Bay’s Founder on riding the tech wave, plans for India AIF

September 6th, 2021

Public markets investor Bay Capital has invested over $1.2 billion across 70–80 investments in India since 2006. The investment firm has also had exits and returned $700-800 million to its investors within that time period.

Bay Capital has also been riding the tech wave as it had bet on the pre-IPO round of PolicyBazaar, besides, investing in Dailyhunt, Lenskart and ixigo.

It has also made three other such investments that are yet to be disclosed. These tech businesses will be meaningfully larger than what they are today, Siddharth Mehta, founder, Bay Capital told VCCircle, dismissing criticisms that the tech companies are overvalued.

He also said that Bay Capital has plans to launch an alternative investment fund (AIF) in India. This is at a very nascent state as of now.

Edited excerpts:

What are your and LPs views on India as an investment destination?

Our view has been consistent. I have personally been investing in India now for more than 18 years and Bay Capital has been around for 14 years. We have been long term believers in the India story. We continue to believe that India’s share of global wealth will increase over time. We are witnessing a renaissance of Indian economy and India’s position in the global economy. So, our view remains that Indian consumers will drive the overall growth in the economy.

Consumption is the big driver of the GDP. Against this macro, India is home to some incredible talent pool of entrepreneurs and professionals that are driving innovation, creating businesses that are serving the everyday needs of the consumers. Our job is to be really good at identifying those entrepreneurs and strong management team to ride the India story.

How do you think your investment strategy has changed since you started investing in 2006?

When we started, I think we were more of investors in sunrise focused midcap companies. Then we evolved into doing a little more special situations and then investing in more sort of large caps.

Over a period of time, we have honed and refined our mindset to investing in businesses that generate returns capital consistently and high-quality management teams that are able to identify white spaces and serve everyday needs of the Indian consumers. Those are the two overriding themes. Within that we have overlaid the themes with clear distinct focus on technology and digital, which we believe will propel the next phase of growth in the Indian economy.

Give us an overview of the number of companies and the capital deployed by Bay Capital?

We have invested over $1.2 billion so far across 70-80 investments. We’ve also had exits and have returned $700-800 million to our investors within that time period. We have roughly 20 odd active investments in India at present. We have a concentrated approach to investing — our portfolio is always 15–20 positions and not more than that. That number will remain. As things stand, we have $600 million invested across these 20 businesses in India.

Your LP base has always been outside India. Is there a plan to tap the domestic LP base because they are also slowing warming up to the alternative investment fund (AIF) asset class?

As of now, all our capital is offshore. The rise of domestic investor base in the last two to three years has been phenomenal and they have been active participants.

The AIF regulations which have been cleaned up now give more clarity for the industry. We haven’t started accepting domestic capital, but we are exploring and something that we are focused on.

Do you plan to launch an AIF fund in India?

We are working to register an AIF in India. It is still early days and cannot talk about it now.

What is your typical ticket size?

We don’t really have a particular cheque size. It depends on the size of the opportunity. On the public side, it is much larger than the private side. If it is a pre-IPO situation then we invest $40–50 million.

You have been quite active in tech investments including the pre-IPO funding in PolicyBazaar. Are you eyeing other tech investments?

We have done quite a few investments in tech unicorns. This year alone we have done about five deals. We did PolicyBazaar and ixigo. We just completed an investment in VerSe (parent of DailyHunt) and we also did a small piece in Lenskart. We have also done three to four other such investments which I can’t share at the moment. For us we are all opportunity driven.

Have you done pre-IPO deals previously outside tech as you primarily are a public market investor and why invest in pre-IPO of tech companies?

We have done pre-IPO in non tech companies selectively earlier. We are largely public market investors and there aren’t that many digital businesses in the listed space. So, when you have seen the quality of these tech companies like PolicyBazaar that have reached a level of maturity and that are about to go public then the only way to get access is through this pre-IPO situations or wait until they go public. But when you plan to invest after they go public then you don’t necessarily get the right allocation, sizing.

We have the network and relationships within the startup ecosystem to be able to get into them 12-24 months before they go public.

Will there be a bias toward tech investments going forward?

From our side, we are predominantly investors in the consumer sector. We believe in the consumption story in India. We believe that is the main driver of India’s economic growth. So, we are big investors in consumer, financial services, consumer tech and any digital-enabled businesses that are serving the Indian consumers.

There is a view that these tech companies are unreasonably valued. What is your take on it?

People who are investing with a 6-12 month view of the world may feel that valuations are expensive. They don’t have long term visibility of that business.

We have a long-term view of the world, and we believe that these businesses will be meaningfully larger from what they are today. These businesses are well capitalised and well-funded; 90% of the returns are ahead of these businesses from what they are valued today. So, in something like PolicyBazaar we invested at $2.2-2.3 billion valuation, and we think that it can easily become a $25-40 billion franchise in the next decade.

Outside tech, what areas are you looking at for investments?

We are interested in sectors that cater to the everyday needs of Indian consumers. I would say they are rather boring. If you look at the core of our portfolio, there are hair oil, packaged food companies and financial services that will continue to grow through all cycles and have a dominant market position.

What does your investment pipeline look like for the rest of the year?

It’s been a busy year for us. We have deployed over $200 million this year in new investments, and we have a strong pipeline. We are currently evaluating 10-12 opportunities and may end up doing four to five.

What does your exit pipeline look like?

We have had some pretty good exits. We exited Sterling Holiday and we returned $80-90 million to our investors from it. We returned $100 million from McDonald’s Westlife Leisure Resorts.

We also exited Vini Cosmetics and we got over 25 times we invested from it. While our philosophy continues to be long term, we also recycle our capital in opportunities. As of now we don’t plan to exit anything this year. We are happy with our portfolio.

While you are largely a public markets investor you have also done private/ early-stage investments. What is your strategy going to be on that front?

We have done those investments by exceptions. For instance, our Vini Cosmetics and SAMCO Ventures were driven by our historical relationships with the founders. In the larger scheme of things, it is not the mainstay of our strategy. But by exception where we have high conviction in an entrepreneur and where we have previous relationship then we will do. The ticket size in such investments also depends on the opportunities.

Excerpts from the interview have been covered here on the VC circle website :-

Posted by Siddharth Mehta, Founder & CIO