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The funding ecosystem has improved, but the slowdown has taken a toll
DHANYA KRISHNAKUMAR
20 Mar 2009
VC funds, seed funds, angel and private equity (PE) funding have long taken
over what was once done by financial institutions such as IDBI, ICICI and state
financial corporations. Explains Sanjay Anandaram, co-founder of
JumpStartUp Venture Fund: “The funding situation has dramatically changed
for the better in the past five years. It can only get better and it is.”
Angel and seed investors arrived on the scene around 2000. Seed investments
Related Stories however, declined during 2000-03 and picked up only after 2006. PE funds that
In A League Of Their Own came into existence in the late 1990s also picked up in 2004. This has taken the
Shashin Mishra number of total funding firms, including global firms, to 150 today.
N.N. Sreejith
Millions of dollars from these firms have been pouring into businesses across
Phanindra Sama
sectors. If Sequoia Capital invested $7 million in Times Internet, the company
Sandeep Maheshwari along with LightSpeed Ventures and SVB capital invested $10.5 in TutorVista, an
Lekh Joshi education services company. Social media site Sulekha.com was started after
The Next-Best Ideas Norwest Venture Partners shelled out $10 million.
The Silver Lining
“The fact is, in the past four years capital has become readily available to anyone
Nurturing New Ideas who has the requisite experience and a new idea,” says Sandeep Murthy, partner
Natural Instincts at Sherpalo Ventures.
A Close Contest
The past couple of years have seen experienced professionals leaving their
secure jobs to chase their dreams. As Bharati Jacob, partner at Seed Fund puts it, “Indian education was earlier not
suited to creating employers. It was traditionally suited to producing only employees. But now that is slowly changing.”
But Sherpalo’s Murthy says, “In Silicon Valley, entrepreneurs emerged from large firms and from the labs of many
prestigious universities. That kind of output is still lacking in India.”
Investors find both positives and negatives while scouting for prospective business honchos in India. According to
Sanjeev Aggarwal, co-founder and managing director of Helion, “Indian entrepreneurs have the power of resilience. They
will not quit even if it takes time for his business to bear fruit.” But they need to learn to have a narrow focus, he feels.
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Adds Alok Mittal, managing director of Canaan Partners, “Given that the Indian market is limited due to the lower
connectivity and PC penetration here, entrepreneurs tend to think global from day one.” But Murthy of Sherpalo is not so
upbeat. He says Indian entrepreneurs lack the sense of urgency that one finds in their western counterparts.
Applying Brakes
Even as new ideas flow in and there are new entrepreneurs on the
block, recession seems to have spoiled the show as far as finances
are concerned. A Venture Intelligence report says PE firms and VCs
(excluding PE investments in real estate) invested $10.8 billion in 399
deals in India in 2008. This amount was significantly lower than that in
2007 when $14 billion was invested across 439 deals.
“2008 was the first year since 2002 that PE investments in India have
witnessed a year-on-year decline,” noted Arun Natarajan, founder and CEO of Venture Intelligence. The largest
investment reported during 2008 was the $640 million raised by Aditya Birla Telecom, a subsidiary of listed mobile
telephone services provider Idea Cellular, from Providence Equity Partners in return for a 20 per cent stake.
Sandeep Murthy also strikes a note of concern, “There is a freeze on the financial ecosystem at present. There is going
to be a lot of waiting and watching over the next one-and-a-half years.” While these companies wait and watch, there
may not be many new financial commitments made soon.
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