? Quick Take: Elite Indian fund managers are looking to earn from owning valuable firms outright rather than relying purely on traditional fees and profit shares. This shift signals a fundamental evolution in how domestic private equity and venture capital will operate over the next three years.

For decades, the math behind private equity and venture capital was straightforward. You raised capital, collected standard management fees, took a slice of the carry upon exit, and repeated the cycle. Now, a quiet mutation is underway in Indian boardrooms. According to Fundamentum’s Ashish Kumar, a select group of fund managers want to break out of this traditional mould to build and own valuable operating companies directly.

Rewriting the Playbook on Capital and Control

Traditional venture capital thrives on the portfolio approach. You spray capital across twenty bets, hope three break out, and return the fund to your limited partners. But managing other people's money comes with rigid timelines and pressure to exit.

Ashish Kumar expects four or five prominent Indian fund managers to attempt this direct equity ownership model within the next three years. While the rest of the market lacks immediate blueprints, the intent is clear. Fund managers want to capture the primary wealth creation that happens inside the operating business, bypassing the intermediary discount.

The Economics of Direct Business Building

Management fees keep the lights on, and carried interest provides the big payday when a startup lists or gets acquired. Yet, neither approach turns a fund manager into a generational builder of enterprise value.

Operating your own ventures or holding long-term proprietary stakes changes the cash flow dynamic completely. It transforms a fund manager from an institutional allocator into a principal owner. The risk profile shifts drastically, but so does the potential upside.

What Should Investors Do Now?

• Track Alternative Structures: Keep an eye on how upcoming venture funds structure their capitalization tables and ownership clauses.
• Look Beyond Traditional Metrics: When evaluating new-age investment vehicles, analyze whether the managers have skin in the game through direct operating assets.
• Understand Liquidity Timelines: Direct business ownership models often require longer holding periods, which may alter your own capital deployment strategy.
• Monitor Regulatory Shifts: Watch out for SEBI updates regarding how alternative investment funds (AIFs) handle direct commercial ownership outside traditional portfolios.

Source Attribution: Originally reported by livemint-companies (https://www.livemint.com/companies/private-equity-venture-capital-funds-india-fundamentum-11793940542898.html).

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