Absence of adequate long-term pool of capital in India triggers trend.
Funds promoted by government-owned financial institutions, pioneers of the venture capital business in the country, are trying to claw their way back and are in the process of raising a total of Rs 3,000 crore.
At least two of them, UTI Ventures and Sidbi Venture Capital, are tapping overseas markets to raise around Rs 1,000 crore each, while IFCI Ventures, which is raising over Rs 900 crore for three funds, plans to tap foreign investors for its next fund.
“For the three funds that we are raising, we are not averse to tapping overseas investors. But we are not pursuing them actively either,” said IFCI Venture Capital Fund Managing Director BN Nayak.
The interest in overseas funding is a result of the absence of a sufficient long-term pool of capital. While Life Insurance Corporation of India (LIC) is one of the biggest domestic investors, banks that invest in private equity and venture capital funds often face constraints. Bank investments in private equity and venture funds carry a risk weight of 150 per cent. Besides, they do not have long-term funds and allocate only a small percentage to alternative assets. Also, PE investments are mark-to-market.
“If you are able to raise funds from overseas, your credibility in the market increases. Investors should be able to hold on to the investment for seven-nine years. Investors in India do not have long-term funds,” said a partner with a state-owned PE fund.
So, Sidbi Ventures, which had till now depended on local investors, wanted to tap overseas markets, said the firm’s President, Vipul Mankad.
Investors in Sidbi VC’s first fund were the ministry of communication and information Technology, IDBI and Sidbi. Eight large public sector banks invested in its second fund.
Since the start of operations in 2000, the firm has raised has raised two funds — the National Venture Fund for IT and Software with a corpus of Rs 100 crore and the SME growth fund, which has a corpus of Rs 500 crore (in 2004). The first fund has invested in 31 companies while the SME growth fund has invested in 22 companies.
Similarly, UTI Ventures managed to raise its first fund from Indian institutional investors, while almost 50 per cent of its second fund was raised from the domestic market. The firm is now looking to raise around Rs 1,000 crore overseas.
While the two are in the process of fund-raising, IFCI Venture Capital Funds has set up three funds – India Auto Components Manufacturing Private Equity Domestic (IACMPED), India Enterprise Development Fund and Green India Venture Fund. It has already committed around Rs 267 crore from IACMPED, which has invested in Jagdish Khattar-promoted Carnation Auto. In addition, the three funds have committed investments in Satyam Cineplex, Luminous Auto, battery-driven rickshaw maker Innovative Modular Machines and Regent Energy, which is setting up a hydro power project.
“Four-five deals are under process. The idea is to try for at least 20 per cent returns through investment in 15-16 companies from each fund. We are looking at a ticket size of Rs 15-30 crore,” said Nayak.
While IFCI and LIC have already committed over Rs 100 crore, the firm is also accessing individuals willing to put in over Rs 5 lakh.
