Every coin has two sides

Valuation mismatch and promoter-investor disconnect also marred potential exits at cookie maker Unibic Foods and organic food company Sresta. Retail mobile store UniverCell, a good story before the e-commerce tsunami hit offline mobile phone sales, was stuck in the doldrums and saw a promoter-investor tussle before being sold to a third-party at a loss.

Even as the largest shareholder, Peepul doesn’t bring domain expertise to the table. “It did not have people who could run the business unlike, say, True North or TPG, which have people who can just take over and run an organisation. In a few situations where the founders were not right, say in Cura Healthcare or TeleDNA (a telecom infrastructure provider), Peepul got professional CEOs, but it never got it right the first time,” says a fourth and longtime Peepul investment manager.

Cura, once a promising medical devices servicing company in Chennai, has landed at the National Company Law Tribunal (NCLT).

Many of the fund’s investments proceed well but end up mired in dispute or acrimony, often shrinking companies to the point of insignificance.

“Every story has two sides, but broadly I agree with you,” says the second investment manager quoted above.

My way or the highway

When the promoter-investor rancour is one-off, you give each party the benefit of the doubt and brush it aside; but if it’s repetitive, you ponder.

“I was in a term sheet meeting with Peepul Capital and Motherhood Healthcare, and I saw they were throwing knives at each other,” says a healthcare professional from Bengaluru. Peepul invested $15 million in Motherhood in 2013. A while later, the startup needed cash for operations, which never came because, as a rule, Peepul doesn’t give more money than what it commits upfront.

Not investing additional money for capital growth is understandable, but existing investors not pitching in for cash flow management can be detrimental. Motherhood started looking out for other investors.

“We had offers from True North and TPG. Peepul’s personal greed to extract monies irrespective of the company’s situation delayed the process and made it a difficult 6-9 months till we finally closed with TPG [in 2016],” says Dr Mohammed Rehan Sayeed, a cardiac surgeon and founder of Motherhood. “Sandeep Reddy does not sit on any board himself and doesn’t allow those representing him to act, so all decisions are on hold forever till the founder is pushed to the wall.”

Peepul exited Motherhood in 2016 at a loss.

Business relations hit a new low again when Maiyas, the restaurant chain founded by Sadananda Maiya, who built and sold the popular MTR Foods to Norwegian major Orkla, stopped production in 2018. An entrepreneur from Bengaluru who heard both sides of the story said he was astonished to “see wide gaps in how each side was thinking”. “An investor who takes such a significant exposure in a company and still remains so clueless is a real question mark.”

The big gap between what the promoter wants and what the investor expects is perhaps the undoing in many of Peepul’s investments. Since its founding in 2000, it has invested in about 28 companies across three funds.

At Brandis Marketing & Manufacturing Private Limited, an innerwear and activewear company founded by Nischal Puri, the former marketing head of Jockey India, the tiff started soon after Peepul took charge. In 2012, it invested $13.5 million for an 85% stake in one-year-old Brandis. Employee-like treatment of the promoter is one of the many reasons for the fallout, say sources. In 2016, eight days before Peepul sent him a termination letter, Puri resigned and issued a press release. (That, of course, also became grounds for Puri to lose his shares/warrants promised by Peepul.)

Ironically, Puri is 49% owner in Artimas Fashions, a new joint venture between him and Lux Industries, one of the oldest innerwear companies in India. With cricketing star Virat Kohli as its brand ambassador, Artimas hit an annual run rate of Rs 40 crore ($5.4 million) in just a few months. Meanwhile, Brandis went through a crisis of senior management exits and cash flows soon after he left. In January, Brandis changed its name to Sportell India Pvt Ltd, selling mostly on Amazon.

Success is the best revenge, they say. But not everyone is a career professional like Puri. Some entrepreneurs know only their knitting, and when the investor relationship sours, they are left high and dry. Sources in the industry say promoters of Banjara’s, a 27-year-old herbal brand from Vishal Personal Care, and 24Mantra, an organic brand from Sresta, were “passionate entrepreneurs who got completely sidetracked in their own company”.