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India VCs shift investments on cleantech, biotech

Posted: 26 Jun 2009     Print Version  Bookmark and Share

Keywords:India venture capital  VC investment  cleantech  biotechnology 

Over Rs.41,638.90 crore ($8.5 billion) investments from India venture capitalist (VCs) and private equities (PEs) are expected to benefit key areas—biotechnology and life sciences, logistics, clean technology, film production and education—over the next five years, according to a joint paper brought out by Associated Chambers of Commerce and Industry of India (ASSOCHAM) and Deloitte.

The paper entitled Indian Venture Capital—A Future Scenario, found that VCs and PEs that have been investing in IT have found huge investment opportunities in the stated areas as regulatory regime in them is gradually disappearing.

Quoting findings of the paper, ASSOCHAM president, Sajjan Jindal said that India has large opportunities in biotechnology and life sciences on lines of retail and real estate. The life sciences sector in India has been attracting VCs from global and local funds. According to information received by the ASSOCHAM, U.S.-based Life Sciences Fund has recently invested approximately Rs.97.97 crore ($20 million) in a Hyderabad-based pharmaceutical company. It is anticipated that the biotechnology and life sciences will alone attract about Rs.7,348.04 crore ($1.5 billion) investments from VCs and PEs by 2012.

Jindal added that logistics is another area in which VCs are expected to invest in excess of Rs.9,797.39 crore ($2 billion) in India's maritime infrastructure and logistics as it strengthens cargo handling facilities to meet rising demand for exports and imports. The paper mentions that National Maritime Development Programme envisages huge investment to upgrade India's maritime sector of which 64 per cent is expected to come from VC and PE firms.

The paper also noted that in 2007, investors committed Rs.1,420.62 crore ($290 million) in 11 cleantech investment deals compared to Rs.685.82 crore ($140 million) in nine deals in 2006. The momentum is expected to continue over the coming years given the government initiatives and policy focus on cleantech. It is expected that PEs and VCs would be able to jointly garner an investment of Rs.17,145.43 crore ($3.5 billion) in cleantech areas in next few years, Jindal said.

The other prospective areas in which VCs and PEs would make huge investments include India film production and education. The Indian film industry currently is worth Rs.8,817.65 crore ($1.8 billion) and is expected to grow over 25 per cent and to reach Rs.24,493.47 crore ($5 billion) by 2011. The ASSOCHAM expects Rs.122.47 crore ($25 million) VCs investments in this industry in next five years.

With a booming economy and concurrent talent shortage, denying for services from the domestic education sector is slated to create a lucrative opportunities for VCs. A global private equity firm with Rs.1.76 lakh crore ($36 billion) in assets is planning approximately. Rs.979.74 crore ($200 million) investments in the Indian education sector by taking up strategic positions in companies offering e-learning, distant learning, vocational training and the like.

VC shift
The paper further pointed out that venture capital investment is undergoing some interesting transitions. Developing economies like India and China continue to attract investments. Investors are backing consumer and retail firms that benefit from the rise of the India middle class, as well as business services that cater to the nation's growing economic sector. The other transition is that the capital flowing to India is designed to expand existing companies. By contrast, venture capital in the United States, Europe and Israel usually dedicated to of backing new technologies or services.

In Asia, venture capitalists are still in the process developing common evaluation criteria for investment, unlike in mature markets, where a common criterion is the level of attention paid to the entrepreneur's personality and experience. Asian investors have to rely mostly on common stocks and other means to manage their portfolio risk. Traditional venture capitalists are expected to actively assist their portfolio companies in what are termed value-added activities. Most of the Asian venture capitalists' assistance remains restricted to providing advice on financial matters.

The dynamics in emerging venture capital markets differ from those in developed venture capital markets. The emerging private equity markets focus primarily on growth capital investments through minority equity participation. Emerging venture capital markets, although not without challenges, present a host of opportunities.

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