We do not have a fund life and therefore have no constraints or pressures to sell. Take for example, my investment in Sula Wines, which was made out of my first fund in 2004. It has been more than 10 years and we continue to be shareholders and I am on the board. As long as the entrepreneur is building a fantastic business we are happy to be there with him.
Speaking to YourStory, Deepak Shahdadpuri, Founder and Managing Director of DSG Consumer Partners (DSGCP), an investment holding company, explained his strategy and investment thesis. Focused on India and South East Asia, DSGCP is looking to actively invest in early-stage consumer businesses and partner with entrepreneurs building a market leading business in their niche. Following excerpts from our conversation with Deepak captures the fund’s philosophy and overview.
Fund #3, back to early stage investments
An MBA from INSEAD, Deepak left Bain & Co in 2001 to join three ex-colleagues at Reuters Venture Capital, a $400M global technology fund as Head of Asia. Whilst based in London, he spent a lot of time in Asia, particularly India. However, he only made one investment in India given the relatively better opportunities at that time in Europe and the US but had his eye on the growing consuming middle class and the lack of capital focused on consumer businesses.
In 2004, he started Gem India Advisors and made investments in early stage companies like Sula Wines, Saffronart, Cleartrip and Bakers Circle between 2004 and 2006. Along with three other partners, he launched a $200M mid-market sector agnostic fund, Beacon India Private Equity in 2007 and moved to Mumbai. The fund invested in consumer, infrastructure and financial services companies, including Sterling Holiday Resorts, RBL Bank, Indostar Finance, Impresario Restaurants, National Stock Exchange and NCC.
Finally, Deepak decided to relocate to Singapore in 2013 and focus on backing early-stage entrepreneurs building consumer businesses in India and South East Asia. That’s when DSGCP came into existence.
An investment holding company, not a fund!
Deepak: DSG Consumer Partners is not a fund. It is an investment holding company. We have shareholders and not limited partners. Our strategy is to invest in very early-stage consumer businesses. Consumer businesses and brands usually take a long time to build often five-10 years. We expect our holding period to be seven-10 years.
Why should an entrepreneur come to DSGCP?
Deepak: We welcome entrepreneurs who are looking for a partner and not an investor. We believe in being someone who shares their visions; someone who can add value; someone who will be there in good times and bad. It’s a lonely journey and you want to do it with people who will make the journey more interesting.
Key learning as an investor
- It’s all about the people. Find passionate entrepreneurs who know their strengths and weaknesses. Find an entrepreneur who is committed to building a company with the right DNA, culture and set of ethics.
- Be patient: It takes years and often decades to build a business.
- Faith: Early stage investing in emerging sectors often requires you to take a leap of faith in the sector, the business model and the entrepreneur. Do not be afraid to dream with the entrepreneur.
- Focus, focus and focus. Deepak invests only in sectors he understands and knows well or invest with people he trusts. He says, “There are many fantastic investors out there; leave deals you do not understand to them.”
- Never rush. Get to know the business, the founder and the sector. It’s like getting married. It’s a long-term commitment and not a one-night stand.
Evaluating a company
Deepak: Early-stage businesses are intrinsically risky and nothing ever works according to plan. What you want is a team that you believe can adapt and evolve to create a valuable business. So I spend a lot of time with the team to understand what they would do in different scenarios. Ultimately I ask myself three questions:
- Can this team build a valuable business?
- Would I like spending time with this team socially?
- Will I have a fun time working with them and learn during the journey of building a business?
Views on Indian startup ecosystem – Funding and Valuation
Deepak: India is a long-term growth market. It’s not the easiest place to do business but there is tremendous opportunity. Like most other geographies, there has never been so much money looking at VC and PE in India. This is great for entrepreneurs and startups. However, this means that valuations are being chased leading to deals being overpriced at times. One has to be disciplined and not get carried away by this exuberance.
Investment company vis-à-vis Holding company
Deepak: DSGCP is an investment company and not a holding company although the terms are often used together or interchanged. Investment companies tend to not have a finite life and therefore have more flexibility in terms of how long they can hold an investment. It also allows more flexibility in recycling the capital from exits if necessary. The most famous investment holding company is Berkshire Hathaway but here it is in fact an investment and holding company.
Challenge for Indian businesses vis-à-vis other markets
Deepak: There are challenges in investing in any country. Regulation and red tape is particular in India. I have been investing in India for 15 years so have got used to dealing with it. For example, complex rules about FDI, lack of clarity on withholding tax issues at exit, cumbersome filings at time of investment and time of exit is daunting for a new investor. Another recent example is the lack of clarity about food licensing and FSSAI which has made it difficult for investors to assess when looking in food processing businesses. This not only impact investors but companies as well. In the Maggi fiasco, a product that has been deemed unfit for consumption in certain states in India has been deemed fit in the UK and Singapore. The State and Central governments need to become more investor friendly.
After living in India for six years, Deepak has moved back to Singapore in 2012. He is in India at least once a month. Deepak is the only partner at DSGCP right now. Three years and 18 investments later, the fund has a track record and a clear vision. Deepak is keen to have partner(s) who share the same vision at DSGCP, to build and scale the business with a particular DNA and set of core values.