How to map Private-Market Exit Routes: A Narrowing Order

Establish the position before asking who might buy it: how much of the business it is, whether that business can stand alone, and how long the fund has left. Each answer removes routes rather than adding them, and what survives is an honest short list. In Nilgiri Growth Partners Fund II, invented, five exit events happened across five holdings to its record date at Year 9 Quarter 2.

Somebody holding a listed share does not need a narrowing order. The holder presses sell, and the exit is the same object every time: a screen, a price, a settlement date. A private holding has no such object, so the way out has to be arranged rather than clicked, and the arranging begins long before anybody is approached. A reader who wants to know how a private position turns into cash therefore needs an order of questions rather than a list of possibilities. The list of possibilities is short, public and almost useless on its own. The order is where the work is.

Each way out has a subject of its own. A sale to a buyer already in the industry, the reason two kinds of buyer arrive at different numbers, a transaction in an existing position seen from the buying side, the move of a holding into a new vehicle and the effect of borrowing against a portfolio are each covered separately and in full. Named and used together, the five raise only one question: which of them the facts of one position leave standing.

Why is a map of exit routes a narrowing exercise rather than a choice?

Consider something concrete. Three cousins hold a small printing press between them. One of them wants out. Before anybody asks who might buy the share, four things are already true and none of them is a matter of preference: the share is a minority one, so no buyer of it can decide anything alone; the press runs on one long-standing contract, so nobody can pick it up and run it from somewhere else; there is exactly one other printer in the district; and the lease on the shed has fourteen months left. Nobody chose any of that. All four facts were true before the conversation started, and they have already removed most of the ways this share could leave the holder's hands.

A map of exit routes rests on one idea: every way out carries a precondition, and a precondition is a fact about the holding rather than an opinion about the market. A buyer already in the same industry cannot be wanted into existence. Nobody can decide that a business is capable of standing on its own if it is not. A holder can write the facts down in an order and watch the list of ways out get shorter along the way. An exit routeA way a private holding turns into cash or leaves the portfolio. that survives that process is worth thinking about. One that has already failed its preconditionSomething that must already be true before a route is possible at all. was never available, and no amount of preference makes it so.

The order below runs one way and it is deliberate. The order asks what is being sold before it asks who might buy it: whether the whole position or only part of it is leaving, whether the fund controls the timing, what the state of the position itself allows, and only then which ways out remain open. A reader who starts at the list of routes has started at the answer. Starting at the answer is the most common way this exercise goes wrong.

What are the five routes, and what must already be true for each one?

Five ways out are enough to hold the whole exercise, and Nilgiri Growth Partners Fund II, invented, has used every one of them at least once. The fund is managed by Nilgiri Alternatives Advisors Private Limited, invented, with Nilgiri Trusteeship Services Private Limited, invented, as trustee, and it is registered as an Alternative Investment Fund with the Securities and Exchange Board of India. Its record runs to the end of its Year 9 Quarter 2, and nothing after that date exists here.

Route 1 is a sale to a strategic buyerA buyer already operating in the same industry., and its precondition is blunt: somebody already operating in the same industry has to exist and want what this position holds. Route 2 is a sale to a financial buyerA buyer, typically another fund, with no existing operation to combine it with., and it needs another fund willing to hold the position next. Route 3 is an offering followed by a sell-downSelling the remaining shares after a lock-in has ended. once the lock-inA period after an offering during which existing holders may not sell. has ended, and it needs a business that can stand alone and meet a market of its own. Route 4 is a sale of part of a position, and it needs a buyer content to take a piece with no control attached. Route 5 is a write-offRecording a holding as worth nothing and removing it from the portfolio., and its precondition is nothing at all.

Notice that four of the five preconditions describe somebody else and only one describes the position itself. The asymmetry is exactly why the map has to establish the position first. Whether a buyer in the industry exists is not knowable from the fund's own papers. Whether the business can stand on its own very largely is. So the order below works from what the record fixes towards what it cannot fix, and it is honest about the boundary between the two.

Two things the manager of this invented fund could do are deliberately absent from that table. The manager could move a holding into a new vehicle that buys the position from the fund, and the manager could borrow against the remaining holdings taken together. Both are counterfactuals on this record: neither has been done by Nilgiri Growth Partners Fund II, invented, at any point to Year 9 Quarter 2, and both are treated in full elsewhere. Both are named so a reader does not think the five routes are the whole world, and neither is on the map because the map records what has happened and what the preconditions leave open, not what a manager might arrange.

One more boundary before the steps begin. Whatever governs an offering by an Indian company, and any period after one during which existing holders may not sell, is set by the Securities and Exchange Board of India at sebi.gov.in. The conditions change, and a reader who needs the current text reads it there.

Why does this portfolio have three different counts, and which one is in use?

Before any step runs, one bit of housekeeping. The counts are the single easiest thing to get wrong, and getting them wrong makes every later sentence unreliable. Nilgiri Growth Partners Fund II, invented, has nine holdings. At its record date, the end of Year 9 Quarter 2, it can be described three different ways and only one of those descriptions is a count of exits.

Four holdings are gone entirely, five are still held, and there have also been five exit events. Five events is a third number and not the same as either of the first two. The four gone are holdings 1, 2 and 3, all sold, and holding 5, written off. The five still held are holdings 4, 6, 7, 8 and 9. Four plus five is nine, the whole portfolio, and that sum is the check that the first two counts are a clean split. The five exit events are the four departures plus one more: holding 9 had 40 per cent of the position sold at Year 8 Quarter 3 and the remaining 60 per cent is still in the portfolio. So there are five events across five holdings, and holding 9 is the only position sitting on both sides of the line.

Getting this wrong in the obvious way produces five sold and five still held, or ten positions out of a portfolio of nine. The error is not a rounding problem but a reader who has taken the exit-event count and used it as a departure count. Any sentence written about this portfolio has to say which of the three counts it means. The habit of saying which count is meant every time is worth more than it looks: a partly realised position is the most common thing a private portfolio contains that a summary table cannot show.

Step one: what is the position, and how much of the business is it?

The rest of the order runs on one position, so the reader watches it happen rather than reading a description from outside. Holding 6 of Nilgiri Growth Partners Fund II, invented, is Vaigai Edutech Private Limited, invented. The fund entered it at Year 3 Quarter 3 for Rs 30,00,00,000 and still held it at the record date, Year 9 Quarter 2, carried at Rs 21,00,00,000.

Step one asks only what the position already is. Two facts do the work here. The first is that this is a minority position, and the second is that at this one company the fund takes an observer and no director at all, where at its four control holdings it takes three seats of five and at its other four minority holdings it takes one seat of five. The fund holds the same agreed set of vetoes under the shareholders agreement at all nine companies. A veto is a contract right and is explained elsewhere. Step one records only that at holding 6 there is nobody of the fund's in the room with a vote.

Why does that matter to a map of ways out? Because it settles what can be sold and who has to agree. A minority position with no director is a part of a company, not a company. Because the operating business is not the fund's to hand, the position can be handed to somebody else whole or in part, but never with an operating business attached. Step one has struck out nothing yet. The facts it has written down are what the next two steps use.

Step two: can the business stand alone, and who else does something like it?

Now the map starts removing things. Step two asks two questions about the company rather than about the position, and each one governs a different route.

The first question is whether the business can stand alone and meet a market of its own. Standing alone is route 3's precondition, and a demanding one: an offering asks a company to present itself to strangers, on its own numbers, and then to keep doing so. Holding 6 was written down to Rs 21,00,00,000 against Rs 30,00,00,000 of cost by Palani Valuation Advisors LLP, invented, the limited liability partnership (LLP) that acts as independent valuation agent for Nilgiri Growth Partners Fund II, invented. A holding that its own valuer has marked below what was paid for it is not a business standing ready to meet a market, so route 3 is struck out at step two and the map does not carry it any further. Note the shape of that reasoning. Whether an offering would be welcomed is an opinion, so nothing has been said about it. The state of the business is a fact on this fund's own record, so something has been said about that.

The second question is whether anybody already operates something like it. An existing operator is route 1's precondition. Here the honest answer is the interesting one. The record of this invented fund names a buyer already in the industry for holding 1, Sahyadri Diagnostics Private Limited, invented, sold at Year 7 Quarter 2 for Rs 2,03,00,00,000. The record names no such buyer for holding 6. A precondition that the record does not establish is not the same as a precondition that has failed, and a careful map keeps those two apart. Route 1 is not struck out at holding 6. Route 1 is unestablished, and an unestablished route cannot be counted as available. Writing it down as open quietly invents a buyer.

Step three: how much time does the fund actually have left?

This is the step readers skip, and skipping it is what turns a map into a wish list. A private fund is not a person who can wait. A private fund has a contracted life, and every route still standing has to fit inside what is left of that life.

Nilgiri Growth Partners Fund II, invented, has a term of ten years from its final close. Its record date is the end of Year 9 Quarter 2, or 34 quarters in. Six quarters remain, and that single number does more to shape the short list than anything about buyers. The fund's own documents also carry two extensions of one year each, the first at the manager's election with the prior written consent of the investor advisory committee and the second requiring the consent of investors holding more than half of commitments by value. Neither has been taken at the record date, so a map drawn at that date works with six quarters and treats the extensions as what they are: something that has not happened.

Put the exits on the same line and something else appears. Every one of this fund's five exit events falls between Year 6 Quarter 3 and Year 8 Quarter 3, a span of eight quarters, with nothing at all in Years 1 to 5 and nothing in Year 9 to the record date. Eight quarters is not a rule about how private funds behave. The clustering is a fact about one invented fund, and its use inside the map is narrow: on this record, arranging a way out took this manager into the second half of the fund's life every single time.

Step four: which routes have already failed their precondition?

Step four is bookkeeping, and it should feel like bookkeeping. The facts from steps one to three are already written down. Each of the five routes is taken in turn, its precondition held against those facts, and marked. There are only three marks worth using: on the list, struck out, or not established. Notice the third mark. A map with only two marks quietly turns every unanswered question into a yes.

Worked on holding 6 of Nilgiri Growth Partners Fund II, invented, at the record date, the marking runs like this. Route 1 needs a buyer already in the industry and this record names none for holding 6, so it is not established. Route 2 needs another fund willing to hold the position next. A whole minority position with its agreed rights attached can be handed on as it stands, so nothing about the position itself prevents that. Route 3 needs a business that can stand alone and meet a market, and this one is carried at 0.70 times cost, so it is struck out. Route 4 needs a buyer content with part of a position and no control, and this position is already a minority one, so nothing about it closes that door. Route 5 needs nothing.

The marking leaves a short listWhat survives once the failed preconditions have been struck out. of three: routes 2, 4 and 5. Three of five is the honest reading, and the honest thing to say about it is that the short list is short. The three do not rank. This fund's record makes none of them cleaner or more desirable than another, and a map that arrives with an order of preference attached has stopped being a map.

Step five: for what survives, what would have to become true?

The last step is the one that keeps a short list from turning into a plan. For each route still standing, one sentence records the condition that is not true yet and would have to be. The sentence does not say the condition will become true. The sentence records what would have to change for the route to move from possible to actual, and that is a much more useful thing to record.

On holding 6 of this invented fund the three sentences are short. For route 2, another fund would have to be willing to take a minority position in a company its own last mark put below cost, with the agreed rights attached and nothing more. For route 4, a buyer would have to want part of that minority position, a smaller and stranger thing to want than the whole of it. For route 5, nothing has to become true at all, and that is precisely what makes it the odd one on the list: it is a decision the manager records rather than a transaction anybody has to be found for.

Writing those sentences is the difference between a map and a forecast, and the map is the honest one. A map does not say that any of the three will happen. Whether holding 6 is sold, written off, or held to the end of the term is not settled by anything on this record, and no reading of the record settles it. The record supports a statement of what the preconditions leave open at one stated date, and it stops there.

What is the difference between a route that exists and a route that is available?

One failure sits behind every bad map of exit routes, and it is not a failure of knowledge but of stopping too early. The five routes are a description of how positions leave portfolios in general, not a description of any one position, so every private holding has all five in the abstract. A map that reaches the same five answers for every holding has therefore done no work at all. Such a map has copied the general list nine times and called it analysis.

Nilgiri Growth Partners Fund II, invented, has nine holdings. Nine holdings against five routes is forty five combinations, and a map that prints all forty five is asserting forty five possibilities it has not tested. On this fund's record to Year 9 Quarter 2 there are five exit events, so forty of those forty five combinations never happened and most of them were never open. The gap between forty five and five is exactly what the narrowing is for. A route exists when somebody can describe it. A route is available when a specific position's own facts leave it standing.

Is a write-off an exit, and why does the answer matter so much?

So yes, a write-off is an exit, and the reason is definitional rather than generous. An exit here means the position leaves the portfolio. Holding 5 of this invented fund is Palar Foods Private Limited, invented, entered at Year 3 Quarter 1 for Rs 35,00,00,000 and written off in full at Year 6 Quarter 4 for nil. After that date the fund holds nothing in that company, is not waiting for anything from it, and cannot sell it to anybody: every characteristic an exit has except the cash.

Hold the arithmetic next to it. The arithmetic makes the point sharper than any definition can. The four holdings that are gone entirely produced Rs 4,16,00,00,000 between them: Rs 2,03,00,00,000 from holding 1, Rs 63,00,00,000 from holding 2, Rs 1,50,00,00,000 from holding 3 and nil from holding 5. Adding holding 9's Rs 22,00,00,000 of partial proceeds, from a position still held, reaches the Rs 4,38,00,00,000 this fund has distributed in total. Three of four departures produced cash and one did not, and any map that could not have shown the fourth was never a map of this portfolio.

Who actually reads a map like this, and what do they do with it?

Three kinds of reader use this order, and none of them is choosing anything.

The first is somebody in an institution's monitoring team, reading a quarterly report from a fund it has committed money to. The report gives carrying values and dates. The map turns those into a question the reader can put to the manager: not what the manager will do with holding 6, an invitation to tell a story, but which of the five routes the facts leave open, a question with a checkable answer. A forecast cannot be checked and a strike-out can, so a reading order is worth more to that reader than a forecast.

The second is somebody sitting on an investor advisory committee, such as the seven-member committee of Nilgiri Growth Partners Fund II, invented, chaired by Meera Sathe, invented, for investor 1. The committee consents on conflicts and on valuation policy and cannot approve or reject an investment. When a proposal arrives that involves the manager on both sides of a transaction, a map drawn beforehand tells that reader which routes were genuinely open before the proposal appeared. Judging which routes were open is a very different job from assessing the proposal on its own account.

The third is a student or an analyst reading any private portfolio for the first time. Here the map does something quieter and more useful: it stops the reader from writing sentences the record cannot support. Once routes have been marked as struck out, unestablished, or on the list, most of what was about to be said about a portfolio turns out to belong in the unestablished column, and noticing this is most of the skill.

What does the finished map establish, and what can it never establish?

The finished map establishes something narrow and firm. At one stated date, for one position, these routes have failed their preconditions, these have not been established, and these are still standing. The statement is about facts and about what follows from them, so somebody else can check it line by line against the same record and disagree in a specific place.

The map can never establish which route will actually happen, or whether any will, and no amount of care in the first four steps changes that. Holding 6 of Nilgiri Growth Partners Fund II, invented, may be sold whole, sold in part, written off, or still sitting in the portfolio when the term runs out at the end of Year 10, and there is no basis for saying which. Nor does the map say anything about price. Routes 1 to 4 all involve a number nobody has negotiated yet, and this fund's record fixes exactly one comparison of that kind, on holding 1, where a buyer already in the industry bid Rs 2,03,00,00,000 against the highest financial bid of Rs 1,75,00,00,000, a gap of Rs 28,00,00,000 with its own stated reason. One sale in one invented fund does not generalise, and a buyer in the industry does not always pay more.

So the finished map is a shorter list and a clearer set of questions, and that is all it is meant to be. The reader who wants more than that is asking the wrong instrument. A map narrows what is possible; it does not choose, rank, or predict, and the moment it starts doing any of those it has stopped being checkable.