Venture capital inflows fall 21.8% in 2001

Even so, the sum total invested in venture capital in India grew. The $907.58 million in new disbursements added to an existing flow of private equity capital into Indian companies, building up the amount of venture capital invested over time. A major portion of this came from overseas, which is expected to increase over the next few years. Similarly, the $395 million in capital commitments added to the pool of funds available to venture capitalists to invest. This is the impact of wide-ranging regulatory reforms implemented in 2000, including the centralisation of venture capital control with Sebi.

Prithvi Haldea, MD of Prime Database, who conducted this survey, said that the survey showed a heightened interest in India as a consequence of as many as seven firms listing on the NYSE during 1999-2001. Notably, Indian companies typically had a better multiple on Nasdaq than on Indian stock exchanges. The PE multiple of the Indian companies was usually better than the multiples achieved by comparable companies in the same sector but listed on their respective local markets.

According to the survey, Indian venture funds raised a total of $395 million in capital commitments in the year 2001, recording a slowdown by 52.2 per cent from $825.6 million accumulated in 2000. Of the total funds formed in 2001, 11 Indian funds reportedly raised capital commitments from investors. While fundraising may show a downturn in the Indian venture capital market, funds raised in 2001 enjoyed a very slight increase in average committed per fund, rising to $35.9 million in 2001 compared to $34.4 million in 2000. Early stage funds received the largest share for new capital commitments in India, rising from $124.4 million in 2000 to $ 294.3 million in 2001.

“India managed to pull through as the third nation with the highest venture capital deal flow in the Asia-Pacific (ex-Japan). It recorded 115 deals in 2001, trailing behind Australia and South Korea, which recorded 245 and 174 rounds, respectively. The average investment per deal also more than doubled from $ 3.9 million in 2000 to $7.9 million in 2001,” Haldea said.

As per the survey, investments in the communications and media industry proved to be the most popular. This sector secured $ 585 million in investments or 64.5 per cent of the total $907.6 million, collecting more than five times the funds received in 2000. Funding of the Internet sector, which was the favourite in 2000, dropped sharply from $ 576.2 million to only $ 49.2 million in 2001.

Expansion stage companies drew 80% of total investments, as 66 of them obtained $ 733.5 million. Early stage companies declined in prominence though, securing capital worth $ 4.7 million, far less than $ 208.3 million collected in the previous year.