Mark G Heesen, president, National Venture Capital Association (NVCA)—which represents 90% of the US venture capital(VC) industry with 450 member firms and 7,500 investors–predicts that the Indian venture capital market would grow strong from within and be less dependent on foreign venture capitalists in the current decade. In an interview with VCCircle, Mark Heesen talks about an upbeat US sentiment on the Indian market based on NVCA’s Venture View 2010, an annual prediction survey. Exerpts:-
What is the US VC industry’s perspective on the opportunities that India presents?
India is a destination of promising opportunity. A large and growing middle class, the ballooning size of the consumer market, enormous growth in healthcare, advancements in clean technology and information technology infrastructure make India an attractive investment destination. US venture investments in Indian companies were $9415.18 million covering 695 transactions (as of December 2009).
What does the annual prediction survey point to with respect to investments in Indian ventures?
According to Venture View 2010, an annual prediction survey which included responses from over 325 venture capital firms in the US, 58% of the respondents have said investments into India will increase in 2010. In 2009, VC investments into Indian companies actually declined to $1399.92 million as compared to $1719.20 million in 2008. While this was attributed to the general investment ecosystem, the overall investment attractiveness for Indian ventures seemed to be positive. The current year is expected to see an upturn with cautious investment decisions within the US.
US VCs are likely to find more confidence in outside markets like India and China. What makes India score well are success rates of Indian ventures, growth of capital markets, high degree of innovative business proposals and promising returns. Firms like TPG growth LLC, Warburg Pincus LLC, Norwest Venture Partners and Sequoia Capital have been actively playing the lead role in identifying and investing in Indian ventures.
Which are the attractive sectors in terms of investment themes?
US VCs are closely watching several small and emerging growth companies. The IT sector has always been the catch for venture-backed investments. Social media, life sciences, medical devices and biotechnology industries offer greater attraction. Green technology can expect to see more inflows in the coming years.
Is it challenging to raise money for investments in India?
Finding investors for the emerging markets is always encouraging. The India story sells well. Entrepreneurs of Indian origin are among the most respected lot in the US venture platform. They top the list of immigrant-founded venture-backed public companies in the US. These entrepreneurs who came here on H1B or education visas are successful and are found to be risk-driven.
The impeding factors include the huge time difference because of geography, difference in legal structures and cultural understanding that affect quick business decisions. I would see the investment attractiveness index to be rated at 7 on a scale of 10.
What do you think about the size of the fund related to Indian ventures?
Compared to other matured markets, the size of fund related to Indian ventures is definitely small. But, size is no factor in deciding venture funding trends. It is the pay-off time and size of returns that matter. I would say that the size of funds in India would grow in the coming decade.
What are your impressions on the success rates of deals related to Indian ventures?
If there were 10 deals that were under process, one is usually a major success. This is pretty much the industry average.
What does the survey predict for the US VC industry?
The response indicated an inevitable contraction of the US VC industry. A gradual increase in investment levels and exit transactions is expected in 2010. The asset class would continue to shrink in size over the next five years. Many venture firms voluntarily stayed out of fund-raising in 2009 but they will not be able to afford the luxury of continuing to wait for market conditions to improve in 2010. They will be out in the market raising funds along side firms that were already scheduled to raise this year. All signs point to a leaner and more capital-efficient asset class.
What would this lean structure mean for a market like India?
This will mean fewer firms for sure but not necessarily fewer companies being funded. There is a great deal of innovation taking place and VCs with a track record will be well-positioned to build companies. But, what is interesting is that the Indian VC market is poised for a full growth and maturity phase and they will become less dependent on foreign venture investors. We have been witnessing more domestic VCs entering the Indian market. Their numbers are set to grow in the current decade. The role of LPs (investors) is becoming more profound. The Indian VC market is heading for an independent growth phase in the current decade.