When ICICI Venture went behind the counter in the mid-'90s and started investing in unknown retailers like Shopper's Stop, Pantaloon and Subiksha, analysts shook their heads and said it was taking giant-sized risks. But as the Indian marketplace got a new glass-and-concrete look, ICICI Venture proved doomsayers wrong.

Today, it's crunch time again and ICICI Venture is taking another round of king-sized bets on the future. For starters, it's assembling a war chest of between $1 billion to $1.5 billion -- that's compared to the $600 million it has currently.

It has also expanded the corpus of its flagship India Advantage Fund from Rs 750 crore (Rs 7.50 billion) to Rs 1,200 crore (Rs 12 billion) by roping in foreign investors. Once all the money comes rolling in, it will be used for everything from a groundbreaking real estate fund to management buyouts and novel concepts like mezzanine funding.

Armed with its mini Fort Knox, the private equity fund company is now looking at bigger deals of up to $100 million compared to current deal sizes of around $25 million to $40 million.

But it wants to do so as a co-investor with other international private equity funds -- at least three or four are in advanced talks with ICICI.

Bitten by the property bug, ICICI wants to pour Rs 1,000 crore (Rs 10 billion) into the real estate fund. It plans to use the money for joint development of property and buying existing properties already leased to companies.

As part of moves to test the market, ICICI has already closed two real estate deals. It has tied up with Mumbai-based Oberoi Developers and won the bidding for the upmarket Glaxo property in Worli for over Rs 108 crore (Rs 1.08 billion).

It has also teamed up with top construction developer Hiranandani to bid for another property Srinivasa Mills, in Lower Parel, Mumbai. In addition, ICICI has bought over 200,000 sq ft of prime commercial space in Hyderabad for Rs 35 crore (Rs 350 million).

That's just one part of its ambitious gameplan. It also wants to be a pioneer in management buyouts and has earmarked over Rs 350 crore (Rs 3.50 billion) comprising over 30 per cent of the corpus of its India Advantage Fund to take over firms.

ICICI will leverage its cash to raise debt and reckons it can fund at least five or six projects and put around Rs 50 crore (Rs 500 million) equity funding in each. Renuka Ramnath, managing director and CEO, ICICI Venture Funds Management Company Ltd, says it will take a minimum 51 per cent equity stake in these companies.

And if that's not enough, it's also experimenting with mezzanine funding which is a cross between debt and equity investment. For instance it has struck a deal with Mumbai-based pharma company ArchCommerz in which it will invest Rs 19.7 crore (Rs 197 million).

The ArchCommerz deal is significant because it will help the company to scale up quickly without diluting its equity and losing control.

Says Ajit Kamath, managing director of ArchCommerz: "We wanted to go in for a reverse merger of our company with a BIFR company. However, banks were unwilling to fund us to make a one time settlement of the liabilities in that company. Nor did we want to dilute our equity. ICICI stepped in with mezzanine funding and we used the cash to settle the debts." So 85 per cent of the cash invested in the company by ICICI is in debt and 15 per cent is through equity.

Kamath says mezzanine funding offered another advantage: in normal debt instruments, the interest on the principal must be paid within six months.

ICICI provided flexibility: the principal can be paid after five years. Also the company was not required by ICICI to rate its debt instrument as it would have had to if it had raised a normal non-convertible debenture.

That, of course, does not mean ICICI Venture is ignoring traditional areas where other equity funds also operate such as investing in globally competitive companies.

It recently sank Rs 75 crore (Rs 750 million) in the Welspun Group, a terrytowel manufacturer which marked the largest single investment by the fund. Says B K Goenka, managing director, Welspun Group: "ICICI Venture is actively participating in fixing our goals. We  are the fourth largest terrytowel manufacturer in the world. We want to be number two in the next two to three years." The cash infusion will partly help Welspun to expand capacity from 10,000 tonnes to 16,000 tonnes.

These aren't the only areas engaging ICICI Venture's attention. The fund also hopes to earmark around Rs 150 crore (Rs 1.50 billion) to invest in-non voice BPOs -- a hot new area especially with the call centre business stabilising.

Says a senior executive: "We are looking at the entire range from publishing, insurance, banking transactions and HR outsourcing opportunities."

Talks are already on with BillJunction -- an ICICI group-controlled company -- which is looking for funds to acquire a company abroad.

But even in traditionally hot areas for private equity funds, ICICI wants to chalk out a different strategy. For instance, it's planning to set up a venture capital fund to back start ups -- an area where it has not been active. But their strategy will be different.

They will not go it alone but tie up with other international funds in a consortium to out money together. Says Ramnath: "It's not enough to have a unique product or technology. One must assess whether the company can stand on its leg in the global platform. That's why we need international partners."

Ramnath points sceptics to ICICI Venture's real estate foray. One key attraction is that returns on investment are attractive.

ICICI executives say that returns on new development projects can be as high as 30 per cent to 50 per cent. Returns on an existing property with tenants is around 15 per cent to 20 per cent but still respectable.

Ramnath says the company's aim is to create large real estate firms with a significant asset base that have the ability to go public -- at the moment there are only a handful -- and build international quality products.

So what does ICICI bring to the table in a real estate project? Says Vikas Oberoi, CEO, Oberoi Developers, which has teamed up with ICICI to develop the Worli property: "They give us extra credibility in the marketplace and also will help us in taking the company public. That's more important than money."

Also, the risks seem lower than might be imagined. Says Sanjay Verma, joint managing director, property management firm Cushman & Wakefield: "There's huge demand for over 15 million to 20 million sq ft of commercial space in the next two years, primarily from IT and BPO companies. And developers don't have the kind of money that can be generated from their own surpluses. So they have to look elsewhere."

Verma also points out the two big risks real estate investors face are credit ratings of tenants and the issue of vacant space.

But with 70 per cent of the demand coming from IT and BPO companies which are mostly multinationals, the risk of tenants defaulting is low. Secondly, with huge demand, vacancy rates are also low.

ICICI executives stress they're not throwing caution to the wind. For instance, at the moment the focus is on big cities and on hot properties like Glaxo in Worli.

Says Ramnath: "We want to be in this space for the next 10 to 15 years and we will not jump into every property bid if the price is not right."

A similar strategy has prompted ICICI Venture to look into MBOs. Company executives say returns on an MBO investment are almost double that of an investment where it is a minority equity holder.

The reason they say is simple: with management control, the company's interests are aligned with those of ICICI, it has flexibility in decision-making and also, most importantly, can choose when to exit. For that step, it is looking at a three-pronged strategy: either through an IPO or selling to a strategic investor and or even selling it back to the original promoters. The time frame: three to five years.

But is ICICI getting into too many risky and uncharted areas?

For instance, in real estate, it will soon face tough competition from other funds also planning to concentrate on this area like US-based Fire Capital and even Cushman & Wakefield which wants to enter the business via a separate venture. So it might lose its first mover advantage even before it has floated the fund.

Verma also warns about the downside risk: in India there are very few triple A rated properties and real estate companies. So the choice is limited. Worse the secondary mortgage market is not well developed -- an area investors might find a stumbling block.

So how does ICICI compare with other private equity funds operating in India? And does it have the ability to go for big ticket deals? According to industry estimates, Warburg Pincus with a war chest of over $1 billion is much bigger than ICICI.

And companies like Singapore-based Temasek Holdings are quickly closing in -- it has already committed investments of $500 million in the last few years. Argues a senior executive of a leading private equity fund: "They're too cautious. They don't have the ability to go for big deals at all. They are in the small and middle-rung company play."

He bolsters the argument by pointing at large investments made by rivals. For instance, Warburg Pincus before its part exit invested over $290 million in telecom major Bharti group, while Temasek has put in over $200 million in ICICI Bank. "Compare that with ICICI Venture's Rs 75 crore (Rs 750 million) and you can understand what I mean," he says.

But ICICI is aware of this criticism. Ramnath points out they were unable to get into large deals because that kind of cash was not available. But it has moved up the curve. Earlier average deal sizes were of $3 million, now they are in the range of $10 million to $15 million.

And now the company wants to climb higher by co-investing with other international funds. ICICI says with this model it can now go for large deal sizes and invest up to $50 million per project.

Says Ramnath: "We expect ICICI Venture can now do at least two to three such deals." It, of course, has no hesitation about being the junior partner in such deals though it would prefer a 50-50 partnership with an international fund.

ICICI is also planning to quickly invest the money in the India Advantage Fund. It expects at least 60 per cent of the corpus to be invested in the next nine months -- at the moment only 30 per cent of the money has been invested

It is also looking at yet another generic fund -- along the lines of the India Advantage Fund -- that will deal with MBOs and minority equity stake buys in companies.

No doubt ICICI has charted out a bold expansion plan. Now the million-dollar question is whether it will be able to repeat the success of its investment strategy in retailing and software where it pioneered private equity investment.

Ask Ramnath about what the future holds and she jokes: "You're asking me for the company's horoscope." But she has no shortage of ideas about what to do with the money. "All I wish is that we had equity funds 40 times bigger than we've got now."

Venturing forward