Whopping investments of over USD 8.5 billion is expected in Indian from Venture Capitalists (VCs) and Private Equities (PEs) in next five years in atleast five identified areas such as Biotechnology and Life Sciences, Logistics, Cleantechnology, Film Production and Education, says a joint paper brought out by ASSOCHAM and Deloitte.
The paper named “Indian Venture Capital – A Future Scenario”, reveals that VCs and PEs which for long has been choosing IT for investment purposes, have found huge investment opportunities in above listed areas as regulatory regime in them is gradually disappearing.
Quoting findings of the ASSOCHAM & Deloitte paper, president ASSOCHAM, Mr. 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 specialists Venture Capitalists from global and local funds. According to information received by the ASSOCHAM, US based Life Sciences Fund has recently invested approximately USD 20 million in a Hyderabad based pharmaceutical company. Devices and diagnostics are other areas where investors are active. It is anticipated that the Biotechnology and Life Sciences will alone attract about USD 1.5 billion investments from VCs and PEs by 2012.
Mr. Jindal said that logistics is another area in which VCs are expected to invest in excess of USD 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% is expected to come from VCs and PEs firms. These funds are also looking at possibilities in ancillary business that support maritime trade such as warehousing and container freight stations.
Clean technology is still another area where VCs and PEs would grow more and more active. In 2007, investors committed USD 290 million in 11 cleantech investment deals compared to USD 140 million in 9 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 USD 3.5 billion in cleantech areas in next few years, pointed out Mr. Jindal.
The other prospective areas in which VCs and PEs would make huge investments include Indian film production and education. The Indian film industry currently is worth 1.8 billion and is expected to grow @of over 25% and would reach a level of USD over 5 billion by 2011. With the newly accorded status of industry and professionalism on film industry, it will emerge as new venue for VCs. The ASSOCHAM expects USD 0.25 billion 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 USD 36 billion in assets is planning approximately
USD 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.
The paper further points out that venture capital investment is undergoing some interesting transitions. Developing economies like India and China continue to attract investments, early stage finance is becoming increasingly globalised. Investors are backing consumer and retail firms that benefit from the rise of the Indian 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 is usually dedicated to backing new technologies or services.
In Asia, venture capitalists are still in the process of 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. In Asia, different classes of stocks with different voting rights are relatively uncommon. Asian investors thus 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.
Published by Associated Chambers of Commerce and Industry of India (Assocham)
