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FUNDS
Right Here Waiting
Money and ideas are already here. The twain must meet
DHANYA KRISHNAKUMAR
16 Jan 2009
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| Illustration: Anthony Lawrence |
Behind all successful businesses, there is money. In India’s software product development arena, money is coming from venture capital (VC) funding. This has never been more so than in recent years. Over the years, the capital ecosystem in India has become larger and more organised. Today there are a large number of VC/PE (private equity) firms and a few formal angel investor networks operating here. There are also many high net-worth individuals (HNIs) interested in the Indian technology sector.
“Investments in Indian product companies have increased multi-fold in the past three years because founders of such companies come with experience in products,” says Sudhir Sethi, chairman and managing director of IDG Ventures India Advisors, which has invested $12.2 million in five Indian product firms. “The emergence of venture and angel investors who are knowledgeable about the Indian product market, and the emergence of role model product companies such as Ramco, Tally and Subex also go a long way in future successes,” says Alok Mittal, managing director of Canaan Partners.
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Since 2005, VC investment in India has grown at 42 per cent CAGR to reach $543 million in 2007. Over the same period, funds invested in software products have grown at a slightly faster 43 per cent CAGR, from $76 million in 2005 to $156 million in 2007. Most VCs are extremely bullish about Indian software product firms. “There are glaring needs from many verticals in the Indian market, such as financial services, retail, healthcare, travel, entertainment and education, and all these are extremely attractive propositions for entrepreneurs. We are looking for ventures that address the Indian consumers’ needs,” says Sanjay Anandaram, co-founder of JumpStartUp Venture Fund. It has also helped that, over the years, Sebi has made multiple policy changes in improving the norms for foreign VC firms.
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There are close to 275 VCs, 350-plus PE funds and an estimated 225 angel funds operating in India. They include blue-chip VCs such as IDG Ventures, Helion Advisors and Canaan Partners. However, “The rate of change is excruciatingly slow despite the fact that product firms are on the rise in India,” says Sanjeev Aggarwal, co-founder and managing director of Helion. “A few enablers, like a coming together of returnees from Silicon Valley who have been working for products, and those who have grown up in India with an understanding of the market, can help fuel growth.” Already, multinationals such as Google, Cisco, Intel, Microsoft, Sun Microsystems and Motorola have created funds and programmes to actively nurture new product ideas.
One key drawback is that angel investing, which played a major role in software product development in the US, is very thin on the ground in India, though VC firms are increasingly willing to fund first-time entrepreneurs. Forming angel networks of HNIs and expatriates across the country will foster early stage funding in India. Also, micro funding options by VCs with a focus on pure technology funds can bridge the gaps in the angel ecosystem and boost start-up activity. But, “euphoria is necessary as this space needs cheerleaders”, adds Anandaram. “At the moment, all the necessary ingredients exist. It’s only a matter of drawing the linkages before things can take off.”
dhanya(dot)krishnakumar(at)abp(dot)in
(Businessworld Issue 20-26 Jan 2009)
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