Thursday, March 13, 2008

VC investments jump five-fold to $777 m

IT Attracts Highest Inflows

VENTURE capital investment in India is growing at a furious pace. The Quarterly India Venture Capital Report published by Dow Jones VentureOne and Ernst & Young reveals that venture capitalists invested more than $777 million in 57 deals in the first nine months of 2007. This represents a nearly five-fold jump over the comparable period last year.

The study also shows that early stage investment accounted for 63% of the deals in the first three quarters of the current year. The information technology sector attracted $327 million in 31 deals, while the business/consumer/retail sector attracted $376 million.

Dilip Dusija, associate director for private equity group at Ernst & Young, gives a perspective on the venture capital scene in the country:

The largest number of deals has been with IT-oriented companies and the largest chunk of funds has been put into the retail sector in 2007. Are we likely to see a shift of focus this year?

VCs have always been traditionally associated with IT-oriented companies. This year, we saw more focus on retail and consumer services. This is what we have tried to highlight in our report. In the near future, we don‘t see much change in focus from these areas. However, we do expect activity in the alternative energy space. This is happening the world over and (we) expect a similar case in India. Manufacturers of solar cells, solar panels and other alternate energy equipment can expect some attention.

What are the factors that are leading to a rapid growth in venture capital investment in India?

There are three or four factors that have led to this growth. The first is the India growth story. India is expanding at a good rate and the world has its eyes on it. There are also plenty of untapped areas. This ranges from internet advertising to clean technologies. India’s consumer growth story is also creating a huge demand.

A lot of money has come in the recent past. Is there space for more or is the VC space overheated?

This phenomenon of VC funding has just begun and there is scope for more. In India, we haven’t seen too many investments in the early stages. Private equity activity started only two years ago. VC follows private equity. It could be behind PE as India is a growth market. PE funds’ investments in India was $2 billion in 2005, $7.billion in 2006 and it should be anywhere between $12-13 billion in 2007. VCs tend to follow the PE.

Are venture capital funds behaving, sometimes, like PE investors, investing only in successful enterprises? What proportion of VC funding is made early enough to help businesses grow?

Yes this is definitely true. Especially in India, the line between VCs and PE investors is very thin. This is because the VC culture and opportunities have just begun in India.

Article Resource:
Author: Jacob Cherian is the Chief Editor in the The Economic Times, Mumbai and the article appeared in one of their successful columns on Entrepreneurship/Start-ups called "Starship Enterprise".

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