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India: investment's favourite destination

india Updated: Jul 28, 2007 18:53 IST

"Om Shreem Mahalaxmiyei Namah"
Sanskrit verse meaning I am one with abundance, prosperity and wisdom of the universe.

Being India

India at the moment seems seriously blessed. It's attracting abundance like never before in history. Two days ago IMF said "buoyant global economic outlook has prompted it to revise" upward India's GDP growth rate by 0.6 per cent to 9 per cent for 2007. Wisdom it seems is one of the biggest exports of India pegged at USD 12 billion by 2010. If prosperity means money then it's raining money in India, quite literally.

Private Equity Investments

India today really is capital's favorite destination. Consider the case of private equity investments in India in 2006. According to Venture Intelligence a total of 302 deals worth $7.5 billion were reported. In the first half of 2007 168 deals have been reported at $5.6 billion. In terms of investment in 2006 the top destination was China. China received around $900 million. London came second with a little more than $800 million. India came at number three with $746 million.

Venture Capital Investments

The India investment attraction can be simply be gauged from the fact that just in the 2nd quarter of 2007 venture capital firms have invested about $112 million across 19 deals in India during the second quarter of 2007. The prominent Venture Capital firms already have offices already set in India to identify potential winners and as the India success story grows so is the attraction of newer players. Consider the case of Clearstone Venture Partners, a leading early stage venture capital firm. With US$650 million of committed investment capital Cleartone sees India a favorable destination.

According to ASSOCHAM the Indian VAS market itself is likely to be Rs.8,500 crores by next year. That's certainly no small number in worldwide terms too. High growth domestic consumption sectors including telecom, media, entertainment and financial services are further fueling the growth.

Besides innovation probably the biggest fuel for entrepreneurial growth is venture capital investments. VC investments have been only growing in India. In 2006 Venture Capital firms invested $508 million over 92 deals in India. The amount invested during 2006 was significantly higher than that during the previous year (which had witnessing 44 deals totaling $268 million). In 2007 the VC score board so far reads 39 deals worth $242 million in its kitty.

According to Arun Natarajan of Venture Intelligence "The strong return of Silicon Valley VC firms to India as well as the rising number of new India-dedicated VC firms gives confidence that this resurgence in VC investments is likely to be sustained."

The Flow of Money

For both Private Equity and Venture Funding the Information Technology and IT-Enabled Services (IT & ITES) industry retained its status as the favorite among VC investors during April-June 2007. Apart from Internet-based services, VC investors paid extra attention to BPO and IT Services companies during the quarter. VCs also showed renewed interest in funding "cross-border" technology companies - i.e., companies headquartered in countries like the US, but carrying out substantial part of their R&D operations in India.

According to KEC Raja Kumar, CEO of leading Bangalore-based PE firm, UTI Venture Funds "Private Equity firms are boldly creating innovative partnerships with entrepreneurs to take corporate India to new levels. I will not be surprised if the investment amount in 2007 touches $10 billion," said "However, going forward, we have to be careful to ensure that this momentum is sustainable and does not get derailed by unrealistic expectations."

Venture Capital Investment Recent Cases

Techtribe Funded by Canaan Partners

Just this week serial entrepreneur Rohit Agarwal's startup, techTribe, India's Career Networking portal received funding from Canaan Partners. While techtribe refused to divulge the figures knowing Canaan's penchant for the web 2.0 cream the investment would be sizeable. Also noteworthy is that techTribe's is sitting on a market, recruitment of middle to senior level positions, that is estimated to be a US$400 million.

Amongst some of the biggest deals in the recent times are:

Adventity Funded by Norwest Venture Partners

One of the biggest deals of 2007 KPO firm Adventity raised $20 million in funding from Norwest Venture Partners. Adventity provides research and analytics to the investment banking, mortgage and financial services industries.

Reva funded by Draper Fisher Jurveston

India's first and only electric car manufacturer, REVA Electric Car Company, late last year attracted a $ 20 m investment from Draper Fisher Jurveston, Global Environment Fund (GEF) and Mellon HBV Master Global Event Drive Fund LP

Private Equity - Big Deals

In the case of private equity amongst one of the biggest deal in recent times has been the $950 million investment in telecom company Idea Cellular by Providence Equity Partners, Chrys Capital, Citigroup and Spinnaker Capital. Another biggie has been Kohlberg Kravis Roberts's April purchase of Flextronics Software for $900 million.

The Last Word

Richard C Wastcoat, Managing Director, Fidelity Investments International, UK reportedly said "With markets so exciting here, one may ask why invest abroad". Craig Barrett, Chairman, Intel, said "India has evolved into one of the world's leading technology centers." Richard and Craig, we couldn't agree with you more. Maybe the India investment story touch even greater heights.

Puneet Mehrotra is a web strategist at www.cyberzest.com and edits www.thebusinessedition.com you can email him on puneet@cyberzest.com