Gopal Jain has been busy. Now in the new year, it has become a cliche to say that the year that passed was disruptive for business, not just in India, but the world over. But this doesn’t hold true for Jain, who is a co-founder and managing partner at Gaja Capital, one of the country’s foremost private equity firms. Just around mid-December, 2020, Gaja Capital led a $32 million Series B funding round for the software as service (SaaS) platform, LeadSquared.

Then in November of the same year, logistics company Xpressbees raised $110 million in Series E funding, in which Gaja Capital participated. November also saw RBL Bank, which boasts of being one of the fastest private sector banks in the country, raise ₹1,566 crore in fresh capital through a preferential allotment of shares. Gaja Capital was one of the investors in this preferential allotment.

There are also reports that the Mumbai-based PE firm is in an advanced stage of talks to invest in the e-pharmacy company, 1MG, a company that is also being eyed by the Tata group and World Bank arm International Finance Corporation (IFC).

But Jain isn’t someone who can be clubbed into neat boxes. A life-long bibliophile, he is also the force behind the Gaja Capital Business Book Prize, which, by all estimates, is the first such Indian award given specifically to books centering around business and entrepreneurship. The book award was started in 2019, and, Jain argues it made sense to continue it even during the pandemic, because much like business deals, why should this stop? The award—worth ₹15 lakh—was won this year by journalist Mihir Dalal for his book which chronicled the rise of Indian e-commerce major, and now Walmart-owned, Flipkart.

In a free-wheeling conversation with Fortune India, Jain talks about the deals Gaja Capital is investing in, the value of taking risks, the contours of the post-pandemic economy, publishing, and his expectations from the upcoming Union Budget. Edited Excerpts.

The year 2020 was a disruptive one for Indian enterprise, and business was tough. With so much uncertainty around, how do you weigh your risks versus your rewards when evaluating a potential investment?

For a 15-year-old firm, 2020 was our busiest year. Certainly not what I expected when the pandemic started. Many of us at Gaja Capital have been witness to crises. This experience provided us perspective when things seemed really gloomy. And every crisis is different. When it comes to looking at opportunities during this crisis, we basically classify them into two parts: one is accelerations, and the other is displacements. Let me explain both the categories. Xpressbees is an example of acceleration. In the sense, delivery is one of the five key enablers of technology and a tech ecosystem in any country.

These five enablers are: 1. Cheap, equitable mobile devices. In India, you see this in what Xiomi has done. 2. Cheap, affordable cost of data, which is what Reliance Jio has done. 3. Identity, which was done by Aadhaar. 4. Payments, which is done by UPI. And the fifth is delivery, at the heart of which is e-commerce, and logistics companies like Delhivery and Xpressbees. So, in Xpressbees, the investment that we made, during the depth of the pandemic, is an example of an acceleration, because e-commerce was accelerating, e-commerce logistics was accelerating.

The second category where we saw opportunity was in the realm of displacements. A displacement basically is when something which is in front of you is suddenly taken away. Like restaurants, multiplexes etc. These were thriving before the pandemic, now they are all struggling to survive. An example of an investment that we made keeping in mind displacements, was in RBL Bank, because when the pandemic started, investors and the whole world began to think that banks don’t have any future. But the entire financial system hinges on banks. So to my mind, RBL was a contrarian investment.

And again, much like Xpressbees, we worked on RBL during the depths of the pandemic when the investment appetite for the banking sector was fairly low. We were the first ones to put up our hand. And although we were not the largest investors in the round, we anchored it. And the approach we followed was really simple: RBL was a bank we believed in, we believed in its story. This in turn led to a $210 million round and as January 2021 ends, you will agree that the whole worldview on banks is again undergoing a change. Yes, there are going to be losses, but, perhaps, there are some banks which are well run, which can weather the storm. And banks like RBL, which have the digital wherewithal, will benefit from the whole digitalisation trend which the pandemic has accelerated.

There was a huge gap in the market, given that despite all the stories and legends about Indian entrepreneurship, there was no prize to commemorate the writers and the subjects of these stories. Business writing as a genre is still fledgling in India. So that’s where it[Gaja Capital Book Prize] started.
Gopal Jain, co-founder and managing partner, Gaja Capital.

A follow up question. How do you foresee whether a contrarian investment will fructify or will fetch the rewards you are seeking, since they run counter to the generally-believed idea?

I think, in an acceleration, you are seeing the world almost the way the entire world is seeing it. There the challenge is the valuation, etc . In a displacement, it is completely the opposite. You can actually go wrong. So you need deep conviction.

Where does this come from? It comes from coverage, an in-depth study of the sector and the company. We spent months researching the sector and the company. Yes, we have to stand on solid ground, coming up with a contrarian call. And there are no guarantees that we will be right. And this is true for either case.

Now the general consensus is that 2021 will be a year of bounce-back. And this bounce-back is proportional to how far you went down. It is easy to presume from this that 2021 will be a strong bounce-back year for India. We will be the fastest-growing economy in the world simply because we were one of the most affected economies in the world. The main question, however, to my mind, is 2022 and thereafter, and the issue of sustaining this growth.
Gopal Jain, co-founder and managing partner, Gaja Capital.

But how difficult is it to make these decisions in the economy that we have now? Are you bullish about the economy in general? And if yes, where is the optimism stemming from? And if you’re not, what is the source of that bleakness?

Economic devastation stemming from the pandemic is a reality. We might be the sixth-largest economy in the world, but we are also No.148 when seen in terms of per capita income. And this pandemic has reminded us of the importance of per capita. So first of all, this will change the narrative in India. For the longest time, we have been focussed on tags like the fourth-largest economy, or fifth-largest economy; [it’s] time we start focussing, in earnest, on per capita income, and win the Olympics there. I mean, from No. 148, if we were to move to the top 50, it is not going to be an easy task. Secondly, the job of an investor is to balance between historical data and forward looking data. And the historical data is a reality. Forward looking is mainly opinions.

And what is the general opinion of most people? Now the general consensus is that 2021 will be a year of bounce-back. And this bounce-back is proportional to how far you went down. It is easy to presume from this that 2021 will be a strong bounce-back year for India. We will be the fastest-growing economy in the world simply because we were one of the most affected economies in the world. The main question, however, to my mind, is 2022 and thereafter, and the issue of sustaining this growth. Personally I believe 2022 will also be a good growth year. We will resume a certain growth trajectory. Yes, it's true, the growth coming in, just before the pandemic struck, was also relatively disappointing. And therein lies the next piece of your answer.

In the last decade, the story was mostly in two halves. In the first half, you had the rupee going into a tailspin, almost crashing. It was pure economic mismanagement. The second half of the decade was about a house under repair. And after almost 20 years we had the will to undertake deep structural reforms, and where there are deep structural reforms, there are opinions about it—whether they are good, or bad. I believe those reforms were good and the results of those reforms you will start seeing post pandemic. And I also believe that the excess capacity that was built into the economy, between 2008-2014, that also has been taken care of. Interest rates are at a historic low.

And more importantly, real interest rates are at an historic low. Now the key question is, will this spark a revival in the private capex cycle? I'm not very good at making predictions, or forecasts, but let’s see. It all hinges on the sustainability of the growth we will see in 2021, into the following years. To reiterate, will the capex cycle revive? This is important, because it was lying lacklustre since 2013. I mean, we were witness to very high real interest rates. Now, while real interest rates are continuing to come down, inflation is trending up. So my hope rests on the huge reforms carried out in the second half of the last decade.

We can end this response by asking ourselves another question. Has the pandemic only taken away? Or has it also contributed? And yes, the devastation from it has been huge in terms of loss of lives. But the pandemic has also given us an opportunity. And that opportunity is technology. Technology has, in turn, given India a second chance. For tech and healthcare, the pandemic has been a trillion-dollar advertisement. In the next few years, this will more than pay back.

RBL was a bank we believed in, we believed in its story. This in turn led to a $210 million round and as January 2021 ends, you will agree that the whole worldview on banks is again undergoing a change. Yes, there are going to be losses, but, perhaps, there are some banks which are well run, which can weather the storm. And banks like RBL, which have the digital wherewithal, will benefit from the whole digitalisation trend which the pandemic has accelerated.
Gopal Jain, co-founder and managing partner, Gaja Capital.

You’ve also been an integral part of what is considered India’s first ever book prize for business writing. Tell me how did the Gaja Capital Business Book Prize start? What is the story behind it?

This is the second year of the prize. The award was instituted in 2019, and the idea behind it really came from our board. We have an effort called Gaja Gives, which is a giving effort through which we are involved in many initiatives, and one of the initiatives is to encourage entrepreneurship. And every few years we do something new. A few years ago we started Gaja Talks. Similarly, the book prize idea came from our board because we thought that this would encourage entrepreneurship. We realised in India, there is no prize for business books. There was a huge gap in the market, given that despite all the stories and legends about Indian entrepreneurship, there was no prize to commemorate the writers and the subjects of these stories. Business writing as a genre is still fledgling in India. So that’s where it started.

The first derivative is to encourage authors and journalists. The second and the ultimate derivative is that through these stories, entrepreneurship will be encouraged. In order to fuel entrepreneurship, we first also need to highlight the story of Indian enterprise. And we told ourselves, the first step in this endeavour is to do it for many years, and it’s not just about the book prize, but also to get the word out. All the stories you’ve read in business, in India, are the Lee Iacoccas of the world. When you think of a business hero, it is usually some American or European.

But even we in India have heroes. And business has changed. Before the 1990s, business used to be different, and with the new generation of entrepreneurs, it is no more about doing deals today. It is much more about innovation. Nobody writes a book for prizes. The idea was to encourage, encourage people to write, to look inwards, into ourselves. Into our country.

Do you envision in the future to be more directly involved in publishing? Maybe by trying to create a new kind of publishing ethos, something that marries traditional publishing with, say, a digital thrust?

Couple of things. Our focus is primarily on entrepreneurship and to encourage it. Secondly, we do understand publishing because of its deep linkage with education. The form of publishing is changing, and it is a thriving industry. And yes, digital is taking over. But books aren’t going away. The nature of publishing and its distribution has changed. Now, many consumers prefer ordering books rather than going into a bookstore to buy it. So there, you see a direct linkage with e-commerce. But to come back to the heart of your question, our focus is on entrepreneurship, to encourage budding entrepreneurs by reminding them of those who have been there before, and have charted a way, so to speak.

What are some sectors you are excited about at Gaja? In terms of investment, growth opportunities, etc?

We’re a big believer in focus, and focus doesn’t mean being a statist. Our sectors are education, financial services, consumer, healthcare and SaaS. However, in the last 15 years, there has been a techisation of our portfolio. Education has become edtech, financial services have become fintech and so on. And the reason I said we’re not statist is because we need to evolve, change with the times. India has changed in the last 15 years. Earlier, we were living in a 1G, 2G world. Now we have surpassed 4G and are waiting to step into a 5G world. Our access to broadband has increased. So while we’re interested in many other sectors, which are all exciting, we’d like to focus on those where we have sectoral expertise.

All the stories you’ve read in business, in India, are the Lee Iacoccas of the world. When you think of a business hero, it is usually some American or European. But even we in India have heroes. And business has changed. Before the 1990s, business used to be different, and with the new generation of entrepreneurs, it is no more about doing deals today. It is much more about innovation. Nobody writes a book for prizes. The idea was to encourage, encourage people to write, to look inwards, into ourselves. Into our country.
Gopal Jain, co-founder and managing partner, Gaja Capital.

What are your expectations from the Budget?

Those who are making the Budget this year have a really tough task on their hands. Because how do you balance expectations with reality? Everyone is needy in some shape or form. I don’t have immediate expectations from the Budget, except to say, at the end of it, I hope the Budget is made by taking into consideration what I said earlier—how it will help sustain India’s growth, when it bounces back. We need to enter into a high growth trajectory. 2021 will happen, everyone will talk about how the economy has bounced back. The real question is, what will happen in 2022, or 2023? The decade that went by was a lost decade for us. We need to seize this decade. It’s very important.

Are there any reforms you would like to see, which haven’t happened yet?

Undertaking reforms in India isn’t easy. You can see what is happening now with the farm laws. But having said that, one pending area is the banking and financial sector reforms. The decade started with the banking sector in a very tough spot. But, now that it’s 2021, it’s high time that we revive the banking sector. And no country can grow without a proper, healthy, banking sector. India has a 50% credit to GDP ratio. We need the financial sector to take it to 200%, and without that we will never be able to grow our per capita ranking from 148 to top 50. It is necessary to not only start a reform process, but to also carry through with it. My personal wish is that the much needed banking and financial reform happens.

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