The Hindu Business Line : From dip to blip on the VC screen

VENTURE Capital (VC) firms made 10 investments for approximately $150 million into Indian companies in the quarter ended September 30, 2002 (based on publicly announced/reported investments into companies having a substantial part of their operations in India.)

Nine companies announced new rounds of funding that exceeded the $2-million mark, out of which three companies closed rounds of $5 million or more.

The quarter witnessed deal flow picking up compared to the previous quarter in which just three deals were announced.

Patni Computer Systems (PCS) received the single largest investment in the period with a $100-million round financing from General Atlantic Partners (GAP).

In fact, this is the largest ever VC investment in an Indian Information Technology (IT) services company.

After PCS, the next three largest deals of the quarter included Daksh eServices, Infowavz, and Talisma. With four new deals, the Business Process Outsourcing (BPO) sector maintained its position as the hottest sector for VC investments.

The quarter also saw the return of early stage investments with three companies raising a total of approximately $8 million in their first round of institutional funding. (VCs did not make any early-stage investments in the previous (April-June) quarter.)

GAP storms to the top

One of the highlights of the quarter was the emergence of General Atlantic Partners as a very significant private equity investor in the Indian market. In operation since 1980, this US-based fund currently has over $5 billion under management and has invested in over 120 companies.

Almost a third of GAP's portfolio companies are based outside of the US. Unlike other large global private equity players like Warburg Pincus and the Commonwealth Development Corp (CDC) which invest in a variety of sectors, GAP focuses on IT and IT-related (BPO and telecom) investments.

In 2002, India seems to have appeared quite strongly on GAP's radar screen. In February, it made the largest ever VC investment in the BPO sector when it bet $50 million on US and India-based Brigade Corporation.

With its headquarters in San Francisco, Brigade uses its large scale "Global Service Delivery Facilities" in Chennai and Hyderabad, to service Global 1000 firms like Compaq Computer Corp.

In June, GAP announced plans to set up a direct presence in India with former Draper International and Connect Capital hand, Abhay Havaldar, at the helm. GAP has chosen to use the American Depository Receipt (ADR) route for a part of its investments into Patni Computer Services and Daksh eServices.

Spectacular exit

The July-September quarter also saw ChrysCapital (formerly Chrysalis Capital) achieving a spectacular success on the exit front with the $93 million sale of Spectramind eServices to Wipro.

With over 1,400 employees, Delhi-based Spectramind offers a range of back-office services to global companies including American Express and Dell Computer.

ChrysCapital realised over a six-fold return on the $10 million it invested in March 2000 to set up this pioneering BPO start-up.

Excerpts from Venture Intelligence published by the TSJ Media division of Arun Enterprises, a Chennai-based strategic consulting firm.

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