Early stage VC funding drying up in India

The Indian venture capital industry has undergone a sea change over the past few years and early stage venture capital is drying up for entrepreneurs.

Investors are increasingly looking at deals worth upwards of around $15 million and this is hampering the entrepreneurial spirit in India.

This was a key point to emerge from a round table meet organised by IIM-B and N S Raghavan Centre for Entrepreneurial Learning on 'Financing of early stage Indian businesses' in Bangalore on Tuesday.

Putting forth a strong case for reviving early stage financing, Ganapathy Subramanian, Partner at JumpstartUp Fund Advisors, a fund exclusively focussed on early stage funding, said: "Angel funding and seed capital for Indian entrepreneurs is scarce as early stage capital is poorly serviced and it is getting difficult for investors to get a profitable exit. What is a needed is a new and pragmatic approach to deliver visible results and also to institutionalise seed capital to attract VC funding."

The Indian early stage financing accounts for just 5 per cent of total of deals worth around $800 million which happened in India in 2004 and pales into insignificance compared to around $20 billion which is invested in early stage companies in the US.

"We need special programmes to drive evolution and formation of innovative companies and there should be appetite among Indian entrepreneurs to think big. They should be ready to create wealth instead of continuing to control their companies," Subramanian added.

A host of venture capital and private equity players like ICICI Ventures and Citicorp Private Equity also emphasised they were looking at bigger deals as investing during early stages of a company did not offer them easy exit options.