Bangalore: After floating niche funds for technology, real estate and infrastructure, venture capital funds in the country are now looking at exclusive funds for green technology and health care sectors.
Venture capitalists say sector-specific funds are generally floated by firms on the back of their expertise and in-depth knowledge of the sectors they invest in. Relatively newer and lesser-invested sectors, fewer investors and growth potential of an industry lead to the allocation of new specified niche funds.
In focus: Srini Vudayagiri, MD, Lightspeed Advisory Services, says the fund size for green technology would be small.
“I think specified funds would be floated for renewable energy sector as well as the health care sector this year. The fund size could go up to $100 million (Rs399 crore),” says T.C. Meenakshisundaram, founder and managing director of IDG Ventures India, a $150 million early-stage technology venture capital fund.
According to Meenakshisundaram, these funds would be floated by firms already present in the country.
“Mid-size funds are always country specific. Such funds could already be present in India. However, it is quite difficult for a mid-size fund to be both country as well as sector specific at the same time,” he says.
Lightspeed Advisory Services India Pvt. Ltd’s managing director Srini Vudayagiri says a few small green-technology funds, with fund sizes ranging from $20 million to $50 million, would come together this year.
“The fund size for a sector like green technology would be much smaller. There is no comparison with sectors like infrastructure which needs huge capital. We will see an India-specific fund for green technology this year,” he says. Lightspeed Advisory, a technology focused venture capital firm, was floated by US-based Lightspeed Venture Partners.
Both Lightspeed Advisory and IDG Ventures are interested in investing in renewable energy or green technology companies. Investments in green or clean technology are gradually gaining momentum in India.
Last year, UTI Ventures, a private equity firm, invested $8 million in Pesco Beam Environmental Solutions, a company involved in waste-oil recycling and alternate energy systems, while IDFC Private Equity had invested Rs35 crore in Ahmedabad-based Doshion, a water management firm, in the second half of 2007.
Kleiner Perkins Caufield and Byers or KPCB, the venture capital firm that has backed companies such as Amazon.com, Google Inc. and Sun Microsystems Inc., too wants to actively invest in clean-technology companies in India. KPCB, which partners with Sherpalo Ventures for all its India investments, has so far been focused on consumer-facing businesses and has invested in five companies in the information technology and Internet sectors. Canaan Partners had also earlier shown interest in investing in green technology companies.
The health care industry saw an investment of about $100 million last year through seven deals.
Sector-specific funds are not new in India, though they were mostly focusing on technology or infrastructure. Some of the prominent tech-specific funds are Helion Venture Partners, NEA-IndoUS Venture, Lightspeed Advisory, IDG Ventures and Intel Capital. Infrastructure-specific funds include 3i Group Plc., and state-run India Infrastructure Finance Co. Ltd.
Venture capitalists invested about $928 million in 80 deals in India in 2007, according to a Dow Jones VentureSource report. Venture capitalists continue to be bullish about the investment opportunities in India, but say high valuations remain an issue of concern.
“The overall investment environment in India is becoming more competitive with new funds being launched and lots of global funds looking at India as a market to invest in. This also impacts valuations, particularly for more mature companies. Unrealistic valuation expectation is one key concern driven by benchmarking with large public listed companies,” says Kanwaljit Singh, managing director, Helion Venture Partners.