Change in Focus |
G iven the market conditions, are VC funds likely to change their focus? |
Geographical focus |
Not a single fund seemed inclined to change where it would like to invest. As per a previous ventureAhead.com survey on Indian VC industry practices, 23% of the funds had indicated a preference for South India, 21% for West India and as many as 53% had either no particular preference or were willing to invest anywhere in India. This is not expected to change. |
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One-fourth were expecting to change their industry focus. Given the great dotcom bust of last year and the fall from grace of many IT companies this seems quite logical. The relatively newer/ smaller sized funds ($0m-$25m), which are still in the process of sowing their seeds, could be the ones looking for a change in focus. Observations made by some such VCs are: |
"More attention may go towards Biotechnology. Attention may shift from IT start-ups to more established players." |
"Now industry focus for investment is changing from IT to Biotechnology. |
"We will now be even more focused on investing in companies with strong IPRs rather than companies having a pure services model. |
"VC's now mainly concentrating on ICE Sectors. They may diversify to other areas like biotech and mfg. |
Relatively larger VC funds, which have invested in a number of sectors could also look for a change in focus, for example, a fund of a size of about $125m, says: |
"Will also look at non tech. Look at larger transactions in technology." |
Stage of Investment Focus |
More than one-third would like to make changes in the stage of businesses at which they would invest, with a preference for those businesses that are at the expansion/ maturity stage. Given the rather gloomy economic scenario, this would enable them to make quicker exits and creating a successful returns (IRR) record rather than waiting for longer periods for results to show. This is what some VCs say: |
"Considering the events in the industry in the last year and the current slowdown, we would prefer to invest in more mature growth companies with some track record. However that does not preclude us from looking at investments in what we would perceive as an outstanding start up/early stage company" |
"We do wish to focus on later stage funding and would like to move away from start-ups, which we had done in the past. Maximum and minimum investment size may not change. Yes with the maturity of our last three years portfolio, our focus would be more on second round fundings to help our portfolio companies to achieve critical mass rapidly to facilitate our exits smoothly." |
Methods of Deal Sourcing |
Hardly 12% of the respondents expected to definitely change their methods of deal sourcing even in the current scenario. Evidently, they do not feel that they have lost out in any way due to the methods they have been following so far. Another third prefer a wait and watch approach and have not been able to categorically state whether they would or wouldn't like to make a change. |
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Outlook 2001 - 02 Survey
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