The Hindu Business Line : Venture Capital Funds not favourably inclined towards biotech cos

Bangalore June 8 Venture Capital Funds (VCFs) have been berated for playing it too safe in biotechnology sector and ignoring the start-ups; meanwhile, the VCFs have their side of the story.

Some early stage Indian models are not exciting enough and many small companies are unable to think big or scale up. To attract funds, they have to not only have a killer proposition, they should show the appetite to invest in infrastructure, according to Mr Nitin Deshmukh, Head, Private Equity, Kotak Mahindra Bank.

They are still not a draw like media, retail, infrastructure or manufacturing propositions, he said, at the Bangalore Bio 2007 here.

Reasons

Of the $150-million worth of investments that went into biotechnology during 2006-07 mainly from domestic funds, most of them stuck to services.

Unless the entrepreneurs show a certain maturity level, their first money has to still come from angels, founders or public grants, is the VCFs' version.

Another reason is that funds fail to read biotechnology correctly, according to Mr Alok Gupta, Country Head - Life Sciences & Technology of Yes Bank. The bank has announced plans to start a $100-million life sciences fund by this year-end. It has identified a handful of targets that would receive $7-8 million of funds each.

Start-ups would need $0.5-2 million against more than $10 million that bigger, growing companies may demand. Yet, Mr Gupta said early-stage models may not be getting funds in the foreseeable future.

Other bet

He admits, "VC funds are skewed in favour of mid- to late-stage investments." They pick low-to-medium risk options such as clinical research or CRAM (contract research and manufacturing) companies as confirmed cash flow outweighs heavily against pure drug discovery research.

Start-ups can fall back on government grants through the New Millennium Indian Technology Leadership Initiative, the DBT's Small Business Innovation Research Initiative (SBIRI) or angel investors.

The SBIRI with which Yes Bank is associated has seen about 150 companies come in for small grants.

The other bet is the string of biotech parks, which can incubate these young companies.

Some companies that have received VC funding are Biocon Ltd, Avestha Gengraine Technologies, Manipal Acunova, clinical research company Lotus Labs, agri-biotech company Metahelix Life Sciences and bio-informatics company Strand Life Sciences.

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