New Delhi: Many thought that 2009 would be the year of start-up obituaries. Almost miraculously, venture capital (VC) funds that invested in start-ups did survive the economic downturn, although deals fell sharply.
What do we have in store this year? For most VC investors, the India growth story is still exciting enough, with 50% hoping to do more deals in 2010. A little more than one-third, which amounts to around 35%, of the respondents to the VCCircle Deal Outlook 2010 survey have said that deal-making will continue at the same pace.
This optimism may be due to the fact that in early-stage VC deals, valuations may not be such a deterrent compared with growth capital, or private equity (PE) deals, where benchmarks are often publicly traded companies.
VC firms are keen on chasing themes that are recession-proof and non-cyclical. Education has won hands down with 71% of the respondents wanting to invest in the space. This is up from last year’s 61%. The sector has already seen some traction in terms of deals.
Around 50% said they will bet on mobile value-added services, consumer Internet and information technology (IT)-related companies, giving credence to the fact that Indian consumption-driven sectors will see more traction.
Other sectors on top of the VC radar are healthcare, clean technology and microfinance. While 42% of the VC companies surveyed want to invest only in early-stage companies, the rest are looking for a mix of deals between early, mid and late stages.
With Silicon Valley scripting a recovery, there is a sense that more VC funds may seek a global presence. “It is likely that some of the global VCs (companies) who slowed down in 2009 will re-emerge,” said Kanwaljit Singh, managing director at Helion Advisors Pvt. Ltd. The casualty in 2009 was Battery Ventures, a US-based VC company, which shut its India office last year.
Nearly 46% of the respondents surveyed said that more investors will find their way into India, while around 38%, thought otherwise. The popular perception is that last year’s downturn sent performance milestones of portfolio companies and VC firms’ exit horizon into a tailspin.
But, surprisingly, nearly half of the respondents, around 46%, said that more than three-fourths of their portfolio companies had met their targets. And 38% said that half to three-quarters of their portfolio firms achieved the targets.
Did VC funds escape massive write-offs on their investments? If they did so, that would have been be an achievement, given that this class of investors enters firms at a stage when they are fragile and vulnerable.
Content from VCCIRCLE