VC firms broadens their interest areas beyond IT & ITES companies like Healthcare & Life Sciences, Financial Services and Food & Beverages etc. The present prevailing trend in venture capital are totally changed from the nineties. 

Given up for dead since 2000, Venture Capital has made a roaring come back in the last couple of years. VC firms invested $420 million across 69 investments during the first nine months of 2007, according to data from US-IVCA/Venture Intelligence. An interesting aspect about the new wave of venture capital in India is that it is very different from the one we had witnessed in the late nineties.

IT & ITES companies continue to corner the majority share of VC investments - accounting for about 70% in terms of number of investments. Within IT & ITES, vertically focused BPO companies have emerged as the favorite sector in 2007, followed by Internet-based Services (the 2006 favorite), IT Services and Mobile Value-Added Services (M-VAS).

However, gone are the days when Venture Capital was something that was meant only for IT & ITES companies. Within the Healthcare & Life Sciences industry for example, Clinical Research Outsourcing (CRO) and Biotech companies are attracting the attention of both specialist VC firms as well as sector-agnostic firms. 

Especially interesting to VCs are sectors that tap the rising consumer spending in India. While means that they are more than willing to listen to pitches from start-ups in sectors like Media, Financial Services, Food & Beverages and Retail.

Hands on experience

The series of delegations of US VCs that The Indus Entrepreneurs (TiE) and Silicon Valley Bank led in the years preceding 2006 played an important role in exposing and encouraging Silicon Valley VCs like KPCB, Battery Ventures, Canaan Partners, Greylock and Matrix Partners India to make direct investments in Indian companies. Sequoia Capital, of course, has joined hands with Bangalore-based WestBridge Capital to create a series of India-dedicated funds for investments across various stages of company development.

Other VC funds with strong Silicon Valley connections - including Helion Ventures, Nexus India Capital and IDG Ventures India -also launched their funds in 2006 and are actively investing now. These VCs also have willing co-investors among strategic investors like Intel Capital and Cisco Systems who have dedicated professionals on the ground in India.

One of the key differentiators among the new breed of VCs is that they include successful entrepreneurs - like Sanjeev Aggarwal and Ashish Gupta of Helion Ventures, Alok Mittal of Canaan Partners and Avnish Bajaj of Matrix Partners - among their investing teams. These VCs - who can truly claim to have "been there and done that" (in several cases in the Indian context as well) - can walk the talk in terms of "adding value beyond the money".

Early Stage focus

Early stage deals - investments in companies less than five years old and in most cases, pre-profit - account for about 70% of all investments (42% in value terms). Despite this, until very recently, seed funding - typically, investments of less than $1 million in pre-revenue companies - has been hard to come by for entrepreneurs ever since 2000. The good news on this front however is that at least three seed-stage focused funds - Erasmic Ventures (Bangalore), Seed Fund (Mumbai and Bangalore) and VenturEast (Chennai and Hyderabad) - are now up and running.

Concept stage start-ups can now also approach angel investor networks like the Indian Angel Network (www.indianangelnetwork.com), Mumbai Angels (www.mumbaiangels.com), Chennai Fund (http://chennai.tie.org) and TiE Bangalore's Entrepreneurship Acceleration Program (www.tiebangalore.org). Other options for truly seed stage investments include Indiaworld founder Rajesh Jain's Emergic Ventures and Infosys co-founder N.S. Raghavan's Ojas Ventures.

Easier Exits

The ability to sell their stake at the end of 3-5 years - either via the public stock markets or to a strategic investor - is a key consideration for VCs. On this front, the excellent returns provided by the recent IPOs of VC-backed companies like FirstSource (formerly ICICI OneSource) and MindTree Consulting has lent a lot of confidence to investors. Also encouraging is the fact that VCs don't have to depend on IPOs or acquisitions by MNCs (like IBM, Oracle, etc.) for exits. Home grown companies like Wipro and the Apollo Hospitals Group as well as older business groups like the Aditya Birla Group have shown keen interest in expanding into newer businesses by buying out VC-backed companies.

With seasoned entrepreneurs and executives at the helm and questions surrounding exits out of the way, the new wave of VC seems set to gain more and more strength. Which can only be great news for ambitious entrepreneurs out to change the world.  

The author is Founder & CEO of Venture Intelligence, the leading source of information and networking services to the private equity and venture capital ecosystem in India. For more information, visit www.ventureintelligence.in

Related Items:

---

Be first to comment this article

Only registered users can write comments.
Please login or register.