Kotak Investment Advisors Kicks Off a Pre-IPO Fund

A Brief Overview

Belonging to the umbrella enterprise Kotak Mahindra Group, Kotak Investment Advisors Limited (or KIAL) has brought forth a pre-initial public offering (or IPO) fund. Called the Kotak Pre IPO Opportunities fund, it is set to target high-quality companies that have a strong technological bent.

Recognized as a category II alternative investment fund (or AIF), it requires a minimum investment amounting to INR 1 Crore.

Plans for the Kotak Pre IPO Opportunities Fund

As per an investor presentation conducted pertaining to the fund, it hopes to raise INR 1,000 Crore in addition to another INR 1,000 Crore as a greenshoe option. Greenshoe option here refers to the provision that more shares will be made available to the public in the event that the demand for the security issue provided by the fund proves to be higher than originally anticipated.

The time frame, or tenor, laid forth will amount to 5 years from the final close.

Fees applicable to investments falling below INR 10 Crores will amount to 1.8 percent. Here, a 1.5 percent fee will be levied for availing the direct option of such investments.

Investments made that amount to a value exceeding INR 10 Crores will have a lower fee applicable to them which will amount to 1.5 percent for the ordinary option. Here, a 1.2 percent fee will be levied for availing the direct option of such investments.

Availability of direct options is set to be made available to advisory clients of the Kotak Pre IPO Opportunities Fund.

In addition to the aforementioned fees, Kotak Pre IPO Opportunities Fund will levy a performance fee (or carry) amounting to 20 percent of profits falling above the rate of hurdle which is 10 percent prior to tax. This means that Kotak Pre IPO Opportunities Fund must be able to generate a return that exceeds 10 percent in order for the performance fee to be applicable.

Investments that exceed or are equal to INR 10 Crore will have a 15 percent carry fee levied on them.

Other Pertinent Information

Kotak Pre IPO Opportunities Fund is set to focus on investments falling in the range of INR 25 Crores to those that amount to INR 200 Crores and have a holding period that averages to approximately 3 years.

Companies that the fund is interested in are those which have reached a point of acquiring a late-stage and are of high quality. Sectors these companies should ideally be in include but aren’t limited to consumer technology, educational technology, fintech, health technology along with those that provide software as a service.

Kotak Pre IPO Opportunities Fund is set to have B. Amrish Rau who is the Chief Executive Officer of Pine Labs, Haresh Chawla who is a partner at True North, and Nitin Deshmukh who acts as Advisor under Kotak Private Equity serve as the fund’s advisors. They will hold this position in a capacity that isn’t bound in any way.

India has witnessed a surge of interest by its investors in investments made towards pre-IPO companies. Companies including Nykaa, Delhivery, and Paytm for instance, each seek to go public in the coming year or so.

An AIF managed by Kotak Pre IPO Opportunities Fund gained a 74 percent hold within HKR Roadways Limited last month. The fund even sought to expense its new acquisitions debt in the form of a one-time settlement with its existing lenders. This value amounted to INR 715 Crore.

Concluding Thoughts

The introduction of Kotak Pre IPO Opportunities Fund is welcome and the fact that it has a greenshoe option available in the future is promising as it indicates the likelihood of its popularity.