An IIT-Madras research study has revealed that the numbers of new foreign and domestic Venture Capital and Private Equity (VCPE) investors show a declining trend and the number of investors withdrawing shows an increasing trend.
“It is a thinning crowd at the gate,” said A. Thillai Rajan, associate professor, Department of Management Studies, IIT-M. While the numbers of new foreign VCPE investors have come down from 75 in 2006 to 20 in 2009, the number of domestic investors came down to 12 from 22. In the same period, the number of foreign investors withdrawing climbed up from 23 to 76 and that of the domestic investors from 12 to 23.
Sharing the key findings of ‘India Venture Capital and Private Equity Report 2010' on Tuesday, Mr. Rajan, the author of the report, said that more than one-third of the investors have not made any investment since 2007 and 35 per cent of the investors had invested in only one deal. “There is a need to find out if structural changes are needed,” he said.
The study had covered six years from 2004 to 2009, 338 VCPE investors and 1,870 transactions worth Rs.2.8 trillion of investment.
The VCPE investors were also consistent in being inconsistent.
About 67 per cent of foreign investors were inconsistent, he said, noting that sustainable long-term growth depended not only on the number of investments but also the consistency of investments.
Analysing the number of deals in metro and non-metro locations, he said the VCPE investments were highly exclusive as the non-metro locations accounted for only about 22 per cent of the total deals and about 16 per cent of the total investment.
The presence of foreign investors — constituting 69 per cent of VCPE deals and 85 per cent of investment — was unique, which has largely driven the investment but the dominance of foreign VC funds has increased the volatility of VC investments, he said, underlining the need to increase domestic VCPE investment.
M.S. Ananth, Director, IIT-M, released the report and Arun Jain, Chairman and CEO, Polaris Software, received the first copy. C. Rajendran, Head, Department of Management Studies, IIT-M, and L.S. Ganesh, in-charge, Cell for Technology Innovation, Development and Entrepreneurship Support (C-TIDES), IIT-M, spoke.