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Growth capital loses steam as venture capital picks up

Sarika Malhotra, New Delhi, The Financial Express

December 09, 2011

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Venture capital/early stage investments were the flavour in November as deals in this space nearly tripled over the corresponding month last year. The number shot up from 7 to 18 deals, coupled with the deal value almost doubling from $65 million in November 2010 to $127 million in 2011. On the other hand, growth capital/late stage investments increased only marginally from $461 (Nov 2010) to $492 million (Nov 2011), signalling stagnation.

Sanjeev Krishnan, executive director, PwC, pointed out growth capital investments have slowed down in the recent past owing to the overall macroeconomic conditions. He said, “Polarisation is taking place in the growth capital space with interest factors, volatile market and returns impacting investments.” Comparing the VC space with PE space, Krishnan affirmed that VCs are generally less immune to the macroeconomic conditions as they back a unique idea/technology or a team at an early stage and hence end up writing a smaller cheque compared to a PE investor.”

The big money in the VC space came in the technology and the biggest investments in November included $45 million in Ashok Soota’s Happiest Minds Technologies by Intel Capital and Canaan Advisors. This was followed by $40 million in Fashionandyou.com a fashion and luxury product sales websites by a consortium of investors that includes Sequoia Capital, Norwest Venture Partners, and Intel Capital.

Sudheer Kuppam, MD- India, Intel Capital said, “We are seeing an e-commerce boom in India. Rising Internet penetration and access to 3G devices allows consumers to explore the potential of the Internet for online transactions.”

Similarly, Alok Mittal, managing director, Canaan India said ticket size of VC investments were going up especially in e-commerce space. Mittal added, “Since not too many new entrants have come in the VC space in India this year, 2012 will be a stable year for VC investments and with a little upward movement.” Mittal also said 2012-13 will be defining years for VC investment, as from a return standpoint a lot of investments will have to show exits and that will decide if LPs will buy the VC investment story in India in the future, or not.

PE and VC investments witnessed a 241% surge in the number of deals in November 2011 against the same month last year. November saw 58 deals worth $620 million against 17 deals worth $527 million in November 2010, a 17.65% increase. However on a month-on-month basis, November attracted the maximum number of PE deals while March,with $1.46 bn, received the maximum amount of PE capital as per VCCEdge data.

In November, BFSI and Real Estate were the most targeted sector, with a cumulative investment of $263 m. The sector accounted for 42.42% of the total PE capital invested during November, followed by Consumer Discretionary at $173 m and IT with $57 m investments.

However, Darius Pandole, Partner, New Silk Route Advisors said there was some element of investor fatigue due to macroeconomic conditions. “This fatigue is a short-term phenomenon and is expected to last for six to 9 months.” he said.

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