Startup Mantra: M&A made easy with GrowthPal - Hindustan Times

Startup Mantra: M&A made easy with GrowthPal

BySalil Urunkar
Dec 23, 2023 07:30 AM IST

GrowthPal works using what can be called the funnel approach, where startups are filtered out at every stage till the point where a potential acquirer must choose from only a handful of targets

A company has two options when it wants to grow. One, invest in expanding its own business and two, acquire another company. While organic expansion is time-consuming, corporates hungry for faster growth prefer to buy out existing firms. But finding the right target is no less than finding the perfect matrimonial match. And this is where Pune-based startup GrowthPal is changing the dynamics.

Shalu Mitruka and Maneesh Bhandari, co-founders of GrowthPal. (HT PHOTO)
Shalu Mitruka and Maneesh Bhandari, co-founders of GrowthPal. (HT PHOTO)

“In the merger and acquisition (M&A) process, we focus on sourcing of qualified targets. So, if a buyer is looking to acquire companies, then we will identify the best targets which fit their need and are also willing to sell. We call them ready to transact targets,” says Maneesh Bhandari, founder and chief executive officer (CEO) of GrowthPal.

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Having witnessed M&A closely as head at a large enterprise, a former startup founder in the US with a successful exit and an angel investor, Maneesh has seen India’s cross-border M&A ecosystem up close.

“I had been an entrepreneur before and then I sold my company. Then I became an active investor and it was through the investing lens that I saw that while companies can raise money, very few investors and promoters can find an exit,” he says.

Exit puzzle

India has the third-largest startup ecosystem in the world after the US and China and two or three startups are born here every day. While the relatively robust startups can raise funding, only about two per cent reach a very high growth path and of the remaining, very few can sustain operations meaningfully beyond the first two to three years.

“The rest need to find a new home, whether in the first few years or even in the much later years. However, a good chunk of them never find a new home and shut down or wither away. Sometimes they shut down despite building a good technology or a good product or having good teams as they do not know how to sell or they run out of money and time,” says Maneesh.

This task of finding buyers, for companies or startups whose founders want to sell, has traditionally been the domain of investment bankers. However, there are inherent limitations in this process. One, bankers typically prefer to work on large-size transactions as they bring in higher commissions for them compared to smaller ones even though the effort involved in both the deal types is the same. Second, with the fast-growing startup ecosystem in India, they can’t keep track of all the founders looking for exit or funding in their domain. Three, the smaller size companies are not very visible. But that is also the space where the volume of transactions is higher but the transaction value is lower, making them less lucrative for investment bankers. 

Moreover, in India, it is difficult for founders to get good exits. An exit can take place either through an IPO or somebody else acquiring the company. “In rare cases, the next round of investors may buy the previous round of investors. So, the investor may still get an exit but the founder will not get an exit. The exit ecosystem barely exists in India. So that was the problem that I wanted to solve for early and mid-stage startups – finding the right buyers for them,” says Maneesh.

From the perspective of larger corporates, the global interest in partnering with, investing in, or acquiring small to mid-sized companies, including startups, is driven by the desire to enhance product offerings, intellectual property, teams, customer bases, adjacent spaces, and geographic reach. However, the challenge lies in effectively sourcing these small to low-mid-sized targets often called tuck-in or bolt-on acquisitions across the world.

Data-driven matchmaking

This is where Maneesh thought of rationalising the process by using data. “The first time this thought came to me was in 2015 and I thought about experimenting with data. I ran an experiment with about five very large MNCs as the buyers and used a few interns and some data to find some good matching acquisition and strategic investment targets. And we had some reasonable success,” he recollects.

Maneesh did the data-driven experiment under the umbrella of CIIE.CO - the startup incubator set up by IIM Ahmedabad. “The results were encouraging and gave me the conviction that perhaps through data, the problem of finding exits for startups can be solved,” he says. 

He teamed up with Shalu Mitruka, who has held key roles at Deloitte, MindTickle, and other companies, to launch GrowthPal in 2020. It has collected data on nearly 30 lakh small to mid-sized companies in India, the US, and Southeast Asia. “We start with taking a client’s mandate and they give us a lot of criteria which we look at in a target,” he says. 

GrowthPal works using what can be called the funnel approach, where startups are filtered out at every stage till the point where a potential acquirer must choose from only a handful of targets. “Data is the starting point or the raw material, but the secret sauce is our approach, the algorithms, AI and the product that we have built and we are still building,” Maneesh says. 

The algorithms sift out the best target for acquisition and then there are screeners to evaluate the targets’ team, founders, financials, product, technology strength and other parameters. There are various screeners with a certain weightage depending on the buyer’s objective. For example, there could be a 50 per cent weightage to team screener if the objective is to acquire a company which has a very good team. This stage filters out a large chunk of the companies. “Then we do an outreach to these targets to gauge their interest in a sale without naming the client (potential buyer). We then speak with the target founders to conform the intent, and motivation and get the most recent data,” Maneesh points out.

This is mostly confidential information not available anywhere else. Based on this data, GrowthPal recommends the investment targets to its clients but masks the names to protect the interests of sellers.

Revenue model

GrowthPal works on a subscription fee model where its clients or potential buyers pay for using its services. “We also charge a finder’s fee. Once a transaction closes, we take a percentage of the transaction size,” he says. Today, GrowthPal does not charge the seller but Maneesh says, going forward, it may change as we bring out offerings for sellers too.

Within three years, GrowthPal has roped in 75 buyers as clients who have been paying a subscription fee. “In the last three years, over 120 LoIs got discussed and 37 acquisitions were done,” he points out.

Maneesh says it is a myth that only large companies go for acquisitions. “We have many growth stage clients and even a few Series A clients who mandated us to find small targets to acquire. So, the smallest transaction size we have done is 83 lakh acquisition,” he points out.

Shalu says there are many advantages for buyers who subscribe to GrowthPal’s services. “One of the top values is that we bring off-the-market deals to the table. These are deals which are not in any bidding war. For example, if they get a deal from the banker, it becomes expensive because then that deal is going to multiple buyers. With us, they are the first ones to talk to the seller and build relationships,” she says.

Moreover, they can build a good funnel of opportunities rather than just being dependent on an inbound lead or some banker. They can choose from multiple deals and evaluate multiple deals, she says.

“And most importantly, we are very, very data-driven. So, we can build more complex logic and do a finer detail screening as against only a broad top-level screening,” Shalu adds.

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