low write-off rates.
Are there sectors you avoid?
Of the 150-odd companies that we funded, none were at the negative gross profit level, which is why we have had low write-offs so far. We avoid companies with a negative gross profit business model. For instance, during the 2020 lockdown, we had no exposure to quick-service restaurants (QSR), the hotel industry, or fine-dining establishments. In the past year, we reduced our exposure to fintech due to regulatory changes. We steered clear of the roll-up space, where companies acquire multiple brands; this was big in 2021. Of the 150 start-ups, we’ve successfully exited over 100.
When do you come on board, and what is the average investment size?
We come on board when the start-up is on a growth trajectory, is looking for capital, and avoid the stage at which there are limited clients and we don’t know about their next client. Our average investment is ₹15-30 crore.
Can you share an overview of your current portfolio?
Over the past 12–18 months, we completed three transactions in the electric vehicle (EV) space, and are aiming for more. We are closely monitoring the climate tech sector, and technology in general, besides our core areas of healthcare and IT services.