Now, investors willing to bet on early stage deals
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Bangalore: Early stage start-ups are again being able to attract investors and raise funds as the VC industry recovers from a slump last year when deal-making dropped by almost 50 percent - to 82 transactions worth $444 million, from 154 deals worth $841 million in 2008 - in the aftermath of the global credit crunch, report Shraddha Nair and Deepti Chaudhary from Mint. "Compared to last year, activity in the early stage space is definitely up by almost 40-50 percent," said Harshal J. Shah, CEO, Reliance Venture Asset Management. Early last year, investors turned risk-averse and wanted to invest only in blue-chip companies. As the markets improved, they focused on mid-sized firms. Now, their risk appetite has improved, Shah added. Also, over the past six months, Mumbai Angels invested in Screampoint, which provides 5D digital city and digital building systems, and Insta Health Solutions, a healthcare solutions company. Mercatus, which is a Singapore-based VC firm, operates as an angel fund in India, making early stage as well as seed investments. To tap the potential of the healthcare sector, apart from investing in Attune, it invested last year in Pellucid Networks, a tele-diagnostic service provider. "Today, even a VC, who looks at only series B or series C round of funding, needs to look at investing in early stage companies to create a good deal pipeline," said Rajesh Sukumaran, Investment Manager, Mercatus Capital India. VC firms such as Inventus Capital Partners, which have remained devoted to their strategy of backing early stage start-ups, say deal flow continues unabated. Serial entrepreneur and Inventus Managing Director Kanwal Rekhi said that while early stage is the riskiest stage of investment, the returns are also typically high. "Investors have made as much as 20 percent returns in these investments," he said. The firm in India is seeing a 20 percent increase in its deal flow. Many foreign players are also eyeing the early stage space in India. These include the likes of the Netherlands-based DSM Venturing, the corporate venture arm of Dutch chemical company Royal DSM, and France-based Aloe Private Equity. DSM Venturing is betting on the potential of promising sectors in India as it looks to invest in companies with interests such as nutrition and pharmaceuticals. Aloe wants to invest in areas such as clean energy and waste recycling. "We are already working on three investment opportunities in India. Unfortunately, it would not be fair to discuss these deals openly but it would be fair to say that two of these investments are early stage, that is, no technology risk and no revenues yet," said Vivek Tandon, Founder, Aloe Private Equity. While Aloe intends to invest 5-40 million pounds, its investment range would depend on a company's requirements. "For a start-up, we can start with 3 million pounds, but over the lifetime, we can put as much money (as is) required for the company to realize its potential. The idea is to create a solid, strong asset and not quick return," said Vikram Nagargoje, Investment Manager, Aloe.

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