Venture capital investments hit record high in 2011

Venture capital funding in Indian companies stood at a record Rs 56,868 crore at the end of 2011.

Clearly, entrepreneurs with innovative ideas are having no difficulty in raising funds for their ventures.

This was 18.8 per cent higher than their cumulative investment of Rs 47,859 crore as of December 31, 2010, according to the latest SEBI data. In 2010, cumulative venture capital investment had declined by 7.4 per cent vis-à-vis the previous year.

Venture capital consists of equity, quasi equity or conditional loan in order to promote unlisted, high-risk or high-tech firms driven by technically or professionally qualified entrepreneurs.

The typical venture capital investment occurs after the seed funding round, with a view to generate returns through a subsequent realisation event, such as an IPO or trade sale of the company.

Among the big-ticket venture capital deals in 2011, online retailer Fashionandyou. com raised $40 million from a group of investors, while group buying portal Snapdeal.com attracted $40 million.

Among other notable deals, e-commerce retailer Flipkart secured $20 million and shopping site Naaptol.com raised $25 million.

Foreign VC investors
Both domestic as well as foreign venture capital companies are vying for a piece of the pie.

While foreign venture capital investors (FVCI) accounted for the bulk of the investment in the quarter ended December 31, 2011, at 65.8 per cent, venture capital funds (VCF) contributed the remaining 34.2 per cent. FVCI investments have been showing a steady growth over the last two years.

These investments increased by 16.5 per cent in 2011, compared with the previous year, while the increase was 23.9 per cent in 2010.

Sector break-up
In terms of individual sectors, the bulk of the investment was in the real estate sector, which attracted Rs 10,831 crore.

The telecommunications sector was the next biggest target, with Rs 7,516 crore. Information technology attracted Rs 4,322 crore and other industries have taken in a cumulative Rs 26,673 crore.

While some sectors saw an increase in VCF/FVCI investments to an all-time high in the quarter ended December 31, 2011, most saw the level of investment drop from previous peaks.

The telecommunications sector (-9.7 per cent), real estate (-4.4 per cent), services (-15.7 per cent) and media/entertainment (-31.8 per cent) have seen VCF and FVCI investments decline from their peaks.

Nevertheless, the record VCF/FVCI investment in the information technology and ‘other’ category sectors, took the cumulative investment to an all-time high in the quarter ended December 31, 2011.