Indian Billionaire Ranjan Pai Is Looking To Cement His Legacy With A Billion-Dollar Windfall. Is A Calculated Bet To Fund Troubled Startups The First Step?

After pocketing $1 billion from sale of stake in hospital chain Manipal Health Enterprises to Temasek, healthcare and education tycoon Ranjan Pai sees niche in deploying “confidence capital” to entrepreneurs through new family office.

It’s only been a few weeks since Ranjan Pai pocketed roughly $1 billion in cash from the sale of a 22% stake in Manipal Health Enterprises, the flagship healthcare company of his Manipal Education and Medical Group, to Singapore state-owned investment firm Temasek Holdings. The move, Manipal’s chairman says, in which he retains a 30% stake valued at $1.4 billion, was prompted by his wish to make the group debt-free before he turned 50, after decades of stitching together funding and deals to build one of India’s largest hospital chains.

He’s paid down debt—nearly $400 million to clean up the group’s balance sheet—and now he’s looking to spend the rest of the windfall. Through a newly minted family office called Claypond Capital and an alternative investment fund, he’s looking to deploy over $300 million in funds for startups in India and overseas alongside another $300 million earmarked in reserve for his existing businesses in healthcare, education, insurance and stem cell research. “I always wanted this freedom to invest,” says Pai, now 50, in an exclusive interview from his 15th floor office atop the JW Marriott hotel in Bangalore, overlooking a leafy park—a world removed from the city’s infamous traffic-choked roads.

There’s a larger trend afoot, with family offices in India racing to invest in startups (the number of such family offices is expected to increase fivefold to 735 in the next seven years, says Delhi media site Inc42). But Pai, who has been backing new entrepreneurs for years, sees a particular niche in funding troubled startups amid a sharp drop in investor support and valuation markdowns. “The founders may have made some mistakes or the external environment may have gone wrong. The point is, can we bring in confidence capital?”

“I have a huge tolerance for risk. I don’t know if it is a good thing or a bad thing.”

Private equity and VC investment in India’s startups plummeted 66% to $16.2 billion in the first six months of 2023 from the previous year, according to Chennai-based data and analysis provider Venture Intelligence. It’s a particularly challenging environment for late-stage firms looking for money to grow their business. While seed and early-stage funding slowed over that period, per Bangalore data platform Tracxn, late-stage investment suffered the biggest blow, falling to 36 deals nationwide in the first half from 137 a year earlier. “Somebody like him coming in with long-term capital to steer and to course-correct will be a huge contribution to the startup ecosystem,” says Arun Natarajan, founder of Venture Intelligence. “I can’t think of any deep-pocketed investor of this size and with this level of commitment to private assets.”

The Manipal Universe

Ranjan Pai’s healthcare and education group includes 29 Hospitals and four offshore campuses as well as an online education platform, a health insurer and a stem cell research company.

Pai himself isn’t a stranger to fundraising. He started tapping private equity in 2006 to grow his family’s healthcare and education businesses, and has since raised 40 billion rupees from both domestic and foreign investors such as tech czar Azim Premji’s Premji Invest (which backed Manipal’s education unit) as well as global asset manager TPG (which exited the group’s health arm in the current round but has re-invested through another fund). That helped the group transition from family decision-making to professional management. ​​Pai, who became much sought-after in the private equity world after investors in his group notched up handsome exit returns, some 20% on an annualized basis since 2006 according to the group, joined the billionaires club a decade ago.

“He’s not driven by FOMO [fear of missing out],” says Ganesh Krishnan, founder of Indian entrepreneurship platform GrowthStory, which incubates new ventures and has received funding from Pai. “The way he has gone about stitching together acquisitions in healthcare shows his breadth of understanding of business models.”

It’s been over two decades since Pai became a director at the hospital chain set up in 1991 by his father, Ramdas Pai, who started with a leased 600-bed hospital in Bangalore. Through acquisitions and greenfield buildouts, the younger Pai expanded Manipal Health into a 29-hospital, 8,300-bed chain across 19 Indian cities that hit 48 billion rupees ($579 million) in revenue in fiscal 2023. That growth wasn’t prescriptive, he says, noting two failed takeover bids to expand the chain’s presence in North India just before Covid-19 hit. Another attempt in 2021 saw Pai snap up the Indian arm of U.S. hospital chain Columbia Asia for 21 billion rupees, adding 12 hospitals and 1,300 beds to Manipal’s portfolio. The 3.5-billion-rupee purchase of Vikram Hospital shortly thereafter delivered another 200 beds.

The watershed came in April 2023, when Pai sold a 22% stake in Manipal Health to Temasek;the deal valued the chain at $5 billion. Pai’s stake in the company fell to 30%, with Temasek forking out a total of $2 billion to become majority owner of the chain with a 59% holding, adding Pai’s shares to an 18% stake it already owned through its healthcare platform Sheares plus 19% purchased from TPG. “I don’t want people to assume that I am exiting healthcare,” clarifies Pai, who saw his net worth double to an estimated $2.8 billion after the deal. “Obviously we did take some money off the table. But I am not going to sell down any more. And I will continue to invest to maintain my stake.”

In Good Health

Manipal Group has seen steady top-line growth as revenue at its healthcare arm more than doubled over the past five years.

The deal has allowed Pai to turn his attention, and war chest, to Claypond Capital, the family office he launched in early 2023. Via an alternative investment fund he will focus on giving “confidence capital” to later stage Indian startups. One investment in August was 2.5 billion rupees for India’s FirstCry, which claims to be Asia’s largest online shop in terms of its range of maternity and children products. In July came a 10-billion-rupee commitment to PharmEasy, the beleaguered online seller of medicines. Valued at $5.6 billion in 2021, the Mumbai-based PharmEasy got weighed down by debt and costly acquisitions. After exiting investments—made in 2015 and 2018—in PharmEasy two years ago, Pai is looking to pick up a steeply discounted stake at a pre-money valuation of $500 million, post a rights issue by PharmEasy.

Pai also invests through an existing family office he set up in 2016 called MEMG (short for Manipal Education and Medical Group). Through this Pai has invested 3.5 billion rupees in 20 startups, including Bangalore elder care provider Kites Senior Care and Meolaa, an online marketplace for sustainable brands.

When the markets were down, Pai was one of the two existing investors who ponied up money in 2015 for a bridge loan to save a company.

Separately, Pai has invested some $100 million in nearly 50 startups through 11-year-old Aarin Capital—run in partnership with the former chief financial officer of IT giant Infosys, Mohandas Pai (not a relative). It backs tech-related businesses across a range of industries, including specialty biopharma firm Vyome Therapeutics and branded economy hotel chain FabHotels. Manipal Education and Medical Group CFO Rajesh Moorti says the internal rate of return for MEMG family office and Aarin Capital combined is in excess of 20%.

Recalls Ganesh: “When the markets were down, Pai [through Aarin Capital] was one of the two existing investors who ponied up money in 2015 for a bridge loan to save a company in home interior design called HomeLane that I’d backed,” pulling it out of a tight financial spot.

The 9-year-old firm, which operates across 22 cities, is now on a firm footing and has attracted investments of $110 million to date. Still, a few startups backed by Pai have gone belly up in line with the industry’s high failure rate. Last year, more than 2,400 Indian startups closed their doors, more than double the number the year before, according to Tracxn.

“I have a huge tolerance for risk,” avers Pai. “I don’t know if it is a good thing or a bad thing.”

The youngest of three children (his two sisters live overseas and are not involved in the family businesses), Pai grew up in Manipal on the west coast of India, where his grandfather, T.M.A. Pai, established Kasturba Medical College, India’s first private medical school. Like his father and grandfather before him, Pai pursued a degree in medicine, graduating from Kasturba in 1996. But practicing medicine was never the plan. He completed a fellowship in hospital administration at Children’s Hospital in Milwaukee, Wisconsin, followed by a six-month stint at health insurer Cigna in Chicago, before heading to Malaysia at the behest of his father to expand the family’s education business.

In 1979, his father took over the Kasturba medical school and later set up offshore medical campuses, beginning with Nepal in the early 1990s. Younger Ranjan was roped in to help launch a medical school campus in Malaysia in 2000 (he later expanded the franchise to Dubai and Antigua). That same year, Pai set up Mauritius-registered Manipal Education and Medical Group with $200,000 in seed capital from savings and borrowings from family and friends to house the growing education and hospital businesses.

Today, the group’s portfolio includes the hospital chain, four university campuses, an online learning platform, a stem cell research company and a health insurance provider. Revenue more than doubled over the past four years to 74.3 billion rupees in fiscal 2023, largely fueled by a pandemic-induced surge in demand for online education and healthcare services. (The value of India’s healthcare market is projected to nearly double from to $638 billion by 2025 from $367 billion this year, says Inc42.)

In 2017, his father retired, handing him the reins and the chairmanship of the group. Pai continued expanding the education arm, Manipal Global Education Services, which includes UNext Learning, an edtech platform that offers 16 online degree courses in partnership with Manipal Group universities. Its online student population has nearly doubled over the past year to 50,000. His empire also extends to health insurer ManipalCigna, run in partnership with U.S.-based Cigna Group. He entered the business in 2018 when he bought a 19.5% stake followed by another 31.5% stake in June 2021, investing 8.5 billion rupees in the company to date. “It is loss-making and it needs scale so the cost is high,” he says of the firm’s eight consecutive years in the red. “But this is a 20-year play. There are challenges relating to claims ratio and pricing. We have to make sure that we are there for the long run.”

With two young daughters, Pai’s thoughts are never far from the family’s legacy. “Having a 30% to 40% stake in five or six great companies that are well-run and with good corporate governance is plenty enough,” he says. “Smaller stakes keep you honest and there’s a shared responsibility. All we are going to do now is put our heads down and execute well.”

Temasek’s India Play

Singapore state-owned investment firm Temasek Holdings, which started investing in India in the early 2000s, made a $2 billion investment in Manipal Health Enterprises in April 2023, upping its stake to 59% from 18%. Temasek, which had a $17 billion India portfolio at the end of March, representing 6% of its global net portfolio value (based on underlying assets), has a growing interest in the country. In the past 18 months, it’s invested about $4 billion in India including the Manipal deal and says it’s looking to invest up to $10 billion—if opportunities arise—over the next three years. This comes as Temasek posted a 5% decline in its one-year total shareholder return in the year ended in March—its worst return since 2016. The firm’s global net portfolio value fell to S$382 billion ($283 billion) from S$403 billion the year before.

“We have four themes that we base our investments on. Longer life spans, the future of consumption, digitization and sustainable living,” says Temasek’s India head Ravi Lambah. “India fits into all of these themes. We are seeing a lot of good opportunities here.” He is also enthusiastic about the startup ecosystem. “The quality of the entrepreneurs, the quality of management teams, the ambition that we see in terms of building larger businesses give us a lot of confidence,” he says.

Manipal Health Enterprises is Temasek’s largest healthcare holding in India; that portfolio also includes stakes in Delhi hospital chain Medanta, eye-care provider Dr. Agarwal’s, and maternity hospital chain Cloudnine Hospitals.

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