VC Practices Survey
The preference for investments at the first, second & expansion stages over seed and startup |
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The lesson for entrepreneurs would be that VCs in India (as anywhere else) generally |
If we look at minimum investment size, 50% of the VCs had invested up to USD 750k. Nearly two-thirds of them had made maximum investments of up to USD 5m in a deal. As compared to average deal sizes of minimum USD 2-4m going up to maximum deal sizes of USD 100m in the USA (1986-1997), the deal sizes in India appear quite small. However, suitable discounts need to be applied to take into account the newness of the Indian VC market, the "purchasing power parity" effect (whereby smaller dollar sums spent in India are capable of mobilising comparatively higher physical resources), and the compara-tively smaller size of VC funds operating in India. |
However, once committed, the VCs are willing to bring in substantial sums into the |
Seed to second were most preferred
stages for investments by Indian VCs. 81% of them were desirous of investing in companies in the first stage of business, 68% preferred startups, 65% would like to invest at the 2nd stage, 42% at the
expansion stage and 39% at the seed stage itself.
Over a period of time it is likely that VC funding in India would follow the pattern set by the USA VC industry where, during 1986-1997, disbursements in early stages (seed to first)
went down from 41% in 1986 to 29% by 1997 while in the expansion stage these went up from 39 to 45% in the same period.
eschew seed stage investments leaving the angel investors to bear the risks (and earn the
rewards) of such investments. The entrepreneurs stand a better chance of VC funding once they have reached a stage where the business model is established and the business requires growth capital.
ventures. Almost all of them were willing to consider a second round of funding, based on
merits of the case. |
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