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Monday, April 23, 2007 

India Hot Hot for VC activity

Rediff.com reports latest that forty VC firms have raised funds totaling $400M to be invested in startups in India. Thats great. Last year (2006) total VC and PE investment in India was $7.5B as opposed to just $2.2B in 2005. This year $2.4B has already been invested in the first quarter, leading me to think that this year total investment will top $12B or so.

I wonder where all this money goes. Working at VC firm in America, I see why startups in America raise funds in millions of dollars. Having employees on your payroll in America is very expensive. Especially if your staff is composed of top scientists. You can burn through a few million dollars in one year easily. On top of that, marketing and sales costs are typically much higher too.

Comparatively, hiring people in India is much cheaper and many costs that you typically see in American startups are either inexistent or way low. So, it is my guess - and its totally my guess - without any research into data about startup funding in India, that an average startup company might burn through cash much slower than an average startup in America - and thus the need to raise less capital.

So if we are on average investing less money in startups, we must invest in a lot more startups to invest all that money thats flowing into VC and PE funds in India. But where are all the Indian startups that we must see blooming already? If India Inc's startups gulped down almost 28% of US VC investing (VCs invested $26.5B in 2006 in US), where is all the money going?

Is there a flaw in my logic that I am not seeing? Or are there other factors such as Indian startups taking longer to gain visibility or something else? It will be interesting to see. In the meanwhile, I will try to find some data about Indian startups in 2006 and 2005. Anyone know any good databases or good data resources for Indian startup arena? I know of Venture Source, but I afaik it has data only for US, Europe and Israeli startups (yes, Israeli! I was surprised too when I first saw it).

Apparently, the data that all news sites are reporting is from a study titled "Indian PE/VC Market Firing on all Cylinders-Liquidity all round" by Assocham and Ernst and Young. I am trying to find this study, but it seems it is too new for search engines to have indexed it or its restricted access. If someone can find it and send me a link or the file at indyman 'DOT' blogspot 'AT' gmail 'DOT' com, that will be great.

Another interesting read: Surging economy sees private equity investment soar. Wall Street Journal - Investing In India. (.pdf)

Update: Today morning 04/24, data for Q1 2007 VC investing came out. VC investors in US have invested just under $7.1B. This number is higher than all other Q1 results for the past 6 years, indicating a good forecast for the economy.

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Good article.

My guess (yes, guess only - even i haven't done any study on this) is that a good chunk of those funds went into India online Travel space which is quite visible. Some dollars went in search engines like Guruji.com which haven't yet created enough buzz. And some mobile-technology companies that haven't raised their heads yet.

Then there are the likes of Avake who having two products TolMol (www.tolmol.com) and Gladoo (www.gladoo.com) in their pockets are still self-funded. May be such startups will catch VC eyes and make their presence felt soon.

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  • I am a Risk Management Consultant at KPMG. Before this, I was an Investment Associate at University Venture Fund in Salt Lake City, UT. My personal interests are in venture capital, private equity, technology, real estate, entrepreneurship, investing, stocks, india, patriotism, mumbai, hanoi, vietnam and life in the united states.
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