Posts Tagged ‘growth-stage companies’

Venture capitalists have little fancy for Indian start-ups

Venture capitalists have little fancy for Indian start-ups

Dreamy-eyed Indian entrepreneurs, hoping to talk their way into getting venture capital for their start-ups might as well look elsewhere for funding.

😦

It doesn’t happen in India, not often anyway, investors and experts in the industry, maintain.

Venture capitalists in India only prefer growth-stage companies — firms already up and running that need money for expansion.

Most start-up entrepreneurs, as a result, dive into their own pockets or banks, or draw funds from family and friends.


Seed capital for a new business has not come of age in India, they added.

The concept of seed capital does not exist in India, there are a few funds which have come up of late, but it is minuscule compared to the need and potential.

And the problem has also compounded by the current economic scenario, where financial institutions are more concerned with keeping their capital safe than risk their funds with a new venture.

Venture capital firms invested $740 million India in 2008 compared to $876 million in the previous year.

‘The number of deals were also down to 125 in 2008 from 144 in 2007.

Jagannadham Thunuguntla, equity head at SMC Capitals, has an explanation.

‘The confidence among foreign funds, be it venture capital or private equity, hasn’t been restored after what happened back home.’

According to him, these funds will start returning to the equities markets first, and later look at other avenues.

Among start-ups, too, there is intense competition to get venture capital funding.

And more often, there is one set of firms that comes up tops — IT-based businesses or companies that use the web to reach out to customers, said veteran venture capitalists.

A lot of venture capital firms look favourably at IT start-ups because once the concept takes off it is easier for such businesses to scale up.

Also venture capitalists generally have a Silicon Valley background and have a greater understanding of such types of business models.

Past record also matters — a larger number of IT firms have given attractive returns.

‘There is a reasonably long list of IT firms — MindTree, Spectramind, Mphasis, Daksh, Naukri.com — which have delivered good exits for venture capitalists.

Perhaps, that’s the reason why people like Manish Malhotra – who quit his position with a top bank to start a hospitality agency – are still floundering with their business.

‘Venture capital is difficult to get. I come from the banking industry and know people. But even then it hasn’t been easy at all to convince them that my plans will work,’ Malhotra said.

Dreamy-eyed Indian entrepreneurs, hoping to talk their way into getting venture capital for their start-ups might as well look elsewhere for funding.