According to market watchers, there is a definite improvement in business sentiment and that is compelling PE investors to step up the pace in deal-making. “The activity in PE investing is expected to increase,” says Sanjeev Krishnan, leader, private equity at PricewaterhouseCoopers. “The number of funds and the pace of deal making are expected to improve significantly in the next five to seven years.”Despite this improvement, he and other experts agree that funds will bargain harder with promoters to avoid a valuation mismatch that afflicted sectors such as healthcare and consumer. Krishnan argues that PE fund managers will now ask tough questions to try and prevent a repeat of previous poor performances. “Unreal promoter expectation may spook their efforts to bag these valuations,” he says.Adds Sanjay Nayar, the India head of KKR, a fund that has nearly $80 billion in assets under management globally: “Private equity brings in expertise, technology and patience for promoters,” he contends. “This is probably the most durable form of capital.”He and other votaries of this sector point to some standout success stories in the PE space — Alliance Tire, Genpact, Infosys and Bharti Airtel — which show how shrewd investing and canny advice can reap windfall returns. “First and foremost, the promoter(s) need to be comfortable with the investor for the deal to be successful,” says Nayar, whose fund has backed the likes of Cafe Coffee Day, Dalmia Cements and Alliance Tire.Detractors, however, say PE investors — and many promoters — have limited memories. It was a mere two years ago that there were some 300 PE funds swimming neck deep in some $20 billion in dry powder. Over the past two years, at least two dozen funds may have shut shop or sharply downsized, according to estimates from bankers and consultants.Promoters too agree that PE funds can be often difficult to deal with, especially when they eagerly need capital. “There are a lot of perceptions about PE funds—that they will take over your business, even though they don’t have a clue how to run it,” says Gomes of Furtado’s. “A fund manager will tend to lose interest in a long-term plan and focus instead on returns.”PE industry veteran N Subbu Subramaniam says that it is unfair to paint the entire PE industry with the same brush. “PE funds don’t ask uncomfortable questions, they ask the right questions, which any promoter running a sound business will be happy to answer,” he contends. Subramaniam, cofounder of PE fund Mcap, and prior to that co-head of Baring Private Equity Partners, admits that the performance of PE funds in India has been mixed, but says this form of risk capital remains a vital cog to reignite growth here.To be sure, in the past six months to a year, the operating environment for these funds has improved. For example, the stock markets, which were muted for much of the past three or four years, have risen by some 21% in 2014, rekindling exit hopes for many PE fund managers.Promoters and PE funds, sensing a revival in the economy, are both in a race to perfectly time an upsurge in fund-raising. PE funds would like to invest in high-growth companies as soon as possible, to profit from cheaper valuations; promoters themselves would like to hold off signing up with them until valuations have fattened. “We don’t need just money, we require strategic depth…we want someone with the understanding of our sector…it is not just about maximizing money,” says Gomes of Furtado’s.Akshay Batra, deputy managing director of Dr Batra’s, India’s largest homeopathic chain of clinics and medical stores, is enthused by this uptick in sentiment. “In India, what is most important is that sentiment is looking up,” he says. Dr Batra’s, he adds, expects to grow its business by 30% this year. The company, which is over three decades old, has some 900 stores and clinics in 76 cities nationwide and wants to soon have 4,000 shops dispensing homeopathic medicines— both its own formulations and third-party drugs.Despite these ambitious plans, Batra is keeping PE funds at bay — for now. “We have been approached by many funds, but we didn’t get a sense of value they are bringing to the table,” he says. For his firm, the value will come from investors who can help plot Dr Batra’s retail expansion, identify new areas of therapy for the firm’s medicines and even consider expanding geographically.Jain of Karbonn is hunting for similar traits with his potential investor(s). He says that Karbonn has built a strong presence in India, but now wants to look beyond. Already, it has expanded to neighbouring South Asian countries, but now has Persian Gulf nations and Eastern Europe in its sights. “They have to be able to add strategic value,” he adds.PE funds are lining up capital to fund these fast-growing prospects. According to some industry estimates, around six funds, including Everstone Capital, ICICI Infrastructure (a fund of ICICI Venture) and Multiples Private Equity, are among the ones finalizing their fund-raising plans. “There will be a lot more deals in the next year or two compared to the last couple of years as this fresh capital comes to the market,” says Krishnan of PwC.AD Singh, founder of the swish Olive Bar & Kitchen chain of restaurants, has dealt with risk-capital investors in 2012, when he raised funds from Aditya Birla Capital. Now he’s reportedly in the market for more funds — as he charts the gastronomic expansion of his business. Not only is he keen to take his signature Olive Beach to more locations, he’s keen to expand Monkey Bar (a gastropub), Fatty Bao (Asian gastro bar) and SodaBottleOpener-Wala (Irani cafe), opened in conjunction with his executive chef Manu Chandra, to new cities.“There is a lot of interest from funds in our sector [the hospitality business is estimated to be growing at 20-30% annually], but we’d want a fund which helps with longterm strategy,” says Singh, who adds that Olive’s next round of funding will likely happen next year. “Ideally, you want a fund with a longer-term vision and someone who understands the way you [the promoter] work. The last three years have been a bumpy ride; you want a partner who can both help spur growth and also reach dream targets.”The souring of deals between the promoters of Adiga’s, Nirula’s and Sagar Ratna and its investors typify the promise and peril in this segment. All three were fast-growing food chains, but slow-brewing disputes over ownership, differences in strategy and financial irregularities finally boiled over.Singh of Olive is cautious about these escalating feuds. “There is a lot of potential for growth in this sector, but you have to find the right partner to build your business,” he says. “We don’t immediately want to raise capital, but as we expand and add another brand soon, we will probably raise funds by the middle of next year.”As PE funds chase better returns, Batra of the eponymous homeopathy chain, believes that stable, yet profitable businesses will be the most sought after. “Our business is over 30 years old and we’re growing at over 30% per year and are therefore being pursued by PE funds,” he points out. If the economic turnaround gathers steam — as it is projected to — PE funds will hope they can uncover more such investment opportunities and quickly ink deals with promoters like Batra. If promoters like Batra are ready and willing.