India 2nd most active VC mart in 2002

India emerged as the second most active venture capital market in 2002 in Asia Pacific (excluding Japan), only behind South Korea, with venture capital funds disbursing a total of $590.21m into 76 Indian companies, improving its rank from 3rd in 2001.

This is among the several findings of the second annual survey of the venture capital industry conducted by Thomson Venture Economics and Prime Database on behalf of the Indian Venture Capital Association.

The survey findings will be presented in the IVCA Yearbook 2002 due for release shortly.

The survey was released at a function in Mumbai chaired by the Sebi Chairman G N Bajpai.

However, according to the survey, investments in 2002 contracted by 37 per cent from the previous year, when $937.03m was invested into 107 Indian companies.

Similarly, only 45 venture capital firms made investments in 2002, compared to 57 a year earlier.

This happened as most venture firms despite having sizable funds kept a tight rein on new investments, largely because of the paucity of strong deal opportunities and limited exit options for past investments.

At the same time, most companies suffered a decline in valuations and promoters of several such companies became wary of giving a stake to venture funds.

Another positive development in 2002 was the success venture capitalists had in obtaining significant new capital commitments from investors.

Quoting from the survey, Saurabh Srivastava, the Chairman of IVCA, said that despite the downturn in investment activity, the $241.8m in capital commitments in 2002 was higher by 12 per cent than $216.5m in 2001 and the funds raised in 2002 enjoyed a significant increase in average committed per fund, rising to $48.36m in 2002 compared with $21.65m in 2001.

According to the survey, balanced stage funds received the largest share for new capital commitments in India, rising by a phenomenal 182 per cent from $82.5m in 2001 to $232.4m in 2002; in fact this accounted for 96 per cent of the total commitments.

Prithvi Haldea, Managing Director of Prime Database, who conducted this survey, observed that venture capital firms, began to show interest in the territory of private equity capital,which typically consists of investments in mezzanine, growth, expansion and the pre-IPO stages.

In line with the global phenomenon and similar to 2001, Indian venture capitalists continued to prefer investing in companies in the expansion stage.

Such companies accounted for 57 per cent of all companies raising venture capital in 2002.