Venture Capital Companies in India
Venture capital companies in India are very tightly regulated by the RBI (Reserve Bank of India) and the SEBI (Security and Exchange Board of India). The industry is described as still nascent by global standards.
Until very recently, there were virtually no local venture capital companies in India. The banks and other traditional lending institutions were the major source of equity financing where it did exist at all. The country has been experiencing amazing modernization and growth and venture capital for global funds is skyrocketing. Already in 2008, some $928 million dollars has been invested in some 80 deals. Still, the largest percentage of this activity is generated by American and British venture capital funds and mainly in the area of IT (Information Technology).
Much of the problem hindering the growth of venture capital companies in India is the cultural traditions of this exotic foreign land. Entrepreneurship was concentrated in a few wealth families that had been engaged in business for many generations. The reins of these family concerns were passed along like European crowns from father to son. This type of tightly controlled wealth did not lend itself well to the venture capital model. It was the recognition by the Indian government that unless a more western spirit of entrepreneurship was developed in the country, they would never emerge as the economic giant they were capable of becoming.
Laws and regulations were passed to encourage venture capital and angel investments. The laws did not hamper foreign funds, but rather seemed to open the doors wider to the outside world. Last year, 48% of venture capital or around $384 million was pumped into the Information Technology boom. Interestingly, the Indian real estate market is very tightly controlled by a traditional type of investment unique to India, but working very well. Little venture capital activity is needed or wanted in this particular area.
The health care industry is still very underdeveloped in India, but is beginning to emerge as the possible growth industry of the future. India’s large population and lower income levels have made quality health care a rarity in the country. Now, this industry is showing signs of life and the future here is almost without limits.
The greatest need of venture capital companies in India is trained and seasoned managers. This is always a problem in emerging markets. The fund manager is the first string of a venture capital company and India’s relative newcomers have trouble competing with their Western counterparts. Joint ventures between western funds and local Indian venture capital firms are one way of helping this situation. The Indian company provides the cultural knowledge needed by the foreign investing firm and in return gets mentorship for its rising class of venture capital and angel investors.