Bangalore: Alternative energy, agro industry and innovations for the rural market are emerging as the hot new investment areas for foreign venture capital firms investing in India. Most venture and private equity investments in the country to date have been in technology, back-office services, pharmaceuticals, retail and realty sectors.
New Enterprise Associates or NEA, a California-headed VC firm that has just announced a Rs900 crore fund for India, expects to invest up to a tenth of the corpus in ‘clean technology’ ventures. Other funds such as Bessemer Venture Partners, Vantage Venture and IFC, the World Bank’s private investing arm, are focusing on such opportunities as well.
The growing commercial acceptance for alternative energy products and growing demand for agriculture produce and related products in India are the twin spurs driving this investment trend.
“Water and power are the two big problem areas in India, and innovative business ideas that can provide a solution are ideas to invest in from a VC standpoint,” said Ben Mathias, vice-president at NEA’s India unit.
Bessemer is evaluating four new projects in the solar power sector, said Siddharth Nautiyal, Bessemer’s senior associate, India, but declined detail.
The initial investments in the emerging sectors will not match VC-backed transactions concluded in tech, back-office and pharma industries but will increase as the projects mature. Deal sizes in these sectors will range between Rs2 crore and Rs5 crore at the ‘seed stages’ of the project.
“But from the first round of funding venture capitalists will make investments of upwards of Rs25 crore as alternative energy projects tend to be capital intensive,” said Nautiyal. Bessemer last year invested Rs100 crore in Shriram EPC, a maker of power plants that run on biomass fuel.
IFC, which has an energy infrastructure portfolio of Rs450 crore from out of a total investment corpus of Rs2,250 crore in India plans to significantly increase investments in these sectors.
“In the next 12-18 months, we will invest Rs675 crore in private sector start-ups that generate alternative energy and rural innovation,” said Anita M. George, chief investment officer for IFC in India. The IFC and other deals in alternative energy, agro industry and innovations for the rural market will be the first time such deals have attracted such interest.
In 2006, according to deal-tracker Venture Intelligence, about Rs33,000 crore was raised in 302 private equity and venture-capital deals, of which 87 were from the information technology and back office services industrial, 54 in manufacturing and 30 each in health care and banking.
Of the remaining 101 transactions, 99 were in engineering, construction, food and beverages, media, textiles and pharmaceuticals.
NEA, which in the US has backed clean-technology companies such as Bloom Energy that makes solid-state fuel cells and is founded by India-born K.R. Sridhar, will link up with researchers at India’s top universities, said Mathias, himself an alumnus of the Indian Institute of Technology, Madras.
VentureEast TeNet, an early stage fund founded by Ashok Jhunjhunwala, an electrical engineering professor at IIT Madras, and a team of academics that has raised $10 million (Rs44.23 crore) funding from Ray Stata, chairman of Analog Devices, is a model that VC firms are aiming to emulate.
The TeNet fund has a portfolio of 14 companies that focus on innovations for the Indian market, including Vortex, which makes a low-cost automatic teller machine for rural areas, and n-Logue that has developed a bilingual suite of productivity software. “So long as VCs invest at the early stage and don’t restrict themselves to proven models of wind energy and rural retail, the entry of foreign capital in these sectors will make a difference,” says Jhunjhunwala.
A ‘fund of funds’ model where large venture-capital companies invest in smaller funds that target alternative fuel and agri-sector investments, is likely to take off as well.
Aavishkaar Micro Venture fund, that has invested Rs5 crore in 14 companies in the rural retail and agri-technology companies, is looking to close a Rs60 crore fund by end-April.
“Apart from high net worth individuals, we are looking at raising funds from four institutional investors”, said Vineet Rai, chief executive of Aavishkaar Venture.