News: 'India gaining flavour with US venture capital cos'

(BL 03/01/2007) Chennai - Indian companies are posing a tough challenge to their Chinese and British counterparts in attracting venture capital from American companies.

China was the top destination for US venture capital (VC) in 2006, attracting more than $ 850 million in investment. The UK was second with around $ 825 million followed by India with more than $ 700 million, according to a study done by Thomson Financial, a $ 1.9-billion provider of information and technology solutions.

American venture firms have been steadily increasing their exposure to foreign companies, nearly tripling their overseas investments over the last decade. They are investing around 20 per cent of their money in foreign companies, up from less than 7 per cent in 1996, the research shows.

In the third quarter of 2006, venture capitalists invested $ 6.2 billion in 797 deals, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association based on data by Thomson Financial. American VCs invested $ 221 million in 18 deals in Chinese companies; $203 million in 18 deals in Indian companies and $ 46 million in 11 deals in Israeli companies, says the report.

Record investment

Private equity (PE) firms invested a record $ 7.5 billion over 299 deals in India during 2006, according to a study by Venture Intelligence, a research service focused on private equity and venture capital. The latest quarter ended December 2006 witnessed PE firms investing $ 2.5 billion across 67 deals, the study revealed. The figures do not include PE investments in real estate.

"The amount invested during 2006 was over three times that during the previous year, which itself was a record one," said Arun Natarajan, Founder and CEO, Venture Intelligence.

Mega deals such as Idea Cellular's pre-IPO placement and the KKR-Flextronics Software buyout contributed significantly to the total. There were 26 deals involving investments of over $ 50 million during 2006 compared with nine in the previous year, the study showed.

"I will not be surprised if the investment in 2007 touches $ 10 billion. However, going forward we have to be careful to ensure that this momentum is sustained and does not get derailed by unrealistic expectations," K.E.C. Raja Kumar, CEO, UTI Venture Funds, was quoted in a release.

Preferred sectors

Information technology and IT-enabled services was the favourite industry among PE investors during 2006, accounting for $ 1.5 billion across 87 investments. The manufacturing industry followed attracting 55 investments worth $ 962 million. Other industries that attracted significant PE investor attention during the year included financial services and insurance, healthcare and life sciences and engineering and construction.