Learn About Private Equity Financing for Indian Companies and With a Strategy, You May Just Succeed in Making the Right Investments!

Private equity financing in India had fluctuated dramatically due to the COVID-19 pandemic. Industries in certain sectors had faced significant decline, but some industries had seen positive growth during the course of the pandemic. It is not impossible to invest, given the current state, but if you expect to make the most out of your investments, you will need a sound strategy and to do that, you must understand the country’s investment climate. Learn about private equity financing for Indian companies, and with a strategy, you may succeed in making the right investments!

 

What is Private Equity Financing?

Suppose a company is worth ten million rupees. To form this company, the creators will lend nine million rupees from the bank. The other one million rupees can be procured by selling shares to the public or letting other parties invest directly and privately into the company. The latter is known as private equity financing and is a form of alternative investment. The greatest advantage of this form of investment is that it allows companies the flexibility and the capital to develop with limited pressures from the public market; usually used for leveraged buyouts or venture capital.

 

How Are Things Looking in India Now?

Some industries flourished whilst some are now in decline. The most prospecting sectors are e-commerce, healthcare, on-demand services, energy, telecommunications, IT and financial services. Equity investments in India have been made for the objective of fundraising, investments, transactions and exits. To stimulate investments, the government had introduced tax incentives for both locals and foreign investors.

 

What You Will Need to Know

The following are some of the details you will need to consider when planning an India investment:

1. Most funds are set up as trusts. They are typically registered as Alternative Investment Funds (AIFs) with the Securities and Exchange Board of India (SEBI).
2. AIFs have three categories, and most private equity funds are in the second category.
3. Depending on the type of company, procedures may differ.
4. Private equity funds can be registered as companies according to the Companies Act 2013, though this is rarely applied.
5. Private equity funds can also be set up as Limited Liability Partnerships (LLPs) under the Limited Liability Partnership Act 2008.
6. Though there are no specific restrictions regarding fundraising from investors, there are regulations to follow, namely those put forth by the AIF Regulations, Companies Act and Foreign Investment Regulations.
7. According to the AIF Regulations, there are conditions regarding the maximum and minimum investment periods and amounts.
8. Private equity funds can be transacted, and equities can be bought. The process starts with an investment teaser and ends with the share or asset purchase agreement. This must be in accordance with the law, especially the Companies Act 2013.
9. There are many exit strategies used in India, namely initial public offering, trade sale, secondary buyout, dual-track process and leveraged recapitalisation. Most private equity investors buy equities to sell them eventually. If you choose to invest, it would be prudent to consider which exit strategy is most suitable.

 

The Bottom Line

Although private equity financing is mostly advantageous, it comes with several risks too. Deciding whether or not to go for private equity financing is a major decision and that will impact your business for the coming years. Therefore, reach out and talk to an experienced professional before making that decision!