Three questions with India’s Paragon Partners

The India-focused mid-market firm's Sumeet Nindrajog and Siddharth Parekh discuss their experience raising their debut fund.

The India-focused mid-market manager Paragon Partners wrapped up fundraising for its debut vehicle on $120 million earlier this month. Private Equity International caught up with Siddharth Parekh and Sumeet Nindrajog, senior partners at the firm, who shared their capital raising experiences as a first-time fund manager, as well as the investment outlook on India.

PEI: What was it like raising your debut fund?

Sumeet Nindrajog, senior partner and co-founder of Paragon Partners

Sumeet Nindrajog: Fundraising for a debut fund takes anywhere from two to three years. We’re just over two years since we got our Securities and Exchange Board of India registration. That way we’ve had a fairly fortunate and quick fundraise timeline.

What helped us was that we had already made investments while we were fundraising. We’ve already invested about $45 million of capital across four investments, in engineering components manufacturer Maini Precision Products, retailer Cravatex Brands, non-banking finance company InCred and Capacit’e Infraprojects.

Capacit’e Infraprojects listed in September this year and got an overwhelming response from investors and raised $62 million, showing a clear path to liquidity for our investors. Our LPs were also impressed with the firm’s capacity to add value to these companies through process improvements or business development. This resonated very well with the investors.

Previously, a lot of the overseas investors were tracking India very carefully based on their poor return performance in the last decade. Now they’ve become more aware of how businesses are run in India and the problems that these companies face, and appreciate the value-add private equity firms are bringing to these companies.

PEI: Tell us more about the investors who felt comfortable backing a first-time fund manager?

SN: We began fundraising for Paragon Partners Growth Fund around mid-2015 and held a first close on $50 million in January 2016. Some limited partners in the first close include Fairfax Group of Canada, Indian family offices and the Small Industries Development Bank of India, an development financial institution focused on the development of small and medium enterprises in India, which also has an active capital pool supporting private equity funds focused on the mid-market segment.

We had an original target fund size of $100 million with the flexibility to go up to another $100 million depending on investor interest. We held a final close earlier this month on $120 million, which had a 60-40 mix of domestic and overseas investors. Key LPs include Kotak family office, Edelweiss Group, a leading sovereign wealth fund, global funds of funds, insurers, corporate treasuries, local and international family offices as well as high net worth individuals.

In line with Indian private equity return targets, we’re looking at about 3x of investment multiple and north of 25 percent internal rate of return.

Q: How is deployment for Fund I going and what are you excited about for the next year?

Siddharth Parekh, senior partner and co-founder of Paragon Partners

Siddharth Parekh: Our deal pipeline is strong; this is a very attractive segment of the market, with very few funds in this space and lots of interesting companies to look at. We’ve evaluated over a couple of hundred transactions and we’re also able to generate proprietary deal flow given the lack of competition. We are in advanced discussions on at least three transactions which we hope to close by March next year. Our aim is to be fully deployed in the next 12 to 15 months.

We remain excited about the India macro story; the sectors we are focusing on are growing, and there’s very strong outlook. We look forward to the performance of our portfolio and hope to execute deals in the next few months. We’re delivering strong returns for Capacit’e and we are set to exiting that deal in the next few months which will be a big milestone for a first-time fund like ourselves.