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a) Based on stage of investment: Venture Capital funds, Growth Capital funds, Buyout
Funds, PIPE funds
b) Special situation funds: Mezzanine funds, Distressed Funds
c) Sector orientation: Sector focused funds, Sector Agnostic funds
Growth Capital Invest in companies which have shown commercial viability and To grow an existing business through Most mid-sized to large PE
Funds revenue growth over a period of time expansion of existing capacity, entry funds such as TA
Ticket sizes are larger than VC funds into new products/ markets etc Associates, Motilal Oswal
Investment is on the strength of an established business model Also partnering with an established PE PE, Kotak PE, CDC Group,
shown by the company and the ability to sustain growth in the will enhance perceived “credibility” Rabo PE, Lighthouse Funds
future
Every investment is expected to perform with moderate to high Recent deals:
returns Motilal Oswal’s
investment in Ganesh
Flour Mills
Buyout Funds Investment in established companies with sustained profitability Generally companies where the IVFA, Everstone, KKR,
and cash flows promoter or the next generation is Multiples PE, TPG
Investment can be through a mix of debt and equity with the disinterested in carrying on the
company's cash flows used to repay the debt business Eg: TPG picking up
Potential to increase margins through operational or financial Special situations exit where a high majority stake in Rhea
improvements value offered by the buyout fund might Healthcare
Clear path to exit in the future through an IPO or other exit be a motivator for the promoter to exit
options the business
Higher ticket size than both VC and Growth Capital investments
However, unlike a VC or a Growth capital fund, the buyout fund
becomes the owner of the company
PIPE (Private Issuance of primary equity capital by a listed company to a Motivation similar to that of Eg: Blackriver’s
Investment in private equity fund (not to be confused with an investment by a companies seeking growth capital investment in Future
Public Fund) PE fund through the secondary market) Easier to get a single PE investor rather Consumer can be
Can happen by either by straight equity or by a mix of equity and than go through the public market classified as a PIPE deal
convertible instruments route for raising funds (FPOs, QIPs etc)
Typically investment is for a minority stake, with invested Also, regulatory requirements will be
amount comparable to that of a growth capital fund lesser than raising money from the
Higher number of disclosures needed (to the stock market and public markets
general public) as compared to types of investments, due to
listed nature of the company
Exit can be through sale of securities in the secondary market
Type of fund Key characteristics Rationale for companies to ask for investment
Mezzanine Funds Investment through a hybrid instrument (predominantly debt with a potential Allows a company to get capital without divesting
equity component) equity stake
Debt component is usually without a collateral, with a higher lending rate as Also, allows debt funding without collateral which
compared to normal borrowing (for the higher risk) allows the company freedom to sell/ monetize the
Additionally debt might also have flexibility in interest payment – in case cash asset
flow constriction prevents regular interest payment, the interest can be clubbed Investment could be at any stage of the company
with the final principal payment lifecycle
Equity component is usually a convertible (optional) rather than straight equity
Distressed Funds Invests in companies which are bankrupt or on the verge of bankruptcy To turn around operations
Aim to achieve higher returns once the company turns around financially Sale by promoters who are unable to fix the
Selective investment on a case to case basis problems with the business
Risk component can be as high as VC investment; however ticket sizes are larger
than VC investments
For eg:
o Company A is good operationally, but has a high interest burden on
account of which operations are hampered (no money left for working
capital post payment of interest)
o Distressed fund B decides to put money to pay off A’s debt; hence
money is now freed up to use for operations
o Company A now is able to operate normally, giving Fund B a potential to
exit with good returns post the investment period