VCs tie up with boutiques to fund start-ups
FOREIGN VENTURE capital (VC) funds have realised that investing in Indian start-ups could be far more rewarding than the country's stock markets.
They are now busy tying up with Indian boutique investment banks to extend their reach in the country. At least 11 such tie-ups have either been announced or were in the pipeline. Foreign funds such as US-based Kleiner Perkins, Mayfield, Quantum and Evergreen and Switzerland’s VGD have either tied up, or are in the process of tying up with Indian banks to leverage India’s blinding economic growth.
“We believe young people in India today are thinking about becoming entrepreneurs, and that is a great emerging opportunity we want to tap,” says Vinnie Vyas of Crossover Advisors, a boutique advisory firm he started with his partner in Mumbai earlier this year, having spent nine years at US-based investment banking major Morgan Stanley.
Boutique investment bankers say financial services, infotech services, pharmaceuticals and real estate are real hot sectors to be in. Not surprisingly then, foreign funds are actively eyeing these ventures to ensure that their high net worth portfolios get major returns.
Out of these, real estate and infrastructure has already very high valuations, making them unattractive for smaller VC funds. Other sectors like insurance, for example, has set a scorching growth rate of 50 to 55 per cent, says Vyas, who came back to try and tap the potential of India’s high growth sectors that have consistently outperformed annualised returns from the benchmark BSE Sensex that has given average returns of 33.5 per cent in the last five years.
Other bankers, however, said that foreign funds were tying up simply to acquire the networking capabilities of Indian banks and nothing more. Most of these funds were not really interested in seed funding, but in identifying more rewarding opportunities. That is where the tie-ups end, they said.