The success would also arguably eclipse some of its Silicon Valley bets like Uber or AirBnB, back of the envelope calculations suggest.
TPG Growth is the middle market and growth equity investment arm of TPG. Starting 2019, TPG Growth has made a cumulative investment of Rs 191 crore in Nykaa at an entry price of Rs 118/share, as part of the beauty e-tailer’s Series E round of capital raise.
Upon listing, Nykaa or FSN Ecommerce Ltd shares opened at Rs 2,001 apiece and closed the day at Rs 2,206/share, with a market capitalization of Rs 1.04 lakh crore.
AgenciesTPG is partially exiting the company, selling a third of its equity holdings in the IPO and has already realised Rs 600 crore in cash. But at current prices, it is also sitting on Rs 2,430 crore of unrealised value on the 2/3rd equity it still holds in the company, making it an 18.6 times return (multiple of money or MoM, in PE jargon speak). At a blended price (combination of realised and unrealised), TPG has already made 16X return on the investment on Tuesday. That translates to around 175%-200% blended dollar IRR for the firm.
The Nykaa bet easily trumps its other tech or start-up investments in the country where TPG Growth has so far only monestised its investment in Lenskart, and made 7 times money. Nykaa would also beat the 6X that it made when TPG Capital sold Vishal Mega Mart, a distress retailer it turned around and cashed out of, to Kedaara and Partners Group in 2018.
“Our investment in Nykaa represents TPG’s deep experience in the beauty and personal care space and our thematic focus on the Indian consumer-tech sector. The Nykaa team has built a world class brand and platform catering to the needs of millions of aspiring Indian consumers. We got to know Falguni and her team early in the journey and are proud to see the company reach this important milestone,” said Akshay Tanna, Partner at TPG Growth.
Established in 2007, TPG Growth has invested $10.5 billion in companies including Beautycounter, Fender guitars, STX Entertainment among others. In India its portfolio also includes Livspace, Dream11, BookMyShow, Jio Platforms, FirstCry, Pharmeasy.
BUSINESS OF BEAUTY
To be fair, Nykaa has also been a bumper investment for its other early stage backers. For example, at Tuesday’s closing price, MoM for Lighthouse Advisors translates to 23X while that for Steadview Capital would be 13X. Lighthouse partially exited in the IPO, like TPG.
Venture capital and growth equity funds like Sequoia, Lightspeed and Elevation Capital have scored big on Indian unicorns Oyo, Byju’s, Paytm and even Flipkart, earning mega profits thereby attracting global pools of capital toward home-grown start up stories.
As many as 828 venture capital funded deals were announced between January and July of this year, with a total disclosed value of $16.9 billion, as per data from analytics firm GlobalData with a total disclosed value of $16.9 billion, marking a 40.8% jump in deal value compared with all of 2020. According to Bain & Company, 2020 had also seen a significant bump up in fund-raising activity, with $3 billion raised by India-focused funds in 2020—40% higher than in 2019 with marquee names including Sequoia, Elevation Partners, Falcon Edge, and Lightspeed all closed new funds for India investments in 2020 despite the pandemic.
“This is a very significant milestone. TPG Growth was one of the earliest investors to back growth stage tech companies – companies that were not necessarily profitable but were still market leaders with a strong value proposition. When most PE investors were wary of the sector, they built a portfolio of top tier bets. This is the first IPO exit from those bets with the highest returns for a growth stage investment in a tech company. This certainly encourages the entire PE ecosystem, which had already been active in the tech sector since the last few years, to further accelerate their investments. Tech cuts across all key consumer and other large sectors today and we expect PE funds to have more than 50% allocation towards the tech sector in the next 3-5 years,” said Karan Sharma, Executive Director and Co-head, Digital & Technology, Avendus Capital.
Nykaa’s omnichannel strategy – a hybrid of direct to consumer online sales coupled with a smattering of physical retail outlets was one of the things that attracted investors like TPG and Lightspeed. Add to that its high consumer engagement and well curated product lines that helped the company to disrupt the market and spawn several me too brands.
“The most unique aspect of Nykaa has been its pace of growth and capital efficiency. They have built the business by raising less than $80 million of primary capital. A $14 billion market cap ecommerce company with such low cumulative capital consumed is a rarity and an exception across the world,” explained Sharma. “This would certainly encourage founders to think about their capital raising strategies and their ownership levels and how they would like to build value. The other aspect is the massive potential of the lifestyle vertical that is growing rapidly even during the pandemic. Platforms like Nykaa give a large distribution platform for emerging D2C brands.”
