The Insurance Regulatory and Development Authority’s (Irda) move to allow insurance companies to invest in venture capital (VC) funds could help them raise money more easily, but it could take up to 12 months for insurers to start investing.
On Friday, Irda allowed life insurers to invest 3 per cent of their total investible corpus in VC funds or 10 per cent of the fund’s size, whichever is lower. For general insurers, the limit is 5 per cent of their investment assets or 10 per cent of the fund size, whichever is lower. Based on life insurers’ assets under management of Rs 700,000 crore, potentially over Rs 21,000 crore can flow from this segment alone.
Canaan Partners CEO Alok Mittal said the move is a good beginning, but does not translate into immediate gains. “Insurance companies will have a good opportunity to be a part of the growing VC market in India. Over a period of time, more and more insurance companies will invest as they look at it as a part their asset management exercise,” added Vishal Tulsiyan, director and CEO, Motilal Oswal Ventures.
“Worldwide, insurance companies, pension funds, sovereign funds and government funds are investing in VC funds. The key thing is that there is a lot of capital flowing from outside than inside in our domestic market. Insurance funds will provide a boost to VCs” said Sudhir Sethi, CEO, JDG Ventures.
Frontline Strategy, a Mumbai-based VC fund, said the norms would help broaden the pool of money available for domestic funds. “It will take six to 12 months before the funds starts flowing from the insurers,” added Supratim Basu, a director of an early-stage fund. While the options for VC funds increase, Sidbi Venture Capital CEO Ajay Kumar Kapur said insurers are already investing and the cap will hold back some of the flows.
VC funds have invested $340 million in 51 deals in the first half of 2008. Although high valuations are a worry for VC funds, they are confident about the investment flow for the year ahead.
