SME’s Risk Capital in India
Lessons Learnt
Saurabh Srivastava
President – Indian Venture Capital Association
Chairman – Infinity Ventures
11th Feb 2002
The Opportunity
• High growth in technology and knowledge based sectors
• Software industry grew from US $ 100 mill in 1990 to US $
10 bill today
• India is 2nd only to the US in providing software services
globally – 25% of Fortune 500 outsourced to India
• McKinsey forecasts software services industry to cross US $
87 bill. by 2008
• Goldman Sachs forecast Internet user base to grow from 4
mill. to 70 mill in 2003
• Under 10 IT companies listed in 1990, over 100 today.
• Growth now extending to Pharma, Biotech, IT Enabled, etc.
11th Feb 2002
Knowledge Based Industries suit
Indian psyche
• 1.2 m Indians in US software sector; 50% of all H1 visas
issued to Indians
• Microsoft has 5000 Indian engineers
• Silicon Valley Indians have created wealth in excess of $250 b
(Fortune) at peak
• 25% of small IT companies in the US have Indian founders
(Upside)
• India has advanced rapidly in the 90’s, catching up with
global markets in many sectors
• Knowledge based industries growing fast and mostly global;
less affected by domestic issues
• 2nd largest English speaking population; science and maths at
a premium
11th Feb 2002
Indian middle class provides
opportunities
• 200m middle class; 50m have international purchasing
power on PPP basis
• As income grows, disposable income grows
disproportionately, leading to a consumer boom
• Large expatriate population; 18m with superior
demographics
• Around 75m homes have TVs and phone / cable
• Domestic market growing rapidly for internet usage.
Compounded growth rate of 70% plus
• 3rd largest internet market in Asia by 2004 (IDC)
• More than 70m on-line users by 2003 (Goldman Sachs)
11th Feb 2002
The Opportunity areas
• Software Services
• Software Products
– Wrapper applications
– Embedded Software
– Communications / networking
– Chip design
• Internet based services
• Content
• IT Enabled Services
– US $ 18 bill by 2008
– Silicon Valley for such services
– Call centres, Medical transcription, legal databases, etc.
11th Feb 2002
The Opportunity Areas
• Wireless
– Next killer application
– Major role in enabling technologies
• Broadband
– Broadband infrastructure
– Last mile broadband
– Cable Internet
11th Feb 2002
Other Interesting Opportunities
• Bio Technology
– Global scalability
• Pharmaceuticals
– Presents a large market in India and outside
• Electronic Manufacturing
– Mosaer Baer is a successful example
– Presents a large market in India and outside
• Media / Entertainment
– Amongst largest in the world
– Large producers of content
11th Feb 2002
Entrepreneurship in India
• Entrepreneurship is on the rise.
• Year 2000/2001 : over 2500 new entities formed in IT sector
alone nationally
• Not more than 7% funded by VCs at the seed stage
• Over 50% funded by Faith Capital (Friends & Family
Sources)
• Active Angel Funding missing ….
11th Feb 2002
Venture Capital in India ….
A qualitative look
• Predominant sources of Capital are TiE members, US
corporates, Institutions in US, Europe and Singapore
• Amongst global names Warburg Pincus, Intel, Softbank,
Carlyle, Capital International, Citibank, ING etc. active.
Watching on the sidelines are Morgan Stanley, J P Morgan,
3i, ….
• Large Fund of Funds like Harbour Vest, Pantheon …. Still
“watching India”
• Other investors “watching India” include large pension
funds, University endowments
11th Feb 2002
Venture Capital in India – The Good
News
• Over 70 VC/Private Equity funds operating in India today.
Less than 10 a decade ago.
• Profile of majority of VC’s are Investment banking .. a few
from industry.
• Cumulative funds under management over the past 3 years :
$ 5.6 billion ; over 50% is focussed on IT/Telecom.
• Several New Funds Announced in year 2001 targeting India
11th Feb 2002
Venture Capital Investment Trends
US $ MILLION
1,600 1,500
1,400 1,200
1,200 1,100
1,000
800
600 500
400 250
200 20 80
0
)
97
98
99
00
01
02
t
es
19
19
19
20
20
20
*(
03
20
11th Feb 2002
Private Equity Investment in Asia this
year
Country Amt. Invested Number of Deals
($min)
Japan $1,858.38 39
India $1,104.90 91
South Korea $1,054.18 19
Singapore $ 964.92 26
Australia $ 547.83 81
China $ 393.18 11
Hong Kong $ 262.81 23
Taiwan $ 177.24 4
Malaysia $ 35.54 13
Sri Lanka $ 22.00 1
New Zealand $ 16.69 12
Philippines $ 8.16 2
Source : AVCJ Thailand $ 7.20 8
11th Feb 2002
Competency Centres
• City competencies Emerging
– Delhi
• Software services, IT enabled services, Telecom
– Mumbai
• Software services, IT enabled services, Media, Computer
Graphics, Animation
– Bangalore
• Software services, Technology, Telecom, wireless …
Product companies emerging
– Other emerging Centres
• Chennai, Hyderabad, Pune, Calcutta
• Tier 2 cities now emerging.
11th Feb 2002
The Issues
• 99% of start ups are entrepreneur led
• Most would have little / no experience of
– doing a start up
– running a company
– running a profit centre
– financial / HR issues
– organisation structure issues
– long term strategy issues
– putting together a business plan
11th Feb 2002
The Issues
• Mostly they’re armed with
– A good idea
– Passion and commitment
– Will to succeed
– Readiness to take risk
• Low initial capital requirement
• But the risk is very high
11th Feb 2002
Managing the 5 risks
• Market
• Technology
• Execution
• Finance
• Exits
11th Feb 2002
The Infinity Fund
• Angel VC Fund Rs. 150 cr.
• Promoted By leading industry professionals /
entrepreneurs
• People who’ve “Been There, Done That”
• Strong involvement of Silicon Valley entrepreneurs
• Seed / early Stage Investments
11th Feb 2002
Thank You
saurabhsrivastava@vsnl.com
11th Feb 2002