How TVS Capital Funds Is Reinventing Its Investment Playbook After Two Decades

TVS Capital Funds (TCF), set up in 2007 by Gopal Srinivasan, has carried forward the entrepreneurial legacy of the iconic TVS Group for nearly two decades. A third-generation entrepreneur from that prominent business family and chairman of TVS Electronics, Gopal, too, had a unique but clear vision when he explored the PE space. Backed by TVS and Shriram Groups, he went on to launch India’s largest rupee-only capital fund to “empower next-generation entrepreneurs building multi-decadal businesses”.

As Gopal mentioned in an earlier interview with Inc42, one found little regulatory control when TCF entered private investments. But despite the risks of turmoil in an under-regulated market at the time, institutional and individual investors had a strong interest in funding innovative, forward-thinking businesses.

Banking on this enthusiasm, the PE firm launched TSGF (TVS Shriram Growth Fund) 1A in 2008 with backing from several institutions and large family offices. With a corpus of INR 585 Cr, the first fund invested in as many as 13 companies across sectors, including DCB and RBL Banks, 9.9 Media, Papa Johns, Dusters, MaxiVision Super Speciality Eye Hospitals, MedPlus, TVS Supply Chain Solutions and others. The team worked relentlessly, but it barely managed to return the original capital to limited partners (LPs) after five years, effectively costing investors five years of potential interest.

The regulatory landscape changed in 2012 when the Securities and Exchange Board of India (SEBI) paved the path for registering and managing alternative investment funds (AIFs) with a structured mechanism and greater transparency. TCF did not squander the opportunity and formally registered as an AIF CAT II PE fund with SEBI.

The team wanted to raise a second fund but was reluctant to ask LPs for more money, given the lacklustre performance of its maiden fund. However, as Gopal said, the response from the stakeholders was overwhelmingly positive. Everyone encouraged the team to continue and reassured that they were on the right path.

Launched in 2012, TSGF 1B (Fund II) had a corpus of INR 600 Cr, was primarily sector-agnostic like its predecessor but narrowed in on a few emerging sectors such as financial services, banking, agriculture, direct-to-consumer (D2C) brands and real estate. The fund made ten new investments in Nykaa, RBL, IEX, NSE, Suryoday Small Finance Bank, City Union Bank, Prabhat, Wonder La, Karur Vyasa Bank and Texmex Cuisine.

As Gopal mentioned earlier, the partially selective investment strategy paid off. The second fund delivered a gross IRR of 27.4% and a net IRR between 15.6% and 17.6%, helping it emerge as one of the top-performing funds in the Indian market.

TCF has raised more than INR 3,000 Cr across its three funds and fully exited the first two. TSGF 3 (Fund III), with a corpus of INR 1,918 Cr, was launched in 2018 and deployed 96% of its capital in 13 companies. Among these are Digit (partially exited), InsuranceDekho, Yubi, Vivriti Capital, PhonePe, SarvaGram, Increff, Finnable, Five Star Finance (exited) and Leap (exited).

In January 2024, TCF got SEBI approval for its fourth and largest fund (so far), targeting INR 3,000 Cr. With INR 2,500 Cr already raised, the latest fund will focus on financial services and technology as broader themes and may explore ‘zero-stage’ companies founded by seasoned CXOs and successful entrepreneurs.

Here is an overview of the TCF funds launched so far.

How The Investment Thesis Has Evolved At TVS Capital Funds

Between 2007 and 2024, TCF launched four funds, each reflecting an evolving investment thesis. The first fund was sector-agnostic, casting a wide net, but the second narrowed its focus, targeting a number of sectors which were well understood. When Fund III was rolled out, TCF had already zeroed in on financial services and tech-for-finance startups, those offering tech products and/or services for financial services companies.

“From Fund II, we invested in select sectors we understood well. By Fund III, we had deepened our selective approach with a sharper focus on financial services where we had strong expertise, robust research capabilities and extensive networks,” said Krishna Ramachandran, who came on board as TCF’s managing partner, chief operating officer and chief finance officer in 2023.

Introducing a multi-stage investment model at this point helped gain further leverage from the sector shift. The first two funds focussed mainly on growth stage investments, but Fund III backed early and late stage startups. “This strategy allows us to exit early with high returns within the fund’s lifecycle, reinvest the money and make the capital work harder,” said Krishna. “By the time Fund III was almost fully deployed, we achieved an investment efficiency ratio of 98% [it indicates how well a PE firm can invest its capital to generate returns] – arguably the highest in the industry.”

The strategic pivot had a clear goal: Deliver optimal returns and manage risks efficiently. In Fund II, around 75% of the capital was allocated to financial services and B2B, but it grew to 100% in Fund III.

With Fund IV, TCF is expanding its horizon and embracing two core themes – financial services and technology. The fund will focus on sub-segments such as lending, distribution, wealth, insurance and fintech within financial services. Within technology, key focus areas will be tech for finance, IT services and tech for business.

“We are diving deeper into financial services and also exploring technology, which is a new focus area for us,” said Krishna. “About 40% of GDP is driven by financial services and technology. The growth potential in sectors like lending and insurance is significant, with insurance expected to grow 5.6x over the next decade and lending expected to grow by over 4x.”

As these sectors become increasingly intertwined and shape the future of business, TCF’s evolving investment focus aims to tap into high-growth opportunities based on its industry expertise.

How The Genesis Of TCF 2.0 Has Started With A ‘Neo’ Team Of Experts  

Despite its notable achievements, TCF is not resting on its laurels. The investment firm has embarked on a transformation journey to emerge as a ‘Neo TCF’ and reach the next level.

To begin with, the PE firm is building a robust, process-driven organisation instead of depending on its people alone. “It is about creating a system where talent, processes and tech tools will work seamlessly, but the organisation will not rely on any single individual,” said Krishna.

Known as the investment firm’s conscience-keeper (and often as the face of the neo team), Krishna wears many hats as a chartered accountant, management accountant and company secretary. His career spanned stints at Royal Philips, Allianz, KPMG and Vodafone, and he had previously served as the managing director for Chennai operations at Accenture.

Right now, he is part of TCF’s platform team, overseeing operations, client requirements, risk management, hiring and talent development. Overall, Krishna balances backend processes with client-facing tasks, ensuring seamless functionality. In fact, his diverse background across industries like insurance, advisory and telecom has proven invaluable for refining processes, reviewing portfolios and ensuring operational efficiency.

Asked if he missed his big MNC days, Krishna came up with a firm ‘no’. “It is never boring here. Something is always happening, whether investing, exiting, or evaluating opportunities. Moreover, I work closely with the CFOs of our portfolio companies, focussing on audits, risks and governance. It adds to the fast-paced, exciting vibe of the organisation.”

Additionally, TVS Capital Funds continues to bolster its leadership team to promote excellence and usher in new perspectives. This practice is in sync with Gopal’s vision, as the founder built a sound board of directors, besides advisory, investment and platform teams for long-term strategic direction and timely innovation.

For instance, apart from Gopal, TCF’s investment committee includes industry veterans such as D. Sundaram, former vice-chairman and CFO of HUL, and R. Dinesh, executive chairman of TVS Supply Chain Solutions, who are further strengthening the investment business.

But when the PE player pivoted to multi-stage investments and backed more startups, bringing in new people to sustain its mission of supporting new-age entrepreneurs became essential.

Accordingly, TCF expanded its leadership team between 2022 and 2024 and made several high-profile appointments. In 2022, Anuradha Ramachandran joined the investment team as a managing partner, bringing nearly two decades of experience in strategy, investing and portfolio management across sectors like fintech, technology and life sciences. She now leads investments and portfolio management in the financial services vertical.

The following year, the firm onboarded Naveen Unni as a managing partner alongside Krishna. Unni, a McKinsey veteran of 20 years, has expertise in manufacturing, mining, oil & gas, infrastructure and utilities across India, Southeast Asia and Australia. At TCF, he drives investments and manages portfolios in the technology sector.

In the same period, TCF strengthened its ranks by adding Ravi Krishnan as VP of finance and former McKinsey executive Chandrasekar V as partner in research. Long-time team members Rajalakshmi Vaiyanathan and Suraj Majee were promoted to principal and VP, respectively.

Setting The Gold Standard In Due Diligence

As Krishna emphasises, TCF has followed a comprehensive, feedback-driven assessment framework before funding any company. This proprietary system, known as the ‘1080’ process, ensures rigorous evaluation of potential investments by engaging extensively with the company, its leadership team, current and past employees and its overall ecosystem.

Although the fund house does not typically invest in seed stage companies, it often engages with promising ventures for extended periods to track their future growth potential. By the time an investment decision is made, TCF will typically know the founding team for at least a year. This ongoing engagement helps it understand founders’ evolution and the organisation’s progress.

During due diligence, it also conducts more than 80 interviews, often involving 20+ key stakeholders of the company. These people include not only senior management and board members but also customers, suppliers, former employees and distribution partners. Additionally, it enlists independent HR experts who can further verify findings through detailed interactions with founders and their teams.

As managing partner Anuradha Ramachandran describes it, the ‘360° times over’ approach helps gather insights from diverse sources to understand the target company and its promoters comprehensively. Next, senior leaders, including Gopal and other experts, review and analyse the findings to identify key trends and validate possible outcomes, ensuring a thorough understanding of the company and its leadership.

“The extensive nature of the 1080 process is proprietary to TCF, reflecting the significant time and effort invested in the details. Insights from these assessments are discussed during investment committee meetings, ensuring that decisions are backed by rigorous analysis and validation,” added Krishna.

A Tech Makeover For Efficient, Process-Driven Operations

As a 17-year-old legacy PE firm, TCF faces critical challenges in its growth journey. To enhance financial efficiency, it must reduce idle cash, recycle capital effectively and deliver the best possible returns to clients. But achieving these goals requires moving away from ad-hoc practices and building robust, process-driven systems to ensure efficiency and consistency across operations.

Much of TCF’s journey involves streamlining opportunity identification, investment management and good governance for portfolio reviews. It will also enhance engagement with portfolio companies to ensure regular and meaningful interactions. Additionally, it focusses on establishing systematic approaches for seamless fundraising, effective client engagement, efficient handling of investor queries and robust succession planning for long-term continuity.

Understandably, technology is at the core of this transformation. TCF is integrating new-age digital solutions and tools to reduce manual dependencies and minimise the risk of process failures, thus building a more resilient and scalable foundation for the future.

For instance, it has implemented Salesforce solutions across all investor and client interactions. These include onboarding all Fund IV clients digitally and automating KYC processes. It has also integrated Microsoft tools for better team collaboration.

TCF incorporates artificial intelligence selectively to enhance research and investment processes. Although most of its internal tools currently operate without AI, the firm uses AI-driven solutions like CoPilot and Complexity.ai for extensive data mining and analysis across internal and external databases. For example, CoPilot facilitates internal searches within TCF’s systems, while Complexity.ai supports external data exploration.

An intranet and knowledge management portal will go live soon, followed by a comprehensive HRMS by the end of 2024. These initiatives will help transform the fund house into a fully digital, agile, scalable organisation.

“It is unique for a [legacy] fund of our size to have fully digital processes for investment management, fund accounting, HR and client engagement,” said Krishna.

A Disciplined Approach Is Key To Success

The Indian startup ecosystem has been on a roller coaster ride in the past few years. After the FOMO-driven funding surge of 2021, the sector was hit by a harsh funding winter throughout 2022 and 2023. Investment activity has resumed in 2024, but it has yet to peak. Nevertheless, TCF has distinguished itself with a methodical and disciplined approach amid this turbulence.

The reason?

The firm prioritises rigorous evaluation, relationship building and in-depth assessments via its proprietary 1080 process before investing.

“We have always been cautious and prudent,” said managing partner Naveen Unni. “While asset availability at the right price has been challenging, we have not succumbed to the frenzy of overvaluation during the boom nor faced difficulties in finding quality opportunities. Added to this is the capability capital we provide to investee companies, which sets us apart.”

Going forward, TCF will continue to invest in category leaders and businesses with enduring growth potential. Its portfolio features trailblazers in sectors like rural co-lending platforms and MSME lending, led by visionary founders. This disciplined strategy ensures that the PE player can always spot attractive opportunities, even during turmoils.

“Our philosophy is to build multi-decade businesses,” said Krishna. “We aim to invest in companies that not only thrive during our holding period [five to eight years] but also continue to create value for decades.”

As TCF prepares to deploy its fourth fund, its meticulous, process-driven and long-term approach will continue to shape its investment strategy, setting it apart in the fast-evolving startup landscape.

[Edited by Sanghamitra Mandal]

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