InCred Growth Partners Fund – I

Status – Unlisted

6,000+ privately owned scaled assets compared with 1,500 publicly listed companies

Stake – Minority, small stakes with ease of liquidity

With an option to build up in later rounds

Stage – Growing Stars

Series B/C – high growth companies. Glowing Stars (Series D+ – established companies)

Sectors

Consumer, Financials, Technology, Enterprise/Others

Targets that have a dominant industry sway and are profitable atleast at CM3 level

Growing Stars – 50-75% of AUM

Primary or primary/secondary combination stakes in high growth stage companies

• Series B/C
• Lesser mortality risk
• Growth to drive returns
• Exit via secondaries

Glowing Stars – 25-50% of AUM

Secondary or opportunistic stakes in established companies at undemanding valuations

• Series D onwards
• Ability to command a premium in capital markets
• Ease of liquidity via IPO or secondaries

Consumer

• India poised to become 3rd largest consumer market globally by 2025 – domestic consumption drives 62% of GDP
• India’s per capita GDP crossed US$ 2,000 in 2019 – the tip off point when spending on discretionary items accelerates

IT Services

• Massive thrust on digital transformation by enterprises – resultant growth in data services including analytics and data engineering
• Cloud migration services as an industry is projected to grow at 25- 30% p.a.

Healthcare

• India becomes world’s most populous nation – 60+ age bracket to increase in growth rate
• Technology will lead the transformation. Health tech market to grow at a ~40% CAGR to reach US$ 50 bn by 2033

Financial Services

• Vastly underserved market – India’s private debt to GDP at ~55% remains 1/3rd of the global average. Significant gaps exist in both retail and wholesale lending
• Yet, credit is the backbone for economic growth – multiplier on nominal GDP of ~1.5x

Enterprise Tech

• India has emerged as a global leader in SaaS, behind only the US
• Indian SaaS companies are expected to grow at 20-25% CAGR during 2022-27 with near doubling of their global market share

B2B Services

• Indian B2B, a US$ 2 tn opportunity, is one of the largest and fastest growing B2B markets globally
• Domestic PLI schemes, global supply chain realigning to China+1 will be significant growth drivers

• Higher risk adjusted growth – Series B/C companies demonstrate more sustainable PMFs, with lower mortality risk even while offering higher growth
• Sizeable TAM – annual deal value for this stage is similar to that for late stage (Series D+), thus enabling sizeable liquidity for entry and exit options

Funding Winter 

• Limited deal activity in late stage startups. 100mn+ mega-rounds dropped by half in volume
• Mainly as most leaders are sitting on significant cash balance – runway for 2-3 years and don’t want to dilute at levels below par

Lack of Exits

• IPOs for PE/VC backed companies get pushed out – exit via public markets dropped ~80% YoY in value and ~60% in volume
• Secondary exits recorded drop 67% YoY drop in value and 45% in volume as buyers and sellers waited it out

Implications

• Cap tables would come under pressure – Investors and shareholders would need liquidity
• In time, opportunistic trades will increase and drive deal activity

Conviction Call 

• Underlying business growth will continue. However, valuations are likely to be flat or trend downwards – implying correction in valuation multiples
• In addition, growth at all costs leading way to profit after all costs – better companies at reasonable prices