Money is Still Flowing in Venture Capital Funding in India
By Azam on August 21, 2008 WSJ & Venture Source report India attracted $238 million in venture investment with 17 deals closed in the second quarter, a 120% increase over the $108 million invested in 12 deals during the same period in 2007. Ten seed and first round deals were also completed during the quarter, accounting for nearly $77 million in investment. The data showed that India saw seven second-round deals completed in the second quarter, garnering a record $161 million and exceeding the $118 million that was invested in second rounds in all of 2007. No later-stage deals were completed.
Even with the second-quarter pop, investment is down through the first six months of the year, in part because of the strength of last year’s first quarter. Investors have put $360.5 million in 35 deals in the first half, down from $544 million and 46 deals a year earlier. By comparison, venture firms invested $2.15 billion in mainland China companies in the first six months of 2008.
Like China, venture firms are funding more later-stage Indian companies instead of buying into new start-up business: 74% of first-half deals in India involved companies that were profitable or were shipping a product, while 23% dealt with start-up companies still in product development and just one company was newly formed.
Areas Attracting Capital
By industry, the advertising and marketing space drew the most capital, with $89 million directed into five companies. Other industries receiving at least $20 million included food and drug retailers, automobiles, shopping and heavy construction/infrastructure.
Overall, India’s Business & Financial Services industry, which includes the advertising/marketing sector, received the bulk of investment with $131 million invested in nine deals, records on both accounts. Second in terms of investment was India’s Information Technology (IT) industry, which recorded three deals and $33 million worth of investment during the second quarter, a 55% decline from the $73 million invested in nine deals during the same period last year.
“We’ve seen deal activity in India hold steady for three consecutive quarters but this most recent quarter posted the second-highest investment total on record, due in large part to the $70 million second round for Laqshya Media of Mumbai, the second-largest deal ever completed in India,” said Jessica Canning, Director of Global Research for Dow Jones VentureSource. “This highlights two growing trends within the region — one being a growing interest in advertising plays that capitalize on India’s emerging infrastructure and growing Internet usage; the other being an increase in second-round deals, which is expected as VCs are helping their portfolio companies expand and steering them toward liquidity.”
Ms. Canning added: “While the size of venture deals in the U.S., Europe and even China continues to climb, venture capitalists have shown some restraint in terms of investments in India, due largely to the risk still associated with this emerging region. In fact, since we began tracking venture investment in India, the median deal size has dropped from $17 million in 2005 to $10 million in 2006 and now to $8 million in the first six months of 2008.”
The report from Venture Source show a change of investing pattern from investors being selective in term s of smaller size of funding and preference of current revenues streams in the Indian market. In terms of development stage, companies with active revenue streams attracted the most capital in the second quarter of 2008, as nearly $151 million went to 10 deals for companies that were shipping products and another $4 million went toward a deal for a profitable company. Just six deals, worth $83 million, were for companies currently developing products.
Firms Active in India
Draper Fisher Jurvetson topped investors in the second quarter with three deals, while Kleiner Perkins Caufield & Byers, Sequoia Capital, Trident Capital and angel investor Mumbai Angels made two deals apiece.
Tags : DFJ, India, Jessica Canning, KCPB, Laqshya Media, Mumbai Angels, Venture Captial, Venture Source, WSJ