The website of India Equity Partners (IEP) presents a homepage stating ongoing renovations, with a single contact person, Sid Khanna, listed. This understated online presence and the quiet office at CG House in Mumbai belie a significant power shift within the private equity fund. A leadership transition has occurred, with three founders distancing themselves from the daily operations, leaving Sid Khanna, the seasoned business leader, at the helm.
Steven Wisch, the driving force behind the initial IEP fund, will transition to an advisory role. Anurag Bhargava and Gaurav Mathur are set to completely sever their ties with the fund. This pivotal shift places Sid Khanna, renowned for his success in building Accenture’s India business (formerly Andersen Consulting), in the lead, alongside KK Iyer, who joined IEP as an operating expert in 2008.
IEP’s initial strategy focused on “control” transactions, acquiring majority stakes (over 50%) in smaller companies. The objective was to inject effective management, streamlined processes, and capital to accelerate the growth of these businesses. Ironically, the control of this fund, designed for “control” investments, now rests with the operating experts, Sid Khanna and KK Iyer.
Sid Khanna acknowledges the changes, stating, “The fund is undergoing a transition phase. The evolving business landscape necessitates rightsizing, which we are currently implementing.” Steven Wisch echoes this sentiment, adding, “To paraphrase Mark Twain, reports of IEP’s demise are greatly exaggerated. The Indian private equity market is experiencing significant transformation. There is an excess of capital chasing a limited number of quality deals. The macroeconomic climate is fragile and potentially weakening, coupled with political uncertainty. We are taking prudent steps, as any responsible company would, to right-size our operations and position ourselves for sustained long-term success. I will transition to a senior advisory role, Gaurav Mathur will pursue his entrepreneurial ventures, and we have a robust team in India under the leadership of Sid Khanna and KK Iyer.”
While IEP, with a fund size of $350 million, may not be among the largest private equity funds, this founder departure marks a unique event. Historically, funds have closed due to unsuccessful fundraising for subsequent funds, like eVentures and Jumpstartup. However, the abrupt departure of founders after successfully raising capital for a fund is unprecedented in the Indian context. This situation is particularly noteworthy given that IEP has already secured commitments for its second fund. Recalling similar instances in India’s private equity history proves challenging.
Speculation suggests that the restructuring at India Equity Partners stems from difficulties in raising a $500 million second fund, attributed to perceived lackluster returns. However, these assumptions are inaccurate. IEP has already secured $100 million for its second fund and boasts a track record of successful exits. Notably, IEP achieved a 6.5x return on invested capital in Manappuram Finance and a 3x return from exits in Bajaj Auto and Ikya, a human resources outsourcing firm.
The core reason for this leadership reshuffle lies in disagreements between the founding team, primarily composed of finance professionals, and the operational experts brought in later to enhance portfolio companies. These operating professionals were crucial for improving businesses acquired through IEP’s “control” transaction strategy.
Wisch refutes the notion of strategic discord, stating, “There has never been any divergence between Sid and me regarding IEP’s strategy. Sid and I have consistently shared a vision of building a sustainable and thriving business that would endure beyond our tenures. Consequently, we have prioritized recruiting and developing exceptional individuals and fostering a culture of teamwork and excellence. Naturally, as we focused on rightsizing our business for long-term success, we engaged in vigorous internal discussions about the optimal path forward, which is characteristic of healthy partner dialogue.”
Dissent is inherent in judgment-driven industries like private equity. What is exceptional is founders departing when the fund is beginning to generate returns for investors. Some investors recall the same team expressing unwavering commitment to IEP during roadshows just last year, while actively seeking capital for the second fund.
India Equity Partners launched its first $350 million fund in 2006. Initially, the fund primarily made minority stake investments in companies such as Manappuram Finance, Amtek Auto, and Ocean Sparkle. By 2008, the Indian venture capital landscape had expanded to over 100 funds, intensifying competition for deals. Investment bankers frequently employed auction processes to maximize valuations for their clients, often leading funds to overpay. Consequently, many investments made around 2007 are unlikely to yield profits today.
To differentiate themselves, Wisch, Bhargava, and Mathur shifted towards control deals in smaller companies. They brought in industry veterans Firdaus Vandrevala, formerly of Tata Power, and Suresh Mathur, previously with Gujarat Petronet. Sid Khanna’s involvement was facilitated by Akash Mehta, a senior member at IEP at the time, who had a prior connection with Khanna.
Sid Khanna had retired from Accenture after a distinguished career where he expanded Accenture’s (then Andersen Consulting) Indian operations from a single employee to a significant force. He also advised Naresh Goyal on Jet Airways’ strategy in its early stages and consulted with General Electric during the formation of GEICS, which later became Genpact.
While Vandrevala and Mathur served primarily as advisors, Sid Khanna was actively involved in working directly with IEP’s portfolio companies. His extensive network within corporate India proved invaluable in opening doors and facilitating growth. Initially, the partnership between the finance-oriented founders – Wisch, Mathur, and Bhargava – and Khanna was harmonious. Wisch, then 47, was recognized as the natural leader, leveraging his US investor network that had initially funded the fund.
The dynamic began to shift around 2011 and 2012 during fundraising efforts for the second fund. This time, fundraising activities extended to Asia, beyond the US-centric approach of the first fund. The “control” driven strategy and Sid Khanna’s Accenture background resonated more strongly than the profiles of Mathur, Bhargava, or even Steven Wisch. This shift was understandable; if the fund’s strategy was to acquire and operationally improve businesses to enhance financial performance, Khanna and KK Iyer, with their operational expertise honed at Accenture, possessed the relevant experience.
As Sid Khanna’s influence grew, so did his input on crucial aspects of IEP’s operations, particularly investment decisions. Investment decisions, requiring accurate valuations and alignment with suitable promoters, are paramount in private equity. Disagreements began to emerge in this area. Initially, while Sid Khanna’s opinions were considered in the investment committee, the financial expertise of the founding partners held greater sway.
With the strategic pivot towards control transactions, Khanna and KK Iyer’s roles became more assertive. They would be directly responsible for improving the acquired companies, a prerequisite for successful and profitable exits. Given that the second fund was still in the fundraising phase and several portfolio companies – Innovative Foods, Sagar Ratna Restaurants, and TNT Express – required the operational guidance Khanna specialized in, the direction of the leadership change became apparent.
Khanna concludes, “Life moves on. Sid Khanna is no longer at Accenture, but does that impact Accenture? Situations evolve, and you adapt.” Now with a clear mandate at India Equity Partners, investors will closely monitor profitable exits from these control transactions in the coming 3-4 years. Sid Khanna’s ability to deliver on these expectations will ultimately shape the future narrative of India Equity Partners.
