According to reports, sustainable forestry-focused private equity (PE) firm, Global Environment Fund (GEF), has raised a Rs. 700 crore, small and medium enterprises (SME)-focused South Asia fund dedicated to India—the first niche fund of its kind in the country.
In its maiden investment from this fund, GEF South Asia Fund and the International Finance Corp. (IFC) have committed $11.5 million to Bangalore-based energy efficiency firm Kalki Communication Technologies Ltd, according to Raj Pai, managing director, Global Environment Fund Advisors India Pvt. Ltd.
“India is a maturing market; it needs local approach and presence. One cannot do offshore investments any longer. The market needs a dedicated pool of capital and people,” said Pai, explaining the reason for a geography-specific approach.
Pai said his firm would prefer taking a minority stake, anywhere between $3 million and $15 million, in the companies GEF invests in. “The plan is to do three to four deals a year,” he added. According to Pai, the most viable exit routes would include trade sales and secondary sales (selling stakes to other PE investors).
With the funds raised, Kalki expects to quadruple its revenue in three-four years. “We want to expand our product portfolio, increase marketing and bid for large opportunities,” said Prasanth Gopalakrishnan, chief executive, Kalki Communication.
Over the last two decades, GEF has been investing in India through its global fund and has pooled in over $100 million across eight deals.
The PE firm has exited from five of its portfolio companies and its active investments include Kalki, Greenko Group Plc and Saisudhir Infrastructures Ltd.
Established in 1990, GEF has approximately $1 billion in aggregate capital under management. The India dedicated fund comes at a time when globally green energy investment fell substantially.
In the first quarter of 2012, global clean energy investment fell to $27 billion, down 28% sequentially and down 22% from the first quarter of 2011, according to a report by Bloomberg New Energy Finance released in April.
Venture capital (VC) and PE funds invested $816 million in 32 green firms in fiscal 2011, compared with $828 million in 32 firms in fiscal 2010, according to data from the Cleantech Group that provides global market research and advisory services.
SMEs say having an investor adds to their credibility, besides capital infusion. “Who is backing us adds to our financial credibility. This brings more acceptance from customers,” said Gopalakrishnan. Upcoming companies, he added, often lose out to bigger firms as customers begin to wonder if they will survive. The presence of an established investor, however, puts such anxieties to rest, he said.
The GEF South Asia Fund will also invest in Nepal, Sri Lanka and Bangladesh.
Launched two years ago, the geography-specific fund has been raised completely from foreign limited partners.