VC Investment in India zooms to $777 Million in 9 Months

Dow Jones VentureOne and Ernst & Young recently released their first India Venture Capital Report.  During the first three quarters of 2007, a total of $777 Million was invested in 57 deals.  This is almost five times the  $158 million invested in the same period last year.  More importantly, this venture capital inflow edged India past China - a trend that is likely to continue.

This report focuses on the growth capital made available to entrepreneurial companies in exchange for ownership in the form of private securities.  It does not include private equity investments like leveraged buyouts, mezzanine or debt financing.  It also does not include angel investing, which is also showing a robust growth in India.

Corporate venture funding has shot up too, thanks to the investments by Google, Cisco and Intel.  Google entered the Indian venture market with a tie-up with Erasmic Venture Fund in the beginning of this year.  Recently it announced a seed-stage fund investment that is run by IIT, Chennai.  Intel set up a $250 million venture capital fund two years ago and is planning scale up now.

Interestingly, more than $113 million invested in 17 deals in the Information Services sector showed a four-fold increase over last year.  This includes social networks, mobile platforms, mapping services and online advertising. 

Jessica Canning, Director of Global Research for Dow Jones VentureOne says:

“One reason service-oriented companies in India are so attractive to investors is because they often do not require a great deal of capitalization to get off the ground. This is reflected by the fact that 88% of all venture capital investment in India in the first nine months went to companies that are already generating revenues.”

Some time back, Stanford University scholar Rafiq Dossani released a report which explained a multitude of reasons why more than 90% of VC investments in India going to late-stage companies rather than seed-money.  In the last few months, I have spoken to a number of VCs based in India and all of them clearly wanted companies that were way up on the S-curve of growth.

This makes Google’s investment particularly significant.  As Samir Sood, Google’s head of corporate development for South Asia says:

“Despite their critical importance to the innovation chain, the early stages of venture capital financing are underserved in the Indian market. These partnerships will help us nurture the growth of startups and build a dynamic entrepreneurial environment in India.”