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Venture funds eye start-ups

Following the maxim ‘buy low and sell high’, venture capital firms will queue up this weekend at the Indian Institute of Technology, Bombay, looking for student start-ups in which to invest. Snehal Rebello reports.

india Updated: Feb 04, 2009 01:00 IST
Snehal Rebello

Following the maxim ‘buy low and sell high’, venture capital firms will queue up this weekend at the Indian Institute of Technology, Bombay, looking for student start-ups in which to invest.

This year, 20 venture capital firms will come to the institute’s annual Entrepreneur-ship Summit to inspect the business plans of students from the institute and other colleges, said Cyrus Vesvikar, an organiser of the meet. This is a jump from the eight who came to last year’s summit.

A venture capital firm invests in a start-up and helps it grow. Once the firm becomes profitable, it looks to sell its stake at a premium.

Among those who have smelt an opportunity are Tata Capital, Crossover Adivsors and Nexus India Capital among Indian firms and Canaan Partners, Draper Fisher Jurvetson and Sequoia Capital among foreign ones.

“For a venture capitalist, the horizon of investment ranges from five to seven years,” explained Vinnie Vyas, chief executive officer, Crossover, a private equity firm. “When the firm invests in the first two years of a downturn, valuations are low, so the capital invested is also small.”

Last year, when the economy was roaring and share prices were soaring, three of the 19 teams that pitched for capital got funding — two from Indian firms and one from a UK-based fund. With valuations having fallen since, this year’s record could be much better.

Venture capitalists themselves say this is an excellent time to invest in start-ups because the potential for growth is high as the economy will inevitably recover and input costs for the start-up have dropped.

“Last year, it cost a lot to recruit experienced professionals,” said Vyas, adding that in the US, a downturn sparks a high level of venture capital investment. But now, people are available at much lower salaries so start-ups can put together management teams more easily.

“Investing in a start-up will yield good return in two years,” said Professor U B Desai, faculty coordinator of the IIT’s Entrepreneurship Cell.

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