Bertelsmann India: A twist in the funding tale
What happens when one of the world’s largest media company also becomes a private equity fund?
You get a strategic investor in the guise of a financial one. And an investment portfolio that seems eclectic at best.
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This roughly is the story of Bertelsmann India Investment or BII. Ever since the Indian arm of the Euro 17.1 billion German media giant Bertelsmann set up its India fund in 2013, its investments have puzzled analysts. It has invested in other funds (Helion, Kaizen and Nirvana), there is a furniture retailer (Pepperfry.com), a music service (Saavn) and a real estate site (Indiaproperty.com) among its 12 investments so far.
BII does not share numbers on individual investments, but roughly its deal sizes vary between $5-15 million with follow-on investments in some companies taking it to $20-40 million. However, “Apart from Saavn none of them have a strategic fit," says one private equity expert. “Spray and pay," is how the chief executive of another large private equity fund describes BII.
Pankaj Makkar, managing director, Bertelsmann India Investments, however, is very clear on what BII is about. “The fund’s mandate is to be a financial VC investor in areas that are strategic to us. Globally these are — digital, media, services and education. We are series-B and Series-C specialists, not early stage investors," he says. “We are conservative. Series A is about building and validating the product. We are better at building the business," he adds.
Many of its investee companies and fund managers agree. The fund and its 15 member team have the ability to roll up their sleeves, get into the nitty-gritty to become an operational support system, especially on sales and marketing, business development, product marketing and internationalisation. Early in 2014, BII had invested into the then two year old, Pepperfry. ‘Happy furniture to you,’ the ad tagline that became Pepperfry’s identity was born out of a workshop with BII just three months into the investment. Ambareesh Murty, CEO and founder of Pepperfry says the fund has “folks with strong operational experience and enough perspective on supply chain, marketing and how consumers think." Since then, BII has made two follow-on investments in Pepperfry.
That then is the second thing that differentiates BII’s investment strategy — follow-on investments. There are two each in WizIQ (education technology provider) and Indiaproperty. “We are balance sheet investors, so if the entrepreneur says give me eight years instead of six, we don’t have an issue if it is doing well. We don’t have a fund life." says Makkar.
The third feature is its seeming indifference to media investments. Globally Bertelsmann is a media, services and education company. It owns large brands in TV (RTL), publishing (Penguin Random House, Gruner +Jahr), music (BMG) and services (Arvato). Many of these are already in India. An RTL arm, in fact, acquired Indian digital content firm YoHoBo in 2015. Why then does Saavn remain BII’s only investment in an area where it has proven operational skills. “We don’t want to invest in businesses that compete with our operating businesses. If it is a strategic investment, our operating businesses say Arvato will make it. If it is financial, BII will," says he.
The strategic element becomes pronounced in media. “Bertelsmann’s history in publishing, content, and cross-medium IP (intellectual property) inform our trajectory of adding original IP to the Saavn platform and help us evaluate new content areas that we are launching now," says Rishi Malhotra, co-founder & CEO of Saavn.
Could Bertelsmann acquire its own investee firms? “If it fits the overall strategic mandate of Bertelsmann. But from a fund perspective, it will still be a third party transaction," says Makkar.
Its long-term view and complete disregard for any hyper-ventilating typical to funds which, come with a closure date, make BII different. The tough part, says Makkar, is finding aspiring leaders with strong teams, strong products and potentially large markets. “All our companies fit those. There are challenges here and there but there is growth too. There are no duds in our portfolio," says Makkar. BII hasn’t had an exit so far. But Makkar reckons that the top 20 per cent of the funds in India usually get above three times of sum invested at a fund level. That is what he is aiming for.
BII’s first exit then will be a true test of its strategy.
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