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Private-equity investors have tightened due diligence in light of the corporate governance issues that have gripped India Inc lately and the global economic uncertainty has made it tougher for them to exit companies. How have Indian companies done in attracting foreign money this year? In a wide-ranging interview, Mr Venkat Subramaniam, co-founder of Veda Corporate Advisors, and a charter member of TiE Chennai, talks to Business Line on issues the PE players are facing and how adventurous venture capitalists are going to be.
What is the proportion of foreign VCs in India? How are venture capitalists (domestic and foreign) bracing against rupee fluctuation considering the sudden fall?
Both venture [capitalists] and private equity investors are long-term players and don't get rattled by short-term events, including currency fluctuations. Having said that, it does leave a sour taste, especially in situations where one has recently invested and there is a marked-to-market loss of 15 per cent or so purely because of currency fluctuation.
Given that a predominant portion of the capital available is foreign, this development assumes more significance.
Of late, issues of corporate Governance have been haunting India Inc. Do you see a negative sentiment among venture capitalists? How cautious are they?
Yes. Corporate governance issues have been concerning private equity investors for quite some time now, particularly since the Satyam episode. Investors have reacted swiftly and tightened their approach towards promoter, business, accounting and legal due diligence. This is also getting reflected in the form of longer cycles for deal closures as investors want to ensure that all issues are resolved to their satisfaction, before the funds are released.
This is less of an issue for venture capital investors, as they come in relatively early when there is limited past track record.
Are venture capitalists left with bulging coffers and dwindling opportunities? How competitive is the environment?
Honestly, there is no dearth of opportunities, either for venture capital or private-equity investors. It's just that the macro environment has not been conducive for investments and their confidence has been slightly dented by lack of successful exits in recent times coupled with concerns on growth sustainability and margins. It is but natural, that in times like these, investors prefer to wait and watch rather than close deals in a hurry.
As far as venture capital is concerned, we have seen more action this calendar year than earlier. This is reflected both in deal volumes and aggregate deal sizes.
Recent studies show that exit value hit record high in 2010 for PEs. Is it continuing now also? How is the situation now for VCs?
Exits have been a major concern for private equity investors whereas venture capital investors have fared more successfully on this front.
In private equity, the sluggishness in the capital markets has meant that IPO exits have been very few and alternatively, the option to divest to other PE Funds has not been easy because PE funds have also not been in a hurry to do secondary deals. The Merger and Acquisition route has been perhaps the only door open and that too for select industries.
On the other hand, the year has been great for venture capital investors. The revival of interest in the e-commerce segment has resulted in a cash-out opportunity for several early stage investors and this has also accelerated deal activity in this segment.
How are VC players (foreign and domestic) managing the current global macro-economic situation?
As far as private equity investors are concerned, they seem to be more cautious with regard to new investments, especially when it comes to valuations. With regard to their existing portfolio, they are not factoring in attractive exits in the short-run and also bracing themselves up for some headwinds in the business of their portfolio companies.
The venture capital investors, at least for the moment, appear to be more positive and deal making momentum is not lost. However, it is very likely that there could be some challenges here too, if the macro environment continues to be tough.
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