Growth-stage private equity (PE) firms are looking to invest alongside venture capital (VC) firms as they seek a slice of the fast-growing technology and digitalisation space, according to a seasoned investor.
“Given that we are more of a growth-stage investor, we like to be the only one in the cap table from an institutional investor point of view. But with the way the market is changing, all of us seem to be accommodative and going onto the cap table with two or three investors,” said Sunil Thakur, a partner at Quadria Capital, said at DealStreetAsia’s Asia PE-VC Summit 2022.
Traditionally, growth-focused PE firms operate at the intersection between PEs and VCs, seeking either a significant minority, or majority stake in a company.
“The definition of VC investing is getting very blurred and the stage at which VCs are coming in is also getting very blurred and we were just talking about stepping on the toes of VCs,” Thakur said during a panel discussion on ‘PEs and VCs compete on the same turf with rising growth funds and the lure of tech bets’.
“We would be open as long as any of these investments can take a minimum of $60-70 million.”
Pandemic boost vs headwinds
Also on the panel, Shilpa Kulkarni, founder and managing partner at Panthera Growth Partners, said there has been a general shift in business models towards the digital sector after the COVID-19 pandemic.
“We look at technology, and especially digital disruption, as something which is bringing about new business models and disrupting traditional ecosystems. And those are the kind of disruptive businesses that we invest in,” Kulkarni said.
“We also invest in software businesses but even there, these are not fundamentally innovative or deep-tech kind of businesses.”
Quadria Capital’s Thakur said, “Post-COVID, or during COVID, I think the sector generally saw a lot of interest from a variety of investors. While we only do healthcare, there was a lot of influx from the generalists [firms],” he said, noting that the interest has continued.
Quadria Capital is a private equity firm focused on making growth equity investments in mid-sized healthcare companies in South and Southeast Asia.
Thakur sees technology as a way to make healthcare more accessible and affordable. “Technology is the solution for us to leapfrog what we’re trying to achieve. Technology is going to help untangle the entire care pathway,” he added.
While investing in early-stage healthtech is beyond Quadria Capital’s mandate, Thakur said the firm may consider investing in healthtech in Series C or Series D as they are “certainly interesting and appealing”.
Despite recent headwinds from inflation and other global financial turbulence, companies leveraging the shift offered by the pandemic will likely survive.
“For our businesses, they’re still on the trajectory. Obviously, there are inflationary pressures but we’ve not seen a slowdown,” Kulkarni said. “As they’re being driven by the whole shift from the physical to the omnichannel or digital channels, so companies which are inherently leveraging those driving factors are still seeing growth.”
Panthera Growth Partners is a growth equity investor focused on revenue-generating companies across India and Southeast Asia that are building scalable businesses using cutting-edge technology.
Tech immune to cycles
Following a pandemic that ground the global economy to a halt, monetary policies across the board are now being tightened to stem inflation. While it has affected consumption, the panellists noted that increasing interest rates have had little to no effect on the technology sector.
“The situation has totally changed, even compared with one year ago,” said Vadim Shpak, operating managing director at Vickers Venture Partners.
Shpak noted that raising money in Southeast Asia right now is much more difficult compared with raising money in the US, where many large funds, multi-billion-dollar VC funds reside. Amid a perceived flight for quality, investors tend to make a safe bet.
“But technology is relatively immune to these cyclical changes. Because, for example, if we invest in a cancer drug, people will suffer from pancreatic cancer at any time. […] At the same time, these vintages of VC funds are raised through crises. So, maybe the vintage of 2022 will be one of the best because right now, as an investor, you’ve got more power to negotiate. There is no competition. Founders become more reasonable with valuations,” he added.