Chennai: US-based venture capital and private equity firm Trident Capital has scaled back its India investment plans by as much as 60% after it managed to raise only half the targeted amount last year for its seventh fund amid the economic downturn.
“This has been the worst fund-raising environment,” Trident’s managing director Venetia Kontogouris said over the phone. “So, we want to be very cautious and we don’t want to provide cheques to businesses who won’t make it.”
So far this year, the private equity firm hasn’t made any investments in India because valuations quoted by Indian start-ups were high, Kontogouris added.
Last year, Trident planned to invest $150 million (Rs726 crore) in India over three years from its seventh fund. But more than a year after that announcement, that amount has been slashed to about $50-60 million.
The move was prompted by Trident’s ability to raise just $400 million in 2008 for its seventh fund, far lower than expectations of $600-800 million.
“There is still this dichotomy where venture capitalists are interested in investing in countries like India and China, but they are having trouble raising capital,” said Kalpana Jain, a senior director at consulting firm Deloitte Touche Tohmatsu’s Indian unit.
Trident’s investment cutback may be a sign that venture capital flow into India for the rest of 2009 will continue to be just a small fraction of last year’s level.
During the first half of 2009, overall venture capital investments in India plummeted 70% to $117 million from $413 million in the same period last year, according to Chennai-based research group Venture Intelligence.
The number of deals dipped by more than half to 27 during the January-June period from 67 deals a year earlier.
Trident, which has been around for more than two decades, has $1.5 billion under management in more than 150 companies globally.
In India, it has invested close to $40 million in about five companies including a slew of outsourcing service providers such as Bangalore-based Microland, an information technology infrastructure management company, and Outsource Partners International, a provider of finance, tax and accounting outsourcing services, as well as Pune-based Neilsoft, an engineering and technology solutions company.
The company’s negotiations with a few Indian companies earlier this year didn’t result in any deals because start-ups’ valuations, at three-four times forecast 2009 revenues, were more than double Trident’s comfort level of a 1.5 multiple, Kontogouris said.
“We are still in a price-discovery market in the new environment,” Deloitte’s Jain said. “There are still people who have their heads in the sand and have not rationalized their valuation expectations.”