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
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