The fund, a general partnership under the name LaunchBay Capital, will focus on $25-50 million investments in growth-stage companies, which, according to Sinha, is an underserved segment.
“Most global funds, as well as large Indian PE funds, are now more buyout-focused,” Sinha said, adding: “Fifteen years ago, India used to be a largely minority stake-growth investing market with very less buyout deals. It is now the other way around.”
“In the $25-50 million investment range, there is a gap,” he said, categorising it as the “missing middle”.
Global PE firms such as KKR, TPG, Carlyle, Blackstone, Advent International, Bain Capital, or PAG prefer writing $250 million to $1 billion cheques in India.
Over the last decade, home-grown PE firms such as Kedaara Capital, ChrysCapital, Multiples, and True North have also increased the size of their target investments to upwards of $50-100 million.
This leaves very few PE firms willing to invest in the sub-$50 million category. Some of those who do focus on specific sectors, such as consumer and healthcare.
“The few firms that do operate in this segment with a PE investment approach include the likes of Amicus Capital, Gaja Capital, Creagis, TVS Capital, A91, Jashvik Capital, and then there are the likes of Norwest Venture Partners, Lightspeed Growth, PeakXV Partners, and Accel Growth. However, their investment style is more late-stage venture capital than early-stage minority growth PE,” said Klaas Oskam, chief executive of investment bank DC Advisory India.
“So, in PE, it is actually a fairly shallow list. In the US and European market, lower middle-market PE firms do buyout deals with $25-50 million equity cheques, which is completely missing in India,” he added.
VC firms typically back early-stage, high-growth firms, mostly startups and expect higher returns. PE firms invest in proven business models and growth-stage firms.
Challenges for new funds
Though LaunchBay Capital is still discussing the corpus size, it will likely target $250 million. It also expects to have a pool of around $150 million in co-investments.
The firm will invest across segments such as consumer, technology, industrial, business services, healthcare, and financial services.
It will not make venture bets and look at established companies for PE-style bets.
“It is also the right time for India. Most Western investors need a substitute for China. Besides their global relationships and one or two Indian general partners, they need to add new funds. Some limited partners don’t yet have the necessary exposure to India PE,” Sinha said about the kind of investors the firm hopes to tap.
The key challenge for new fund houses is that most limited partners avoid investing in first-time fund managers.
Sinha, now in his early 50s, however, is betting that, given his storied PE career, he won’t be considered a first-time fund manager.
He was the India co-head for Singapore state investor Temasek Holdings till 2011. Thereafter, he spent nearly 10 years heading Tata Capital’s Tata Opportunities Fund before joining India’s quasi-sovereign fund NIIF in 2021 as the CIO of its PE business.
Some of his past successful investments include NIIF’s exit from Manipal Hospitals and Tata Capital’s bet on Varroc Engineering, which yielded multibagger returns.
Sinha did try starting out on his own with LaunchBay Capital in 2020, but the post-COVID travel ban made fundraising challenging.
This time, he hopes to partner with a former colleague, who is expected to join him shortly.
“The idea is to have a sort of broad-based ownership structures and build a sustainable institution, where the people who source deals, do value creation, and then manage the exits are the people who own the firm,” Sinha said.
