Mumbai: It’s perhaps too early to call it a slowdown. Yet, Indian firms got some $116 million (about Rs463 crore today) in venture capital in the first quarter (Q1) of 2008 (disclosed investments), more than one-sixth less than the $140 million invested during the December quarter.
While Internet companies cornered a large chunk of the total capital in the quarter, there were several others in sectors traditionally not funded by venture capital firms such as logistics company Elbee Express Pvt. Ltd, funded by Clearstone Venture Partners, and organic farming company Suminter India Pvt. Ltd, funded by Nexus India Capital.
At the end of last year, most venture capitalists (VCs) had said they would accelerate funding activity in 2008, but that is yet to begin. According to a Dow Jones Venture Source report, companies in India received as much as $928 million in venture capital in 2007. If the next three quarters of this year see investments similar to the first quarter of 2008, the investments this year are likely to fall well short of the 2007 mark. However, investors say early-stage funding will not be affected too much by the meltdown in the stock markets, although it might impact deals in late-stage start-ups.
More than half the deals in the quarter gone by were first round, or so-called Series A funding. Interestingly, most were mature small and medium businesses older than five years looking to expand rather than early-stage start-ups. These include power equipment company Servomax India Pvt. Ltd, which received $3.1 million from Mayfield Fund, and Ahmedabad-based Educational Initiatives, which received undisclosed investment from Footprint Ventures.
Others comprised young companies such as Studyplaces Inc., funded by Silicon Valley biggie Kleiner Perkins, Caulfield and Byers, Sherpalo Ventures and Info Edge (India) Ltd, corporate spin-offs such as eBay Inc.’s online classifieds portal Kijiji India, funded by Matrix Partners India, and digital security services start-up Aujas Networks Pvt. Ltd, a product of the entrepreneur-in-residence programme at IDG Ventures India.
Three late-stage deals struck in February accounted for nearly $50 million of the total money VCs put in during the three-month period (see table). Managed IT infrastructure services company Netmagic Solutions Pvt. Ltd got funded for $20 million from Fidelity Ventures and Nexus India Capital. The Mumbai company, which is planning national expansion, was among the portfolio of equity stakes Nexus bought from the now defunct eVentures India late last year. Nexus was the most active investor, striking four deals this quarter. Besides Netmagic and Suminter, it also invested in online ad network Komli Inc. and embedded design services company Mistral Solutions Pvt. Ltd.
Amid fears of the effect of the US market recession on the inflow of private equity money to India, one of the first domestic VCs to set up shop in the current round of investing raised its second fund last month. Bangalore-based Helion Venture Partners, which had exhausted more than half its first $140 million across a dozen investments here, raised a second one with a dedicated corpus of $210 million. While a majority of its limited partners (or LPs, institutions that back equity funds) came from the US for its first fund, the second fund saw LPs from Asia and Europe as well.
Two Silicon Valley-based venture capital firms expanded their India operations, too, in Q1. Former Motorola Inc. vice-president Mohan Kumar, who is credited with building the India software team for the company, recently joined Norwest Venture Partners (NVP) as executive director and opened its Bangalore office. Niren Shah, who had joined NVP in late 2007, moved from the US in January to head the Mumbai office, around the same time that Harish Gandhi, Bharti Airtel’s former head of value-added services, joined Canaan Partners as executive director in its Gurgaon office.
Yet, another trend that kicked off in the March quarter saw three winners of college-level business plan showcases qualifying for seed capital, instead of just a cash prize as has been the norm for some years now. The top two business plans at the Indian Institute of Management, Calcutta, contest—in online publishing and education—initiated the funding process with Mumbai-based Seedfund, while Eight Point Systems, winners of the Indian Institute of Technology, Bombay’s, Eureka event won Rs56 lakh angel money from mentor Vishal Gondal, chief executive of Indiagames Ltd.