India is still fashionable for US venture capitalists. So says Promod Haque, managing partner of US-based Norwest Ventures.
Sanat Vallikappen & Nandini Lakshman
MUMBAI: India is still fashionable for US venture capitalists. So says Promod Haque, managing partner of US-based Norwest Ventures.
“There is $20 billion being raised every quarter by VCs in the US. And a part of this is making its way into India,” he said.
But the number of deals being closed is a tad too low for the kind of attention the country has been generating. This is where local seed funds have come in, filling the gap between ‘friends and family’ funding (in the range of Rs 40-50 lakh) and foreign venture capital funding.
“Venture funds from abroad are facing a problem of sorts because their fund sizes are too big, and because there are not too many Indian start-ups that can absorb the kind of money these funds are willing to invest,” said Arun Natarajan, founder and CEO of Venture Intelligence, a research firm focused on venture capital and private equity funds.
“Venture funds from abroad typically like to deploy between $5 million and $10 million in a company, which is why there are too few deals,” added Natarajan.
Bangalore-based Nadathur Holding and Pune-based Indiaco are among the seed funds that sprung up about two years ago. Meanwhile, among those that have made their presence felt in the past one year are names like the Mumbai-based Seed Fund, and Bangalore-based Erasmic Ventures and Mentor Partners.
For instance, Seed Fund is raising a corpus of $10 million and has decided to invest less than $1 million in companies they are funding. “We are going to fund early stage companies in the technology, internet and mobile telephony, which require less money for large play,” said Pravin Gandhi, general partner of Seed Fund.
The advent of these local angel funds is not to say that early stage funding of Indian companies hasn’t caught the imagination of all and sundry in the US.
“You hear about funds getting created in the US for India that have never made an investment before. That’s how stupid it gets sometimes. It is a bit of herd mentality. Everyone thinks it’s a good idea to do it,” said Haque.
But a problem faced by funds like his and those like Kleiner Perkins Caufield & Buyers, Sequoia Capital and Battery Ventures is that their minimum investment sizes are too big for an Indian start-up.
Will they graduate to becoming private equity funds? They are not saying.
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