In this edition of Search Fund Squared, we continue our deep dive into global search funds and sit down with Rehan Netarwala, a pioneering entrepreneur at the forefront of the new but very promising search fund movement in India.
Hailing from Mumbai, Rehan’s career is a remarkable testament to his relentless drive and innovation. After studying mechanical engineering and then cutting his teeth in management consulting, he co-founded an accounting outsourcing company while pursuing his MBA at ISB Hyderabad. What began in a dorm room soon blossomed into a thriving enterprise serving over 500 SME clients, with a team of 120-130 employees. Under his leadership, the business adapted to the digital age, expanding into marketing services during the pandemic. By 2023, Rehan had successfully exited the venture, opening the door to his next ambitious pursuit.
With over a decade of familiarity with the search fund model, Rehan is now channeling his deep expertise in the Indian SME sector to identify promising opportunities. His search is already yielding results, with over 100 seller conversations, and in a fortuitous twist, one seller even recognized him from his previous business endeavors. This moment is just one example of how Rehan’s extensive experience and network are propelling him forward as he navigates the search fund landscape in one of the world’s most dynamic economies.
MC: Rehan, tell us what inspired you to pursue search funds in India and set up Okintek Capital?
Rehan: My experience with the SME market through my previous venture gave me deep insights into their pain points and how they operate. Most businesses in India are family-run, often with a father-son or father-daughter combination and are not exploiting the full potential of technology tools available today to scale up. I saw an opportunity to leverage my network within the SME community and the accounting community, which forms an unofficial broker network in India.
Moreover, I’ve witnessed firsthand the growing succession issues in Indian family businesses. This is something I’ve seen not just professionally, but also in my personal life. My wife’s father, for instance, is an SME owner, but my wife chose not to continue the family business. Instead, she started her own fashion design business, making bridal wear for the wedding industry in India, which is thriving thanks to booming consumer spending—an area that’s driving significant opportunities for my search fund as well.
This trend is becoming more common as the next generation seeks to build their own identity, often in more tech-oriented or creative sectors. I recently met a seller whose two sons have already started their own venture-backed startup and aren’t interested in taking over the family’s brick-and-mortar business.
These succession challenges create a unique opportunity for search funds. There’s a growing number of well-established businesses whose owners are looking to exit, but don’t have a clear succession plan within the family. By leveraging my understanding of the SME landscape and the cultural nuances involved, I believe I can step in and provide a solution that benefits both the sellers and the businesses they’ve built.
MC: Where are you focusing your search geographically and which sectors are you targeting?
Rehan: I’m primarily looking in Mumbai and neighbouring areas, including the states of Maharashtra and Gujarat. These regions contribute significantly to India’s GDP – Mumbai alone accounts for 7-8% of the country’s GDP, while Maharashtra contributes 13-14%.
In terms of sectors, I’m taking a thematic approach rather than focusing on specific industries. I’m particularly interested in sectors with strong tailwinds in India, such as renewable energy and real estate-adjacent businesses. The real estate boom is driven by rapid urbanization and a shift from joint families to nuclear families, creating massive demand.
Travel is another exciting sector, with airports expanding and flights consistently full. I’m also looking at consumer discretionary businesses, particularly those one level above in the value chain, such as packaging companies supplying to B2C firms. With India’s growing middle class and increasing consumption, there’s enormous potential in this space.
MC: How has the fundraising process been for you so far?
Rehan: I started fundraising in late May, early June. It’s been an interesting journey, talking to investors across the globe, including many from Spain, which seems to be the centre for international search funds outside the US.
I’m aiming for a mix of international and domestic investors, with about 60-70% international and 25-30% domestic. For domestic investors, I’ve been speaking mainly with family offices and high-net-worth individuals. While they’re familiar with the concept of backing someone to buy a company, the search fund model is new to them. I have been actively educating them on the framework and process, and thanks to these efforts, I’ve received soft commitments from some of them.
MC: How has the availability of debt financing been for search funds in India?
Rehan: The timing for search funds in India couldn’t be better in terms of debt financing. Over the past decade, with the internet and e-commerce boom, we’ve seen the emergence of venture debt as an instrument. There are now enterprises offering venture debt at interesting, affordable rates for companies with good, recurring revenue.
I’ve had initial conversations with several players in this space, and many are eager to explore opportunities in the search fund ecosystem. The availability of debt often depends on the type of company you acquire. For instance, if you buy a SaaS company, you’ll approach a different set of lenders than if you acquire a manufacturing company.
Initially, I was concerned about accessing debt financing, as many people told me it would be very difficult in India. However, after speaking with various players in the ecosystem, I’m much more optimistic. The debt market is evolving, and there are definitely options available for search funds.
MC: What about valuations? We’ve heard they tend to be higher in India compared to other markets.
Rehan: Valuations are influenced by various factors, with one of the most significant being growth rates—both historical performance and future potential play a crucial role in determining value. In an emerging market like India, where GDP is growing at 7-8% and many sectors are growing at 15-20%, you can expect to pay a slight premium compared to global benchmarks. However, this premium is often justified by the growth potential.
That said, valuations can vary significantly depending on the sector. “Sexy” sectors like fintech or wealth tech might command crazy valuations, but more traditional sectors often have more reasonable expectations.
It’s also worth noting that current valuations are influenced by the overall euphoria in public markets. Since the pandemic, there’s been a surge in retail investing, driving up valuations across the board. This has had a spillover effect on private markets, including SMEs. However, when you educate sellers about the differences between their businesses and large, established public companies, they often become more realistic in their expectations.
From my conversations with over 100 potential sellers, I’ve found that valuations in more traditional sectors are generally reasonable if the fundamentals of the business are solid.
MC: How has the search process been so far? Any interesting experiences with sellers?
Rehan: It’s been quite fascinating. As mentioned, I’ve spoken to over 100 sellers so far, and I’m currently in advanced discussions with one potential acquisition target this month. Interestingly, when I met with this seller, he recognized me from my previous accounting firm. He mentioned that he had received calls from us years ago when we were offering accounting services. This unexpected connection immediately established credibility and opened up the conversation.
This experience reinforced the value of my background in the SME ecosystem. In a market this large, credibility and trust are paramount for SME owners, and having that insider knowledge and network can be the key to building those essential relationships.
MC: What advice would you give to other search fund entrepreneurs, especially those looking at emerging markets?
Rehan: I think the most important thing is to challenge preconceived notions. When I first started exploring search funds in India, many people told me it would be impossible to find sellers willing to exit their family businesses, or that debt financing would be unavailable. However, by actually getting out there and talking to people in the ecosystem, I’ve found that these “myths” often don’t hold up.
Another piece of advice would be to leverage your background and network. My experience in the SME and accounting sectors has been invaluable in identifying potential targets and establishing credibility with sellers.
Lastly, I’d encourage searchers to be open about what they’re doing. Initially, I was unsure about how public to be with my search fund journey. But since I started sharing updates on LinkedIn, I’ve had potential sellers reach out to me, and I’ve been added to deal-broking platforms I didn’t even know existed. In a niche like search funds, especially in emerging markets, creating awareness can open up a lot of opportunities.
MC: As a final question, what’s your outlook on the future of search funds in India?
Rehan: I’m incredibly optimistic. India is at an interesting inflection point where we have a growing number of successful first-generation entrepreneurs who are now looking to exit their businesses. At the same time, we’re seeing more succession issues as the next generation often prefers to start their own ventures rather than take over the family business.
This creates a perfect opportunity for search funds to step in and acquire well-established businesses with growth potential. Moreover, with the increasing sophistication of India’s financial markets, including the emergence of venture debt and a growing understanding of alternative investment models, I believe we’ll see a surge in search fund activity in the coming years.
The key will be educating both sellers and investors about the search fund model and demonstrating its value in the Indian context. It’s an exciting time to be a pioneer in this space, and I’m looking forward to helping establish search funds as a recognized and respected model in the Indian business landscape.
