'Early stage funding yet to catch up in India'

Q&A/ Sarath Naru

APIDC Venture Capital is a collaboration between the Andhra Pradesh Industrial Development Corporation (APIDC) and Ventureast group.

The group manages three funds "� The Biotechnology Venture Fund, Ventureast Tenet India Fund and APIDC Venture Capital Fund. The Biotechnology Venture Fund that closed last year raised a corpus of $40 mn and is currently funding a Swiss-based biotech company, Evolva, that has tied-up with the Indian Institute of Chemical Technology (IICT), Hyderabad, for drug discovery.

Managing director of APIDC Venture Capital, Sarath Naru, spoke to Business Standard on the biotech fund's new ventures. Excerpts:

What is the present focus of the biotech fund floated by you?

The idea of the fund is to do early stage funding to biotech companies pursuing unproven technologies and with a good business proposition. Until now, we provided venture capital to 11 companies and do not invest until there is an Indian angle to it.

We brought Evolva, a Swiss-based company, which received European, American and Japanese funding to work with Indian researchers. Evolva will work for discovery of new molecules using yeast as a manufacturing platform from this month.

We are in talks with a research group in the University of Pennsylvania for development of drug delivery mechanism and will invest around $1.5 mn. As of now, early stage funding in India is yet to catch up.

What are the new companies that are in line to receive funding?

We are primarily looking at the healthcare sector in India and currently have five companies at the negotiating table.

These companies are into cardio devices, diagnostic technology, food processing, drug discovery platform using animal models and organic food. We have also been approached to manage a micro-equity fund being floated by the US-based International Finance Corporation (IFC) and Bharat Yuva Shakti Trust (BYST), which has offices at the Confederation of Indian Industry (CII).

BYST micro finances socially-challenged people and is supported by a CII mentor network of around 1,000 people consisting of chartered accountants, retired bankers and middle-level management people. The fund will be created anytime this year.

It has been found that many of the start-up BPOs are on the verge of closure and a few of them have already closed for want of venture capital funding?

Too much early venture capital funding and no identifiable competitive advantage in the BPO business could be one of the causes. The only risk in the BPO business is the placement of orders. And with low profit margin not sufficient for expansion, one cannot achieve economies of scale without further funding.

Unless one works in niche areas, one does not need venture capital. May be one can expect venture capital only after a proven business model.

The big IT companies provided BPO services after holding ground on software services and therefore proved to be successful.

You mentioned that early stage funding in India is yet to catch up?

We are one of the few funds that have done early stage funding to biotech start ups. The current early stage funding in India is less than 1.16 per cent (less than $3mn).

We are way behind in early stage funding, which is a dampener for building new technologies into successful business models. The present investment, more or less, follows the FDI or the smart money, as they are more attuned to investing in technology.