-By Sarath Srinivasan
There have been quite a few SME focussed private equity funds that have set up shop in India in the last few years. This trend has been driven by the significant demand for growth capital in the SME sector which has been growing at a rapid rate during the sustained economic growth period of the last few years. The private equity investors, besides providing the growth capital, help their portfolio companies grow by providing strategic insights and instilling corporate governance standards. But in the SME sector, lack of management capital is a significant barrier to growth. Management skills, critical to the success of an enterprise, are in short supply and this problem is even more acute in the SME sector. Many private equity investments are in owner driven companies which need to make the transition to a professionally managed enterprise. For the owner of such companies, the transition is fraught with risks due to the possibility of high attrition rates. An SME owner might hire professionals into senior management positions in his firm but in case the new hire leaves within a short span of time it leaves the owner in a worse situation than he was previously in.
