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V. Rishi Kumar

HYDERABAD, Jan. 1

VENTURE capitalists are modifying their investment strategies and those in India, mandated to invest in cross-border IT services companies, are eyeing new businesses.

``Lately, the VCs have secured approvals from their investors to be able to diversify into other areas as well as biotech sector and in products,'' the Managing Director of Hyderabad-based VC, Ideas to dotCom Ventures Ltd., Mr Ashutosh Yadav, told Business line.

Some VCs may take the `buy and build' way of creating corporations. Life sciences had been the most exciting area of investment in 2001. Significant money raised in 2001 will be available for investment in 2002. Biometrics, enterprise software focussed on business efficiency and productivity, and entertainment software would be focus areas, Mr Yadav said.

``Despite the downturn in economic conditions, VCs continue to show committed resolve on behalf of entrepreneurs. It is significant to note that about 81 per cent of VC investment in the latter part of the year 2001 went to follow-on investments. This is mainly to ensure that the real value can be created in down cycles by sticking with committed entrepreneurs with strong business models and the tenacity to see their ideas through,'' he said.

The first half of 2002 will see mergers and acquisitions fuelled by both pro-active risk mitigation drives and reactive approach by firms who are fighting for survival. Therefore, H1 may belong to M&A activities, though deals would be larger ticker ones slowly coming into the smaller levels, Mr Yadav maintained.

``The foundation for several of those transactions has already been laid and these will materialise during Q1. The ones where the process gets initiated in Q1 and Q2 may go into the second half of the year. While M&A may not be hasty transactions, companies who have plans, if any, should start working on these plans fast as better opportunities will get picked up fast, the leftover may not be the best bets,'' he said.

"The proactive approach will be by smart promoters who are trying to acquire size or clients or are looking for synergistic potential or geographic diversification for risk mitigation. The reactive approach will come from cash-strapped promoters fighting for survival," Mr Yadav said.

``2002 is a year of hope and planning — it is difficult to predict the return of the good times but we need to remember as we saw in the slowdown, the economy will recover faster than expected. Whenever it happens, being ready when the curtains go up will be extremely critical,'' Mr Yadav said.

The slowdown impact is difficult to swallow, but progressive managements had accepted the reality and started playing along with the market dynamics to be ready for the opportunities for the latter part of the year.

Yet another thing which entrepreneurs/business owners had learnt was that change was the only constant and market dynamics would force one to change or be wiped off. Mr Jack Welch had divested out of about 180 businesses since he took charge of GE in 1991. This was not a sign of failure, it was the basis for GE's success, he opined.

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