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ShareMumbai: After splitting with Baring Private Equity Partners India (BPEP), an investment firm he co-founded and was associated with for 12 years, Subbu Subramaniam N is busy chalking out his next big move. DNA Money caught up with the private equity veteran for a chat on his specific career plans and the investment scenario at large. Excerpts:
It must have been tough breaking away from a company you co-founded?
Emotionally, yes it was. But the whole idea is to learn from such situations. We profess to promoters of the portfolio companies that they have to make themselves dispensable. What we are telling them is that at some stage, the company grows beyond your competencies. You should have enough professionals, processes, systems and a wide customer base so that even without you around, the company will continue to grow. So when I am preaching that, I think this is a classic test of whether I practise it as well.
Is everything sorted out now?
Yes, it was all done about a month-and-a-half ago. I now have a clean slate to pursue whatever I want. Besides sorting out the financials, I have the flexibility now -- there is no constraint on what I do.
Your status on a business networking site reads, 'Planning a career move for one last time'. Could you elaborate?
I'm evaluating all the options and will be in a position to take a call by January 1, 2010. The options being looked at include taking up a senior position in a fund that's coming into India or is already in the country as number one or something; bring one of the big brand names looking to enter the Indian market through a joint venture; the third option is to be 100% owned by the team itself, led by me -- which is a very private affair at one level. All three options are open.
But there are talks about you raising a $250-500 million fund already...
That's jumping to a conclusion I'd say. For the record, let me state that I have not decided what I am going to do. I have not decided on who my joint venture partner, if at all, will be. I don't know the appetite of the joint venture partner for one investment strategy or another. Without an investment strategy, you can't decide the fund size and vice-versa.
What I'd said earlier to a fund-raising query was that broadly I would have to raise capital as part of my job irrespective of what form (JV, employment, self-employment) I decide to engage in and that I think $250 million is the kind of range I'll raise if I am not doing infrastructure. And if I develop an investment strategy to include infrastructure, I'll have to go all the way up to $500 million.
Which of the three options are you more likely to take?
The first and second option require me to do a lot of research to understand the psyche, strategy and DNA of the partner/sponsor, but in the third option, I will have to apply my mind and plan out various steps in building the firm. For a joint venture, I am pitching by putting together a presentation about my experience, competence, team building and ability to bring value etc. For some international investment firms, India is priority, while for others it's not. There are some who fear the Indian market is overvalued. It is difficult to convince them that we are not investing in an index stock. But you can't help it as they always relate to the market like that.
Do you connect with how these investors perceive the Indian market?
As global allocators of capital, many international investors evaluate different markets from that perspective. Thus, what they are saying is partly true. I say this because when I sit with a promoter, he tends to quote the markets as an indication of valuation expectations. For instance, if we are evaluating an investment in an IT/BPO company, very often the promoter will quote bellwether stocks in IT and their valuation to have the benefit of higher price-earning multiple that the sector quotes.
Promoters the world over tend to use the benefit of valuations in the market. My take is that index is not a true reflection of all the opportunities in Indian private equity arena. Index is just a surrogate, which indicates that pricing can be high and promoters will tend to price off that curve. So, there is a psychological connection between private equity and stock markets.
Any plan for making angel investments?
I don't think I can have any distraction in fulfilling my professional commitment to my job, irrespective of whether it is a JV or my own shop. If I do my own fund, one of the things that will give investors confidence is that I put a significant part of my net wealth as my commitment to the fund. They will be more comfortable then as I will be seen as practising what I preach. I may do angel investing or I may find a professional fund manager if I take up a less demanding role. I enjoy working with young companies; give them ideas, challenge them, confront them, tell them their plans are inconsistent with the market opportunities. But, I don't think I will do it (angel investment) myself because to give my best to 'a job', it will be a distraction.
What's your take on the PE investment scenario over the last decade or so?
The industry has matured quite a bit. The number of professionals, number of transactions, size of transactions, etc has increased gradually and nicely. There have been exits, but that is one thing still lacking for the comfort of the international investor, particularly the quantum and methods of exits. Most of the exits have been through an initial public offering and very few large size mergers and acquisitions and even lesser trade sale deals.
