An emerging trend and culture of innovation in the country has encouraged cash carriers like global private equity firm Norwest Venture Partners (NVP) to up their stakes in the Indian business landscape.
The Silicon Valley-based firm that manages $2.5 billion in venture capital plans to hire two partners in India and increase its exposure in the country by another $200 million in the next two to three years. The VC's current exposure in India, which includes businesses focused on India and 22 cross-border ventures, is about $300 million.
"We have been successful in closing five India-specific deals even without having a direct presence in the country. With the two partners in India, we expect to close at least 20 deals in the next 2-3 years. The average size of the deals is expected to be between $12 million and $15 million," Norwest Venture Partner Managing Partner Promod Haque told the Hindustan Times.
Haque, considered among the top five in venture capital, is an alumnus of the Delhi College of Engineering.
This week, an NVP-led investment group invested $20 million in Adventity, a knowledge process outsourcing company based in Mumbai with 2,000 employees globally. This is an addition to existing investments in Sulekha.com, Persistent Systems and Yatra in India.
In fact, the conducive investment climate and the changes in the business landscape has made VCs discover the opportunity in mid-sized companies with sizeable revenues in place.
"So far we were concentrating on hybrid investments where the company was incorporated in the US and the product development happened in India as that gave the venture the strength of having a market to validate and shoot holes in the product. But, with competition from foreign companies hotting up, there is enough pressure on Indian companies to be early adopters of technology.
That is good news for Indian product companies and will also encourage venture capital flow on the product side," Haque said.
And it is not just technology companies, Haque's firm is now looking at the entire spectrum of investments - beginning form providing seed capital for new ideas right up to providing growth capital to mid-sized companies. In fact, that will bring it quite close to playing in the lower end of the private equity market.
Also there are no hard and fast rules on technology being the safest bet anymore. "Even though we have been focused on the technology space for the past seven years, we would be open to funding later stage expansion plans of ventures operating in any other 'game changing' spaces. In fact, before the tech focus, we had been funding ventures in areas as varied as healthcare, daycare centres, waste management, media, entertainment, restaurants etc" he added.
For four years now, the company that raised a $650 million fund last year and will float a new one in 2009, has opted for exits through acquisitions.
But things seem to be changing there too with NVP expecting major exits for its investments through initial public offers (IPOs).
"Indian bourses are very healthy and we would encourage our clients to list on the domestic markets when it's the right time. Incidentally, the listing here looks even more favourable when seen in the light of the compliance costs that companies trying to list on the US bourses have to face under Sarbanes Oxley's Act," Haque said.