state of venture capital - october 2004

7/28/2019 State of Venture Capital - October 2004

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STATE OF VENTURE CAPITALIN INDIA

Saurabh SrivastavaChairman

Indian Venture Capital Association,Infinity Ventures & Xansa India


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THE WORLD VIEW Top 20 Countries in 2002 - Based on Investment(2001 Rankings in Parentheses)

North America 1. USA (1)

9. Canada (4)

Middle East & Africa 13. Israel (12)

18. South Africa (-)

Central & SouthAmerica

1%

2%

25%


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THE WORLD VIEWTop 20 Countries - Based on Growth (CAGR 98-02)

2. Sweden (57%)

3. Denmark (50%) 7. France (29%)

8. Italy (24%)

9. Spain (22%)

10. Finland (19%)

14. Netherlands (8%)

15. Switzerland (5%)

16. UK (5%)

17. Belgium (4%)

18. Germany (2%) 19. Norway (1%)

Western EuropeNorth America 13. Canada (9%)

20. USA (


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An estimated $17.5 billion of private equity and venture capital was invested inthe Asia Pacific region in 2003-a whopping 92% increase on 2002

Japan led the region accounting for $7.3bn of the value of deals completed,followed by Korea with $3.3bn and Australia with $2.8bn

In contrast, only $3.32 billion of new funds were raised in 2003 (up only 10% on

2002 levels) The pool of private equity capital under management rose to $97.6 billion in 2003

up from $88.6bn in 2002

Status

Start-up and early stage investment is estimated at $ 0.6 bn and $1.4 billion wasinvested in expansion stage companies in 2003

Telecommunication section had the highest percentage of invested capital with$3.7bn or 21% followed by financial services with $2.3bn or 18.3%

PRIVATE EQUITY IN ASIA 2003


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INDIA VC HISTORY

Phase I - Formation of TDICI in the 80s and regionalfunds as GVFL & APIDC in the early 90s.

Phase II - Entry of Foreign Venture Capital funds

between 1995-1999

Phase III - (2000 onwards). Emergence of successfulIndia-centric VC firms

Phase IVUS VCs increasing appetite to invest in

India


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Sourc e: IVCA/AVCJ

2080

250

500

1,160

937

774

900

590

0

200

400600

800

1,000

1,200

1,400

96 97 98 99 '00 '01 '02 '03 '04

INDIA VENTURE CAPITAL INVESTMENT TRENDS


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Indian VC funds received $241 MN in

new commitments in 2002, up 11.7%from 2001

76 deals received investment, butaverage deal size marginally lower

Investment focus is on big ticket and latestage deals

41 exits in 2002 Spectramind,Customer Asset, EXL, iFlex

$590 MN (VC/PE) was invested in 2002.Down 37.01% YOY

India ranked as second most active VCmarket, outside of Japan, in attractingcapital.

2002

Act ive

Selective

Cautious

Aggress ive

Patient

Act ive

Mood

Average deal size much larger though no. ofdeals decreased to 42

Majority of the investments in Late Stage &PIPE transactions with banks and media asthe hot sectors

2003

Slipped to fourth place, outside of Japan inattracting capital

Increased M&A & attractive IPO market led tobig ticket exits- UTI Bank, TV Today,Indraprastha Gas, Worldzen, VisionSource

Indian VC funds approx $ 360 MN in newcommitments in 2003.

$774 MN (VC/PE) funds invested in 2003 -Up 39.18% YOY. $ 900 MN estimated for 2004

THE INDIAN ENVIRONMENT

Source:AVCJ/IVCA


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INVESTMENTS IN 2002 & 2003

18.43774.0142Total 2003

7.03590.2177Total 2002

10.6159.0515Other/Unknown

2.284.562Later Stage

7.36345.8244Expansion

5.2852.89Early Stage

3.1127.987Startup/Seed

Average perDeal

Sum Invested($mil)

No. ofCompanies

Deal Stage


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Deals in 2003 (BY STAGE)

Stage Sector VC/PE Fund Company Amount ($m)

SEED/EARLY Banking Citicorp, Chrys Capital,Russell Infra Fund Yes Bank 15.5

BPO Sequoia Capital 24/7 Customer 22

BPO WestBridge Indecomm World 4

LATE/MBO Chemical CDC Capital ICI 16.5

Retail ICICI Ventures PVR Cinemas 8.5

Media Henderson Capital Hindustan Times 25

Media Standard Chartered NDTV 11

BPO West River Capital V-Customer 7

Consumer Warburg Pincus RadhakrishnaFoods

50

PIPE Infrastructure Chrys Capital & Citicorp IVRCL 23

Pharma Newbridge & Citicorp Lupin Labs 55

Media ICICI Ventures Tata Infomdia 22.5

Auto CDC Capital & GIC Punjab Tractors 57


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2200362002

122001

472000

5199961998

101997

71996

41995No. of FundsYear

GROWTH OF FIRMS IN INDIA


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FUND RAISING POSITION

Year No. of FundsAmount Raised($mil)

Average perfund

2001 10 216.5 21.65

2002 5 241.8 48.36

2003 2 260.0 130.00

Total 17 718.3 42.25


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VC ACTIVITY IN ASIAN REGION - 2003

Sourc e : AVCJ

4$ 149.30Philippines

5$ 653.45Indonesia

2$ 472.70Bangladesh

44$ 1,279.83China

3$ 37.98Taiwan

16$ 501.81Singapore

7$ 131.16Hong Kong

71$ 2,174.70Australia

42$ 774.01India

21$ 3,152.94South Korea

Number of

Companies

Amt. Invested

($MN)

Country

77$ 7,297.71Japan


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WHY IS AN ACTIVE VC COMMUNITY IMPORTANT FOR INDIA?

Innovation needs risk capital in a largely regulated, conservative,legacy financial system

Job creation -- large pool of skilled graduates in the first and secondtier cities

Creating new industry clusters Media, Retail, Call Centers and

back office processing, trickling down to organized effort of supportservices like office services, catering, transportation

Patient capital Not flighty, unlike FIIs


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DRIVERS OF VENTURE INVESTING IN INDIA

Knowledge based industries growing fast and mostly global; less

affected by domestic issues

World class engineers, professionals, entrepreneurs - successevident in the US as well

2nd largest English speaking population; science and

mathematics at a premium India has advanced rapidly in the 90s, catching up with global

markets in many sectors

Evidence of this in the US as well 25% of small IT companies in the US have Indian founders (Upside)

Disproportionately large presence of Indians in the US SoftwareSector (1 million?)

50% of all H1 visas issued to Indians


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SUPPORTIVE REGULATORY ENVIRONMENT

Government highly supportive of growth in technologyand knowledge based sectors

Strong and supportive legal framework InformationTechnology Act, VC norms, ESOPs, copyright, etc

Government controlled telecom being fully deregulated Capital Market system amongst most advanced in Asia

Electronic trading through NSE and BSE


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WHERE ARE VCs INVESTING IN INDIA?

IT and IT-enabled services

Software Products (Mainly Enterprise-focused)

Wireless/Telecom/Semiconductor

Banking

PSU Disinvestment

Media/Entertainment

Bio Technology/Bio Informatics

Pharmaceuticals

Contract Manufacturing

Retail


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THE VC HOTBEDS

City competencies Emerging

Bangalore

All IP-led companies; IT and IT-enabled services

Delhi (NCR)

Software services, IT enabled services, Telecom

Mumbai

Software services, IT enabled services, Media, ComputerGraphics, Animation, Banking

Other emerging Centers

Chennai, Hyderabad, and Pune


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ISSUES AND CHALLENGES

Indian VC yet to be established as a sustainable asset classamong institutional investors

Limited amount of true risk-capital will impact entrepreneurialactivity

Exit challenges shallow capital markets and dull M&Aenvironment for small companies

Beyond services, India yet to create a brand-name for IP-ledcompanies, like Israel has successfully done


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Thank You

state of venture capital - october 2004

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