Global Themes

On Globalization & Venture Capital

Another hot day…in an over-heating market

Most places that I go these days, talk veers around the rapidly overheating Indian VC market.
 
In case of China, people have been saying this for at least a couple of years…and yet money and funds continue to pour in at record pace.  People have been talking of a “wall of money” and increasing valuations but investor interest (especially from overseas) remains as strong as ever.
 
Now, India appears to be heading in the same direction. Alok Aggarwal of Evalueserve put out a report titled, “Is the Venture Capital Market in India Getting Overheated?” The report estimated that upto $4.4 billion may be raised in the coming months to invest over the next 4-5 years. Alok adjusts this number on a PPP basis to come up with an equivalent $22bn of investments in the US (I disagree with a straight PPP conversion but the point remains that a LOT of money will find its way in).


Alok (from Canaan Partners) wrote in his blog that: ”While my own estimates are on a lower side, what is undeniable is that more money than ever before will be available to early stage companies. I guess this is good news for entrepreneurs….” and added, “The real metric of success is how many of these VCs make money in the Indian market, so hold on to the toasts just a wee bit longer…
 
Cannot agree more. But for once, I would like to err on the side of optimism. I think a comparison with the situation pre-01 is tempting but inaccurate.
 
For one, the economy has undergone structural changes which I feel makes it more robust this time around than, seven or eight years ago,
 
Two, the ingredients of true explosion in innovation are finally coming together – with large home-grown talent, coupled with people who have experience of working and building companies globally as well as in a rapidly expanding domestic market. When you add capital to the mix, it makes for a potent combination.
 
Although there is a degree of exuberance in the market, the fundamentals are strong and when you consider the fact that venture is a long-term business, there is no reason why the money pouring in cannot get a healthy return in terms of multiple, 10 years out as the funds begin to unwind.
 
I believe that a window has opened in this market – and it may not stay that way for long but of course there are still many hidden gems” waiting to be discovered…the future looks bright.

September 7th, 2006 Posted by | China, India, Venture Capital in Asia | 2 comments

2 Comments »

  1. Hi Shantanu,

    This are interesting numbers – but looking on the ground at where the entrepreneurs are – I can’t see the evidence for all these numbers.

    Is anyone actually tracking the deals in India/ My feeling is that all this money is going into the mid market and perhaps later stage funding – pre stock market/acquisition and so on where the risks are minimal. To some extent I can understand this sreategy as a way of learning about the market place.

    The causes of over heating at the moment (in my humble opinion) is not the number of deals or the amount of money but the amount of hype!

    Comment by Shai Vyakarnam | September 9, 2006

  2. Shai,
    Venture intelligence India does a good job of tracking deal-flow. Some of it is no doubt hype but there is money going into start-ups too…not only that, there are funds being formed purely to back seed deals.

    Comment by Shantanu | September 11, 2006

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