Competition to SoftBank and Alibaba: PE firms' interest surge in Indian Internet companies

Early this week, online movie and ticketing platform BookMyShow raised $100 million from middle market and growth equity investment fund TPG Growth.

In February this year, a private equity firm Warburg Pincus participated in a $20 million investment round in Capillary technologies.

When it comes to investments, late-stage investors such as SoftBank Group, Naspers Ltd, Tencent Holdings and Alibaba Group are facing competition from a very unexpected source -- Private equity (PE) firms.

PE firms, which have usually stayed away from Internet companies, seem to have changed their strategy and are no more shying away to cut such companies huge cheques.

Lenskart, BookMyShow, and Capillary Technologies are some of the companies which have attracted private equity investments.

Private equity firm TPG holds the maximum shareholding of 22 per cent in eyewear online-to-offline platform Lenskart.

Experts say that over the past two years, startups have been able to change their strategy that involve improving their unit economics and demonstrating the profit in accounts. This reduces the risk involved for a PE firm.

Lenskart claimed to become EBITDA positive in December last year, and it continued into January.

PE firms generally look at 1:3 returns, unlike VC (venture capital) firms who have an outlook of 0 or 10.

Warburg Pincus is the oldest PE investor that has been investing in the Indian startup ecosystem. Its portfolio includes Quikr, CarTrade and Ecomm Express.

The PE firm has invested a total of $166 million in Delhi-based logistics solution provider Ecom Express.

Over the past year, TPG has increased its start-ups bets. TPG and RNT Capital are in talks to invest in Livspace. Last month, Mint reported that Livspave was in talks to raise $50 million from Verlinvest, Ratan Tata’s UC-RNT Fund and existing investors.

At a time, when there is a huge dearth of late-stage investors, the rising interest of PE firms give a shot in the arm of the Indian startup ecosystem. However, the PE firms are still various cautious in choosing their startups and they definitely never follow the concept of gut feeling. They tend to pick safe bets and favour companies that generate significant cash flow.

The development was first reported by Mint.