STATE OF VENTURE CAPITAL

IN INDIA
Asia Pacific- First Half 2006
Main Headlines
 A predicted $8.6 billion of private equity and venture capital was invested in the
Asia Pacific region in the first half of 2003 - a 40% increase on the first half of
2005.
 At least $5.0 billion funds have been raised in the first half of 2006 – up 236%
on the first half of 2005.
 As with 2005, investment is driven by Japan ($3.4 billion), however more than
$1billion has also been invested in both China and Korea.

Sub Headlines
 Technology investments in Asia Pacific totalled an estimated $0.9 billion in the
first half of 2006.
 Investment in expansion stages accounted for 13% ($1.1 billion) of all
investment in the first half of 2004 – down slightly from 14% in the whole of
2005.
 Buyout investments accounted for 54% ($4.6 billion) of all investment in the first
half of 2006 – up from 48% in the whole of 2003.
Asia Pacific- Investment by Country (Top 5)

Source:AVCJ Guide to Venture Capital in Asia

VENTURE CAPITAL INVESTMENT TRENDS

1,400
1,160
1,200 1,100
1,000 937
770
800
590
600 500
400 250
200 80
20
0
96 97 98 99 '00 '01 '02 '03 '04
Source: IVCA/AVCJ
2004 No.’s are estimates
2006 EXITS

 Biocon IPO – GW Capital & AIG

 Indiabulls IPO – Infinity Venture (12 X Return)
 Daksh acquisition by IBM for US$ 150mn – Citibank, General
Atlantic & Actis
 Patni Computers IPO – General Atlantic, GE Capital
 FutureSoft Acquisition by Flextronics – ILFS & Intel
 Ebay acquiring Bazee for US$ 51mn – Various VC’s
 Dishnet acquisition by VSNL for $ 62 mn – HSBC & Citibank
 Indiagames acquisition by Tom Online – Infinity Venture (15X
Return) & ILFS
DRIVERS OF VENTURE INVESTING IN INDIA

 Knowledge based industries growing fast and mostly global; less

affected by domestic issues
 World class engineers, professionals, entrepreneurs - success
evident in the US as well
 2nd largest English speaking population; science and
mathematics at a premium
 India has advanced rapidly in the 90’s, 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 Software
Sector (1 million?)
 50% of all H1 visas issued to Indians
SUPPORTIVE REGULATORY ENVIRONMENT

 Government highly supportive of growth in technology

and knowledge based sectors
 Strong and supportive legal framework – Information
Technology 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
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
 Electronic Manufacturing
 Retail
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, Computer
Graphics, Animation, Banking

Other emerging Centers

• Chennai, Hyderabad, and Pune
INDIA VC HISTORY

 Phase I - Formation of TDICI in the 80’s and regional

funds as GVFL & APIDC in the early 90s.
 Phase II - Entry of Foreign Venture Capital funds
between 1995-1999
 Phase III - (2000 onwards). Emergence of successful
India-centric VC firms
 Phase IV – US VCs’ increasing appetite to invest in
India, led by the US Chapter of IVCA
ISSUES AND CHALLENGES

 Indian VC yet to be established as a sustainable asset class

among institutional investors
 Limited amount of true “risk-capital” will impact entrepreneurial
activity
 Exit challenges – shallow capital markets and dull M&A
environment for small companies
 Beyond services, India yet to create a brand-name for IP-led
companies, like Israel has successfully done
Thank You