Some Basics About Venture Capital Firms And Investments In India


There are many differences between a Venture Capital and an Angel investor. While Angel investors generally invest in the range of Rs.10 Lakhs to Rs.5 Crores, a VC firm can invest in hundreds of crores. This is the reason their investments will last for long and a startup won’t be looking for more investments after seeding.

We talked to a venture capitalist Achal Ghai at VCCircle to get some tips about raising venture capital. He provided us with some valuable information we would like the share with you.

What is the criterion on which one should decide what type of investment is the best?

Many startups might have good ideas and you think they must get the investment. But does it mean that they need a VC investment? Some of them can get small loans from banks or from angel investors too. A VC investment needs to have high returns and good market base. A small business such as a restaurant doesn’t need VC investment. A VC firm should be looking for multiple times return of an investment and hence if the market isn’t large, they shouldn’t invest. In short, if the return is fixed and around 20% and no exponential growth trajectory can be seen, a startup must go for banks.

As the name suggests Crowdfunding is raising capital from a large number of people. There is equity-based crowdfunding in which individuals receive shares of the company they are investing in. In India, this concept is still in the very initial stage.

How is the current scenario for VCs in India?

There have been around 20 billion dollars of investments in startups in India by various VC firms in the past. Many of the big names in the VC firms have not been able to produce the profits it was expected to. The investments peaked in the last quarter of the 2015 and have remained stagnant since then. LPs generally expect 3 times the money of their investments in 10 years, but due to various domestic and international reasons, their investments haven’t returned that much. Many VC firms are seeking extensions in the 10-year life-cycles since they have reached their expiry period. Once the economy gets back on the track we can see more investments coming in from the off-shores, but in the current year, this will remain stagnant.

But all’s not gloomy about our market, India’s online market today stands where China’s used to be in the year 2005. This means it can see a similar rise in the e-commerce space. With the increase in broadband penetration, it is expected to grow further. Online travel and hospitality sites are also a bright spot. There is always a great scope for new ideas that could transform the face of the industry by utilizing more technologies to it in a very comprehensive manner.

What Should India do to improve the current scenario?

We need to learn a lot from the VC investors of the US and China. Most VC firms in India provide funds to the startups only, they need to take the role of mentors. There are firms like accelerators and incubators in the developed economies like the US that offers a great deal of support to the startups. An accelerator is a firm that works for 3 to 4 months for a startup, but an incubator can take a full year. The basic goal of these firms is to provide support to startups wherever they need. They have the experience to help the with the difficulties these startups may face.

Indian economy has a lot to learn from the Western economies right now which are much more mature than ours but with new instruments of investments coming up every year, this evolution is bound to be faster than ever before.

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