Saturday, February 23, 2008

Annual Venture Capital Investment Skyrockets to 166% in 2007

On a 2004 survey on impact of private equity in UK, 77% of companies said that without private equity, their business would not have existed at all or would have developed less rapidly. But this critical component - Private Equity, needed for the survival of entrepreneurs ,was missing for a long time in the Indian economy.

Annual Venture Capital funding in India for 2005,2006 and 2007Good news is that things have started changing. A recent report by Dow Jones VentureSource brings out the huge increase in the number of deals and the amount invested by the venture capital funds in India.Venture capitalists invested around $928 Million in 80 deals in entrepreneurial Indian Companies in 2007, the highest total ever.

Some interesting statistics from the report
  • Nearly 48% of all venture financing deals in India were for Information Technology (IT) companies.
  • The most popular recipients of venture capital in the IT industry were companies in the Web-heavy "information services" sector
  • Service-oriented companies in India -- both in the technology fields and the non-technology areas of hotels, taxis and similar services -- continue to attract investment
  • Of all the companies in India that received venture funding in 2007, nearly 73% were already generating revenues or profitable
But the best thing is the prediction by Ms. Canning , Director of Global Research for DowJones VentureSource that "this is only the beginning for the venture capital market in India". Her belief is supported by the fact that in 2007, around 79% of deals in India were for seed and first rounds and a lot of these companies will continue raising venture capital as they progress toward profitability and liquidity.

Though the going is good, we still have a lot of catching up to do when we compare ourself with the amount of venture capital funding in USA. (>$20 Billion)

An economy that does not have a strong venture capital sector is one that displays symptoms of deeper economic problems
- J.P. Cotis, Chief Economist OECD

P.S: VentureBeat also has a spreadsheet with the segment wise breakup.
Thanks startupdunia for the info.


Srivats said...

I dunno abt u, but extensive VC funding for a growing economy like ours isnt always a good thing. Yeah, the money is fast and easy, but has strings attached.

The US has evolved with capitalism. Homegrown companies became strong and mighty, after which people with too much cash to handle decided to become VCs. The same people are playing around in India today. Entrepreneurs have almost no bargaining power when it comes to receiving such funds, and it could spoil the start up if the foreign VC feels that its time he pulled out.

Im pro equity, but thru the primary market sans private placements. Id prefer to see more indian companies getting listed on the exchanges to seeing blackstone or some VC from mauritius fund them.

Unknown said...

@ Srivats,
I disagree that VC funds are bad... Once they invest in a company, they make sure that company succeed at all costs da so that they could make a huge profit from the investment... So startup benefit a lot from them. No bargaining power is also not true since VCs invest because of a great idea... Bargaining power of a startup comes from the great idea.. With a lot more VC funds, the bargaining power of a startup is bound to rise..

One of the trends in VC in India unlike USA is that, VCs also provide huge guidance especially management expertise to start-ups.. This is very important for start-ups since they are not able to afford the pay packages of senior managers.. (when compared to the pay packages offered by IT Service firms or banks, etc.. )

Srivats said...

yeah da, but the cost for such experience/guidance and great deal of investment is lack of managerial control. and in many occasions, like that of russia recently, some american VC firms pulled out their money and left the entrepreneurs in the lurch, for reasons totally unrelated to the ongoing business.

also, alternative to VC funding is available for reasonably risky startups provided by the govt - TIIC for example. I think these routes are better than direct profit hungry VC funding..

Unknown said...

@ Srivats,
Yes da.. it is always possible for better alternatives.. I also agree that many more Indian VCs should come up..

But the responsibility to protect their interests falls on Entrepreneurs, who should come up with an iron-clad legal agreements for that purpose..

Unknown said...

Hi buddies, it is great written piece entirely defined, continue the good work constantly.Sequoia India