Many thought that 2009 will be when startup obituaries would be written. But, miraculously, venture capital funds, who invest in startups, did survive the storm although deals fell sharply.
So, what do we have in store in 2010? For most VC investors, the India growth story is still exciting with a majority 50% hoping to snap more deals in 2010 while a little over one-third (35%) of the VCCircle Deal Outlook 2010 respondents feel deal pace will continue at the same pace.
This optimism may be due to the fact that in early stage VC deals, valuations may not be such a deterrent compared to growth capital or PE deals, where benchmarks are often public listed companies.
VCs are keen on chasing themes that are recession-proof and are non-cyclical. Education has won hands down with 71% of the participants wanting to invest in the space, up from last year’s 61%. The sector has already seen some traction in terms of deals this year.
Around 50% say, they will bet on mobile value added services, consumer internet and IT-related companies, giving credence to the fact that Indian consumption-driven sectors would see traction. Other sectors on top of the VC radar are healthcare, clean technology and microfinance. While 42% of the VCs surveyed want to invest only in early stage, the rest are looking for a mix of deals between early, mid and late stages.
With Silicon Valley scripting a recovery, there is a feeling that more venture capital funds may seek a global presence. “It is likely that some of the global VCs who slowed down in 2009 will re-emerge,” said Kanwaljit Singh, managing director at Helion Venture Partners. The casualty in 2009 is Battery Ventures, a US- headquartered VC, which shut down its India office this year.
Nearly 46% of the respondents surveyed feel that more investors will find their way into India while a nearly equal number (38%) think otherwise.
The popular perception is that last year’s downturn sent performance milestones of portfolio companies and VCs’ exit horizon into a tailspin. But, surprisingly, nearly half of the respondents (46%) say that over three-fourths of their portfolio companies have met their targets. And, 38% say that between two-to-three quarters of their portfolio firms achieved the targets.
Did VCs escape massive write-offs on their investments? If yes, then it could be a big achievement because this class of investors enters firms at a stage when they are fragile and vulnerable.