Venture capital investments into Indian companies was up 120 per cent during the second calendar quarter of 2008 at $238 million across 17 deals as against $108 million across 12 deals in the same period of 2007, according to a Quarterly India Venture Capital Report released by Dow Jones VentureSource.
According to this report, venture capitalists were eager to back advertising start-ups in India during the second quarter of 2008, channeling in $89 million-nearly 37 per cent of the region's quarterly investment total-went to five advertising/marketing companies, more than any other sector.
"We've seen deal activity in India hold steady for three consecutive quarters but this most recent quarter posted the second-highest investment total on record, due in large part to the $70 million second round for Laqshya Media of Mumbai, the second-largest deal ever completed in India," said Jessica Canning, Director of Global Research for Dow Jones VentureSource. This highlights two growing trends within the region -- one being a growing interest in advertising plays that capitalise on India's emerging infrastructure and growing Internet usage; the other being an increase in second-round deals, which is expected as VCs are helping their portfolio companies expand and steering them toward liquidity.
The data showed that India saw seven second-round deals completed in the second quarter, garnering a record $161 million and exceeding the $118 million that was invested in second rounds in all of 2007. Ten seed and first round deals were also completed during the quarter, accounting for nearly $77 million in investment. No later-stage deals were completed.
Overall, India's Business & Financial Services industry, which includes the advertising/marketing sector, received the bulk of investment with $131 million invested in nine deals, records on both accounts. Second in terms of investment was India's Information Technology industry, which recorded three deals and $33 million worth of investment during the second quarter, a 55 per cent decline from the $73 million invested in nine deals during the same period last year.
Canning added: "While the size of venture deals in the US, Europe and even China continues to climb, venture capitalists have shown some restraint in terms of investments in India, due largely to the risk still associated with this emerging region. In fact, since we began tracking venture investment in India, the median deal size has dropped from $17 million in 2005 to $10 million in 2006 and now to $8 million in the first six months of 2008."
In terms of development stage, companies with active revenue streams attracted the most capital in the second quarter of 2008, as nearly $151 million went to 10 deals for companies that were shipping products and another $4 million went toward a deal for a profitable company. Just six deals, worth $83 million, were for companies currently developing products.