VCs and PEs: The time to take over is now

03 November 2008

VCs should in fact see these bad times as an opportunity and collaborate to gain the maximum in terms of valuation, suggests Shankar Rele, CEO of Mumbai-based strategic management advisory services firm ICE Startups.com India Pvt Ltd

What does the current recession and stock market turmoil mean for VCs? Especially when the valuations of their existing investments have come down substantially and a profitable exit is not possible at the moment?

It is time for introspection. It is time to reflect and realign strategies. If companies have to survive and grow, they need to adapt quickly to the changing market scenarios. The trick is to innovate, not necessarily do different things, but do things differently.

This is the right time to put things in order and assist the promoter to visualise and plan for the long-term to enable better valuations through:

Mergers & acquisitions, joint ventures & alliances: This is the time when many opportunities have cropped up, with banks and institutions facing NPAs and restructuring of their debt portfolio. Many small and medium enterprises feeling the cash crunch would not be averse to collaborate with others in their field to expand their operations.

They would be willing to partner to grow jointly. Therefore, instead of reinventing the wheel or starting an independent expansion or growth plan, companies could look at alliances as well as JVs, instead of setting up their own plants, acquiring assets or increasing headcount, etc.

This is a great opportunity to look for mergers with other companies in the similar industry vertical segment to expand together and form major synergies. Such joint operations will bring about a positive change in the profitability of the merged entity and help in the reducing manufacturing and operational costs.