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D. Murali

AS A country, we're gradually getting used to lot of attention from the rest of the world, not for droughts and derailments, disasters and defections, but for the vast investment potential. Now that we're one of the fastest growing economies on the planet, "there are a number of players, both from within India as well as abroad, who are looking towards venture investment in the Indian market," writes Manoj Saha, Managing Editor of Dickenson Intellinetics (www.vcindia.com), in VC Guide for India 2004-05, `the independent and definitive guide to venture capital and private equity for India.'

Much of VC is what we don't see because "reliable estimates of VC funding are difficult, mostly because not all that is reported can be verified." Also, many VC transactions may fall outside official statistics, and often "indistinguishable from routine foreign investment." According to NASSCOM data cited in the publication, VC investment was $3.3 billion till 2003 end, but this is barely 3 per cent of the total invested in Asia, even as China and Hong Kong hogged 40 per cent of Asian investments.

VC is not something totally new for us because development financial institutions were playing such a role for decades; also, "Greenfield projects of companies were funded by small investors by subscribing to IPOs even before their infrastructure was laid out." Modern VC arrived amidst us barely two decades ago when a technology development fund was set up. Indian Venture Capital Association (IVCA) was formed in 1993. Three years later, SEBI brought in regulations for VC, and in 2000, norms for VC investing.

In addition to the efforts of different ministries such as Finance and IT, and also the States, what the Guide recognises is the initiative of The Indus Entrepreneurs (TiE) a global not-for-profit organisation formed in the Silicon Valley in 1992 that "influenced liberalisation of key sectors including telecommunications and VC investments in India." For your info, TiE's board includes biggies such as Desh Deshpande, C. K. Prahalad, Rajat Gupta, and Ashok Soota.

VCs came into limelight during the dotcom boom. After the bubble burst, they moved their monies to "high potential sectors such as pharmaceuticals (particularly biotech), media and entertainment, and BPO (IT-enabled services or ITES)." There are detailed charts that show how VC interest is broad-based across sectors, ranging from aerospace to transportation; ITES remains the favourite, though. Among regions, South and West are preferred while East comes last.

What has been the size of VC investment? To answer this, the Guide uses results of a sample comprising 80 active VC/PE firms. `Micro' with investment of less than $1 million is the most popular. There're not many `large' with investment size of $10 million and above, but a good number of firms come under `not disclosed' category. A different analysis shows the point of VC entry among the various stages, viz. seed, start-up, expansion, mezzanine, MBO/ LBO, acquisition, turnaround, recapitalisation, consolidation, privatisation, spin-off, distressed debt, secondary purchase and so on.

The valuable portion of the Guide is the one about profile of VC/ PE firms. You'd learn, for instance, that: Acer Technology Ventures focuses on "early stage innovative software or hardware based intellectual property"; Charles River Ventures "selects visionary entrepreneurs with innovative ideas"; Glorimex provides capital "by working in close concert with the management team by taking a seat on the board"; and IndAsia Fund Advisors tends to focus on "capital-efficient businesses where high barriers to entry can be constructed." Each profile gives contact details, industry preference and so on. But don't use the Guide as "a mailing list in a hit-or-miss way" advises Saha to eager entrepreneurs. Instead, work `one-to-one'.

To help face VCs, there's a glossary. Burn rate is "the rate at which a company requires additional cash to keep going". Carried interest can be substantial, say about 20 per cent, and it refers to profits allocated to the VC partners. PIPE is what the deep pocket may be smoking, and the acronym stands for `private investment in public equity', though our politicians understand it the other way about.

Roll-up is a strategy of merging small firms to exploit economies of scale. Seed capital, as you'd agree, is not an agri term. Similarly, spin-off is not the chuck type off-spin. Vintage year looks a winery jargon, but is `first closing' year of funds. Tombstone is the end of everything, as undertakers would acknowledge; but to VCs it's the beginning. The eerie word means "an advertisement, typically in a major business publication, by an underwriter to publicise an offering that it has underwritten."

Venturesome read.

BookValue@TheHindu.co.in

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