5 questions with Shad Azimi

Venture and private equity investment in India is down substantially year-over-year. But some investors are predicting a near-term pickup.

Shad Azimi, founding partner of direct and fund-of-funds investor Vanterra Capital, is one investor who’s bullish about the Indian investment landscape. Azimi, who recently returned from a tour of Asia, says the firm is close to wrapping up three India-based deals, its first investments in the region in more than a year. The firm’s $152 million fund, which launched in 2008, invests in growth equity and small-to-mid size businesses.

In addition to India, New York-based Vanterra invests in the United State, China, the Middle East, Africa and Eastern Europe. But Azimi says the Indian subcontinent is an area of interest, particularly for the kinds of companies it prefers—businesses with revenue of $30 million and up and which are either profitable or close to it.

Azimi last week spoke with PE Week Senior Editor Joanna Glasner.

Q: What are the hot sectors for new investment in India?

A: There’s a lot of capital chasing infrastructure, and in many ways it’s justified. People are talking about the Tata Nano [a fuel-efficient, four-passenger car aimed at the Indian market], but they aren’t talking about where they’re going to drive. The traffic is abysmal. You share the road with goats and camels. So a lot of money is going into to building roads, as well as other infrastructure projects, such as hospitals and subways.

Another sector that we’re bullish on is domestic consumer demand. If you look at China, a lot of GDP is export-driven. In India that’s not the case. You have middle-class Indians who need credit cards, washer-dryers and cars. There’s a lot of companies that benefit from that growing demand.

Q: Venture investing in India is way down this year from last. How do you see it going forward?

A: There has been a huge drop-off in activity. A lot of the people who dabbled in private equity in India are no longer in the game.

But activity has picked up in the second half of the year. We haven’t done a deal in 18 months, but we’ve got three deals in letter-of-intent stage now, set to close in the next few months.

There’s also a growing secondary market for India-based assets. People have approached me about wanting to launch a secondary direct fund and a secondary LP fund that would buy limited partner interests.

Q: How’s the exit climate?

A: It’s still difficult. IPOs have been the primary driver. Trade sales have increased over time, but the majority of exits have been IPOs.

Q: How does that affect your approach to investing?

A: When people ask how competitive India is, we say we actually don’t find it competitive in terms of other private equity players. We find the biggest competition to be the public markets. IPOs are a cheaper source of capital right now.

Q: Any evidence of frothiness?

A: Well, the Bombay 500 is up 85% since the beginning of the year. I question whether that’s sustainable in the near term, though we’re still bullish on India in the long term. Looking at current valuation, even though India is an emerging market, it’s not cheap by any means.