Blue River differentiated itself from competition by targeting a segment it identified as an underserved niche: Middle-market businesses established and still managed by families or entrepreneurs. Shallow coverage of companies by research analysts narrowed the pool of companies targeted by foreign private equity firms looking for more known quantities — even at a premium — as they raced into a market that was relatively unfamiliar to them.

Blue River avoided this competition by targeting companies not covered by analysts, including private companies and public firms that were not actively traded or widely covered. Blue River also pursued investments in businesses outside the sectors typically pursued by global venture capital and private equity firms. Sectors in which Blue River invested — such as textile, packaging, and auto components — might be considered mundane and not particularly high-growth prospects in the United States, for example, but could become big businesses in an emerging market like India.

Blue River sought out high-potential, low-risk companies within a segment deemed risky by many investors because they were not prescreened and could be difficult to assess. As with other firms operating in emerging markets, intermediaries need different capabilities to target different segments. Blue River exploited institutional voids directly as sources of investment opportunity by targeting a segment containing more institutional voids (see table ‘Segmentation for Blue River Capital’) — but where it could exploit the relative advantage of its local knowledge. “If it were easy, then it wouldn’t be an opportunity” a company executive said. “Because of all the complications, because of all the challenges, that creates the opportunity for the folks who are able to manage through that.”

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Blue River Capital: Institutional Voids

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