Entrepreneur Ashish Dhawan Senior Managing Director/ChrysCapital

For a magazine, selecting a venture capitalist or a private equity man as a super-performer is a brave thing to do. At least in India. Consider the odds against such a choice: for one, private equity (PE) is a young industry, approximately just 10 years old. For another, it's a highly secretive industry; few PE firms disclose their investments and fewer, the returns they make on these investments. Worse, ChrysCapital's Senior Managing Director Ashish Dhawan doesn't run the largest PE firm in the country (ICICI Venture's Renuka Ramnath does) or even the most profitable one. So why did our judges (see Methodology on page 82) have no trouble zeroing in on him as the winner of this year's Young Super Performer in the entrepreneur category?

To appreciate that, you have to go back in time. To 1998, to be precise, when India was not quite the hot story it is today, and BRIC was something to be found in the mason's dictionary (well, you know what I mean), not the fund manager's. So, imagine getting up one morning in your apartment in New York and deciding that you are going to chuck up your cushy job in Goldman Sachs and turn venture capitalist. It doesn't seem odd to you that you are all of 29 (sure, you have a Harvard Business School degree to boast of) and have no conceivable reason to think that global investors will actually cough up millions of dollars just for your asking-especially when there are vastly bigger institutions with a proven track record to compete against and the story you are trying to sell is a country called India.

On that day, Ashish Dhawan may have as well chosen to try flying from the top of the Empire State Building. Except that he didn't, and instead chose to pack his bags and come home (with co-founder, but now estranged batchmate, Raj Kondur) to make a new beginning. Since then, a few others have emulated Dhawan (Sumir Chadha and K.P. Balaraj of WestBridge Capital Partners are one, and, more recently, Rahul Bhasin of Baring Private Equity Partners India is another), but without, at least, the money-raising power (see The Entrepreneurial Funds). After five years of its founding, WestBridge still has only $140 million, or Rs 616 crore, in fund, and Bhasin, who did a management buyout last year, has just raised a $150-million or Rs 660-crore fund. Dhawan, in contrast, has raised $450 million (Rs 1,980 crore) in three different rounds. Now, you begin to realise why our informed panel of judges had no trouble picking Dhawan.

For all the peer envy that Dhawan now attracts, his first fund almost branded him a disaster. Like every other VC of the time, Dhawan too sank money in dotcoms-some 40 per cent of the $64 million, or Rs 282 crore then, he raised in Fund One. But lady luck was on Dhawan's side. ChrysCap's $10 million investment in Spectramind fetched a whopping $60 million. This deal alone gave the firm more than 100 per cent IRR (internal rate of return; or six times its money) in two years. Then, Dhawan also sold half of ChrysCap's stake in Jerry Rao's Mphasis for $13 million, more than two times the original investment in three years. More importantly, beating all odds, Dhawan managed to raise his second fund, which closed at $127 million. Says a Delhi-based VC who knows Dhawan closely: "If Dhawan hadn't survived the (dotcom) crash and had not managed to raise his second fund, he would have ended up as a middle-level manager in one of the investment banks."

Fact is, Dhawan did not just survive but went on to thrive. With his second fund, he built what could be described as his comeback portfolio. He's picked up stakes in hot new companies like IVRCL (an up-and-coming infrastructure player), Yes Bank and Suzlon Energy. For instance, he paid a measly $5 million (Rs 22 crore) for a 7.5 per cent stake in Yes Bank (it works out to Rs 14 a pop). That investment today is worth $15 million, or Rs 66 crore, thanks to the bank's recent IPO that priced the stock at Rs 45. (The stock is slated for listing on July 12). In the case of IVRCL, Dhawan grew his $9-million investment to four times in just one year when he exited it via public market.

Of Fund Three's $250 million (Rs 1,100 crore), Dhawan has already invested $90 million: $55 million has gone into construction company Gammon (the investment was made in December last year) and $35 million into Chennai-based truck finance firm, Shriram Transport Finance. Stocks of both the companies are trading at a significant premium over the deal price, but Dhawan says he's in no hurry to sell. "We now have the ability to be really long-term oriented. Early on, there was pressure to show returns. Now, I don't mind holding on to companies for more than five years." Adds Rana Kapoor, Chairman and CEO of Yes Bank: "Ashish has gone through hard experiences. That has hardened him as an entrepreneur."

The man and his Delhi team (L-R): Ashley Menezes, CFO; Ashish Dhawan (seated), Senior Managing Director; Sanjay Kukreja, Principal; and Ravi Bahl, Managing Director

It is obvious that the Dhawan of today is vastly different from the one who walked in cold into the PE business. For one, Dhawan (for that matter, any VC) hardly does any start-ups, and has moved into pipe deals (private investment in public enterprises), which means investing in companies that are either listed or soon will. (At Goldman Sachs, Dhawan was in charge of investing in undervalued public market companies, which he seems to be replicating here.) Result? He now boasts of a portfolio where basic viability of the business is not in doubt (see The ChrysCapital Portfolio).

But this doesn't mean he has turned risk-averse. Dhawan recounts an instance where his investment in Mphasis in 2001 was eroded almost entirely, and he still went with his instinct and refrained from cutting his losses. Here's what happened: soon after ChrysCap invested in Mphasis at Rs 350 a share, the stock (which was trading at Rs 230) dropped to as low as Rs 50. A less confident investor would have panicked. Not Dhawan. Even as the stock continued to slide, Dhawan kept on buying shares from the open market. In a matter of four to five months, he had more than doubled his stake in Mphasis to 14.4 per cent at an average price of Rs 250 a share. "We looked stupid then. I remember one of my partners calling me up and asking if we had made the right decision. But I viewed it as an opportunity," says Dhawan.

In early 2004, Dhawan exited Mphasis partially and made two times his money. "Overall, we will make five times our money in Mphasis. That was a contrarian call," says Dhawan. Notes Rajiv Memani, CEO and Country Managing Partner of Ernst&Young (E&Y): "He backs his instincts and goes all out. Which is why he is an entrepreneur." E&Y had last year nominated Dhawan for the Entrepreneur of the Year award (startup category).

Spectramind: Dhawan's lucky draw

No doubt Dhawan is instinctive, but he is also ahead of others in spotting opportunities. Anybody who tracks the private equity business would say that the biggest strength of Dhawan is that he is one step ahead of everybody else on the curve. Dhawan put in money in banks when few looked at that sector. His investment in UTI Bank has already paid off, fetching an IRR of 250 per cent. Similarly, Dhawan looked at the construction and infrastructure sector when it was not hot. By the time investors realised the potential of the sector, he had invested in IVRCL and got out too (at the right time), with a 40 per cent IRR. In December, he invested in Gammon, another upcoming infrastructure company. "Dhawan is not constrained by dogma. There is a high probability that he will discover the next big play before everybody else," says Gaurav Dalmia, a Delhi-based VC and a co-investor of Dhawan in Jobsahead.com, since acquired by Monster.

Once Dhawan zeroes in on a sector, he does his research and backs it up fully. Even during the dotcom boom, he did the maximum number of dotcom deals (it's a different matter that many of them didn't work out). But his subsequent picks have paid off. He has done successful deals in banking and finance, (UTI Bank, Yes Bank and Shriram Transport Finance among others), in IT/ITEs (Spectramind, Global Vantedge, Transworks, TechTeam), and in infrastructure/ construction (Gammon, IVRCL and Suzlon). And none of them is a dud. Some of the sectors Dhawan has zeroed in on- pharma/ healthcare, consumer businesses, media, entertainment, travel-are yet to see any investment from him, although he is still sitting on $160 million (Rs 704 crore) in Fund Three. He doesn't rush into an investment anymore just because his coffers are full. "We spend a lot of time studying a company," says Dhawan.

THE ENTREPRENEURIAL FUNDS

A new breed: Balaraj (left) and Bhasin The Indian private equity or venture capital community has been dominated by institutional VCs like ICICI, IL&FS, Gujarat Venture Finance Ltd, and lately foreign firms like Temasek, Citi, and Carlyle. But when Ashish Dhawan, alongwith his classmate Raj Kondur, launched his fund ChrysCap in 1999, he started a new trend-of entrepreneurial funds. Those who have followed in his footsteps are Sanjay Anandram and Kiran Nadkarni of JumpStartUp (an early or seed-stage tech fund), K.P. Balaraj and Sumir Chadha of WestBridge Capital Partners (an early-to-mid-stage VC), and Rahul Bhasin and Subbu Subramanian of ING Barings (private equity). (On a different scale, Arshad Zakaria, a former Merrill Lynch honcho, has launched a fund of his own too, New Vernon Advisors, which invests both in India and the US). WestBridge manages a $140-million fund (Rs 616 crore), and has already invested $110 million (Rs 484 crore) in some 16 companies-mainly mid-market investments like Dr Lal PathLabs ($6.5 million, or Rs 28.6 crore), Brain Visa ($6 million or Rs 26.4 crore), ICICI OneSource ($13 million, or Rs 57.2 crore) and AppLabs ($7 million, or Rs 30.8 crore). WestBridge expects returns on many of the above deals to be in the 30-per cent IRR (internal rate of return) range. Ashish Dhawan's former colleague Shujaat Khan is believed to be starting a fund along with Rashesh Shah and Venkat Ramaswamy of Edelweiss Capital. The fund named Blue River is in the process of raising money for its first fund.

For instance, in the case of Shriram Transport Finance, a truck financing company, Dhawan's team spent six months visiting branches, analysing data, and poring over MIS reports. This, despite a positive certificate from UTI Bank and Citibank (who were buying securitised papers from Shriram). "We needed to know if there was a real barrier to entry," says Dhawan, who put in money in Shriram after getting convinced that they "lived and breathed truck financing business". "If anybody needs our help to run the business, then there is trouble," says he. Adds a VC who has tracked Dhawan: "He is not a classical private equity investor who is active and hankers for a board seat. Dhawan is a passive investor, more like a hedge fund."

That's another transformation that Dhawan has undergone. He is no more the Dhawan who once pored over every detail and micro-managed to the core. "Six years ago when I started out, I was a classic control freak. I used to review every piece of data, look over people's shoulder every time and look at every deal," says Dhawan. Nowadays, he lets the management be, giving it ample room to run the company as it deems fit.

Also, the ChrysCap team is no more young and brash like it used to be. All his other partners (there are five including Dhawan) are 35 and above. Ravi Bahl, 52, former CEO of Citi Indonesia and a protégé of Jerry Rao when he was at Citi, is the seniormost and brings in a lot of maturity to the table, besides his skills in operations. Brahmal Vasudevan, Dhawan's classmate at Harvard, is moving back to India from the US after shutting down ChrysCap's Palo Alto office. Sanjiv Kaul, an old Ranbaxy hand, joined the firm last year as a partner. The other is Kunal Shroff, who was working with Dhawan at Glodman Sachs. "The firm's maturity level has gone up and we have a mix of operational and finance skills." Tier two has young MBAs with experience in firms like McKinsey. The firm's total size is 12, plus three support staff.

Dhawan will need all the help he can get. Things are hotting up in the private equity space, and the global industry's big guns-for instance, Blackstone, the biggest of them all-have turned their attention to India. There's a lot of money flowing into the country via private equity and that has created a unique problem for investors like Dhawan: deals have become much more expensive, which means that fantastic returns may be a thing of the past. Adding to it is the stock market boom. Why go to value-conscious and nosey PE firms when you can raise capital from the primary market without any hassle of constant board-level oversight? The harsh truth about Dhawan's business is that you are only as good as your last fund. Then, Dhawan knows that all too well.