Though general economic indicators in India point towards lower growth in 2001-02 over last year, this survey, conducted by VentureAhead.com, reveals that the Indian VC industry expects limited but slightly better growth in 2001-02 over the previous year. Further, during the next five years, most VC funds expect higher growth for industry in general and the VC industry in particular.

Given the falling capital market indices and the expectations of lower returns, profitable exits would be a rarity at this time. Most VCs have adopted a wait and watch policy. If they can weather this critical period they would be able to reap significant returns out of the investments they are making at relatively lower valuations. The finding that almost all (94%) VCs have expressed a willingness for mergers & acquisitions (M&A) of their investments is significant in this context. Expectedly, the VCs have taken this opportunity to consolidate and improve management of their investments.

There is an expectation that both number and amount of investments by the VC funds would increase even in the face of falling number of business proposals received. This could arise out of the possibility that after the dotcom bust the business plans which reach VCs would be of better quality and more realistic. More VC money may also make its way into second rounds of funding in order to inject much needed funds (which otherwise would have been available from the capital markets) into existing investments.

Most of the funds appear satisfied about the strategies they have adopted so far with respect to geographical focus and methods of deal sourcing. They also wish to continue with their regular commitments to second rounds of funding. Their reaction to the downturn in the economy has been in terms of planning some changes in the stage of development of the businesses they are likely to invest in; with an increasing preference for those nearing maturity. Considering that a substantial number of exits have been put on hold in the previous year due to the steep decline in the capital market indices, this is understandable. A majority (75%) of the funds has stated that they would not be changing their investment focus. Since VC funds are generally set up with clearly identified sectors for investment this should be no surprise. However, the remaining VCs have observed that they would be looking into other than IT areas such as biotechnology, manufacturing, businesses covered by IPRs, etc.

Overall, the funds have expressed confidence in the resilience of the economy and expect a fairly bright future. They only wish, however, that government and regulators come up with enabling laws and clearer signals so that India can have a more vibrant VC environment.