Do Vcs Really Add Value? ; with Private Equity Investors Increasingly Investing in Mature Listed Companies, It's Getting Harder to Say Yes to That Question.

Summary

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Sometime back, a Delhi-based private equity investor described his business to this magazine as "legalised banditry". No doubt he was exaggerating for effect, but the point he was trying to drive home is by and large valid. And which is that, often, private equity investors (we've used VCs in the headline to loosely describe all long-term equity investors in this industry) don't put in enough effort to justify the kind of returns they end up making on their better deals. "VCs may pretend to add more value than they actually do," says Gaurav Dalmia, a Delhi-based investor himself. "They know the language, intimidate management and get away with murder. Most don't and can't add value, honest ones say so."

Dalmia is being harsh. How much value a VC (we'll be using this word in a broad fashion in the rest of the story) adds depends on a number of factors such as the nature of the fund, the stage of investment, nature of the business, the quality of management, and the management's own inclination. A buyout fund will necessarily add more value because it is taking control of a company and how well its investment fares is dependent on significant increase in the value of the business. Therefore, a buyout fund may want to change a non-performing management, sell poor quality assets, restructure the business, or even merge it with a similar company in its portfolio.

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Extract

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Do Vcs Really Add Value? ; with Private Equity Investors Increasingly Investing in Mature Listed Companies, It's Getting Harder to Say Yes to That Question.

Take the case of erstwhile BFL Software. Originally promoted by Kolkata-based businessman Keshav Bangur, it was bought out (India's first such deal) by what was then ING Barings in March 1998. While the Bangalore...

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