VC investment in India small but steady

May 22, 2008 | Anthony Ha

Venture investment in India had a relatively quiet first quarter — VCs invested $99 million in 16 deals, according to a new report from Dow Jones VentureSource.

That’s an 80 percent drop from the same period last year, but that plummet tells us more about the investment spike in early 2007 than whether the recent quarter was particularly terrible. It’s also a 27 percent drop from the fourth quarter of 2007. (Yeah, last year was a record-breaking time for venture investment in India.)

Interestingly, the amount of deals held relatively steady — it’s the deal size that shrank. That’s pretty much the exact opposite of what happened in China (the other country seen as the standard-bearer in overseas venture growth), where the number of deals fell, but the amount of money per deal grew, causing a 46 percent year-over-year boost. How big is the difference? In India, the median deal size was $4.1 million; in China, it was $10 million. The United States fell in between, with a median size of $7.1 million.

A single company, Mumbai-based ClearTrip Travel Services, accounted for more than one-fourth of all the venture dollars invested, with a $26 million third round.

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About the Author, Anthony Ha

Anthony Ha writes about enterprise technology, cloud computing, tech policy, and random cool startups. Before joining VentureBeat in January 2008, he worked at the Hollister Free Lance, where he won awards from the California Newspaper Publishers Association for breaking news coverage and writing. Anthony attended Stanford University from 2001 to 2006, and now lives in San Francisco. Reach him at anthony@venturebeat.com.

  • Aficionados of Indian Venture Capital and Entrepreneurship may want to read this series, Vision India 2020: http://sramanamitra.com/2008/05/06/vision-india...
  • Markz
    If you're going to make inter-country comparisons, you need to adjust for the difference in the purchasing power of a dollar (i.e. for either price index or purchasing power parity). So, $1 in India goes 3-6x further than $1 in the US.* That means a $4 million average investment in India is equivalent to a $12-$24 million investment in a US company (let's say ~$18 million in India compared to $7 million in the US).

    However, that doesn't account for outsourcing by the US company, so let's say the comparable US-backed company outsources 33% of its costs back to a country like India. If you factor that in, the average India VC investment on a roughly equivalent basis is ~$12 million, compared to $7 million in the US.

    So, bottom line is that the average investments overseas seem to be significantly larger than in the US.

    *see for example World Bank's purchasing power & price indices at:
    http://siteresources.worldbank.org/ICPINT/Resou...
  • NoDomainsForSale
    India’s lack of a secondary market for bonds, and other holes in its financial infrastructure, cause an excess reliance on stocks and serve as a drag on business innovation.

    Huge untapped rural labor reserves give India a growth potential in manufacturing that may not become fully engaged for another five or six years. India will rival China as the world’s manufacturer.

    In the short term, there is a huge opportunity for offshoring of travel agency and ticket booking services from the U.S., where the average annual income for travel agents is over $40,000. It takes substantial capitalization, training and lead time to set up a new facility with trained staff to handle this type of work, which has contributed to a bottleneck of travel projects waiting to move.