Mumbai-based mid-market firm Gaja Capital closed its third fund on $240 million at the end of last year, exceeding its $225 million target.
The firm had been fundraising for two years, and announced a first close on $140 million in October 2014, as reported by Private Equity International.
“For a firm of our vintage, one year and one year is quite typical,” Gaja Capital managing partner Gopal Jain told Private Equity International in reference to the period taken to reach first and final closes.
Jain added that the commitments were collected when very little other capital was raised in India and in a period when “the industry was not particularly popular. In a way that explains the institutional character of our LP base. [The decision to invest] required greater long term thinking, and investors that are able to do their own research and due diligence.”
Gaja Capital III’s two largest investors are an Asian and a global fund of funds, as well as some of the same LPs that committed to its previous fund, a 2007-vintage vehicle that raised $180 million, including the International Finance Corporation. The previous fund’s other investors included RWB Private Capital Fonds, MJX Capital Advisors and the Housing Development Finance Corporation, according to PEI Research & Analytics.
“There is an evolution in the investor profile in this fund. Our first fund was largely driven by family offices. This fund has significantly more institutional investors and is significantly more concentrated with LPs taking larger stakes,” Jain said.
The fund has already invested in Bakers Circle, an Indian producer of frozen bakery and confectionary products, and SportzVillage that helps schools implement physical education programmes and offers sports consultancy and management.
The firm focuses on the domestic consumer segment, encompassing education, financial services and, for the first time with this fund, healthcare. It targets high-growth emerging businesses that are five to 10 years old with an enterprise value of less than $150 million.
Fund III is looking to invest $20-25 million in eight to 10 companies, targeting control or significant minority stakes.
“Our fund size has increased by 33 percent over the previous fund in dollar terms. We are more confident about buying larger stakes.”
Jain noted that while there had been an increase in funding for venture capital, the supply of growth capital had diminished, providing the firm with a very active pipeline of possible transactions.
“The supply side has expanded while the demand side has shrunk. We have fairly significant deal flow. But, because of what’s happening in VC, there has been price inflation. That’s the good and the bad,” he said.
Most of its existing investments are around Dehli, Mumbai and Bangalore into companies with a pan-Indian franchise, Jain said.
Among the firm’s portfolio companies are EuroKids, a pre-school education company, vehicle maintenance and repair company Carnation Auto India, and John Distilleries, which manufactures alcoholic spirits, according to its website.
It started divesting from its second vehicle last year. Earlier this month it partially exited its stake in staffing firm TeamLease through an initial public offering that “clocked a healthy 5x return,” Jain said.
“The exit market has not been a strong ally in creating returns. In India you have to work extra hard to create exits even for successful investments.”