Tatas eye new PE structure

The House of Tatas is on course to pilot a new venture funding structure in the Indian market. The private equity arm within Tata Capital, which is set to launch two to three funds this year, plans to leverage the expertise of a diverse pool of people working in nearly 100 companies that are part of the Tata group. Under the new model, apart from infusing money into companies selected by Tata Cap PE for funding, the PE arm will also try to bring in experts from within the group to help these portfolio companies grow faster. The PE fund could also try and test some of the technologies emerging from its portfolio companies with the group companies to check commercial viability before taking it to the market. In contrast, under the prevailing model, PE funds put money into companies in their portfolio and help partly with the management. In some other successful cases in India like in Bharti Airtel and Gujarat Ambuja Cements the venture funds just put money while the management was solely with the promoters. "The prevailing models might not work any more," said Shailendra Bhandari, head-private equity, Tata Cap. "We are trying out a new model, combining financing and operating leverage. In the changing environment we have to sweat the equity," Bhandari added. Other than bringing in expertise from group companies, the PE fund also plans to introduce these companies to Tata group companies and the thousands of suppliers and vendors to these group companies. Are there opportunities around Nano? About 70-80 companies were involved in launching the most watched small car in the world and Bhandari said that his team was already in touch with all of them to identify emerging opportunities. Tata's PE arm, established last year, is on course to launch one or two funds in 2009 which will invest in established companies at some stages of growth. It would also launch another fund, the `Innovation Fund,' which will target seed stage companies. Although Bhandari declined to comment on the corpus of the two funds citing regulatory issues, market estimates the first fund, the mid-market fund, could have a corpus of $300 million to $400 million. The innovation fund would be much smaller in size, about $100-150 million. "The mid-market fund will invest about $25-30 million in each of the companies which need something to take them to the next level," Bhandari said. "In the innovation fund we plan to target companies with disruptive technologies and the ticket size will be $5-10 million," he added. Tata Cap PE's strategy will be to take either significant minority stake or a friendly majority stake where the management remains with the team running a company. In the first few funds, Tata Cap PE would target only domestic and foreign institutions to come in as investors. It could also consider high networth individuals, but only the sophisticated ones, Bhandari said.