Monday December 15, 2008
PE/VC investors go slower in 2008; Look to rebound in '09
New Delhi: Global economic slowdown hit them too in 2008, but private equity and venture
capital investors -- who usually help shape new business ideas -- are looking to bounce back in
2009 by capitalising on the dearth of traditional fund-raising routes such as IPOs and debts.
Indian entrepreneurs received a significant USD 11.3 billion of PE and VC investments in 2008,
but it was still lower by about a quarter from close to USD 15 billion in 2007.
After a subdued year, the investors and market experts are expecting the PE and VC investments
to pick up next year as raising debts have become costlier and IPOs are not finding any takers
and the dampened investor sentiments might finally start improving on the back of efforts made
by the government.
According to Venture Intelligence, a research firm tracking PE and VC investments, there have
been 382 private equity deals worth USD 10.6 billion this year, as against 439 deals worth USD
14.1 billion in 2007.
At the same time, VC investments into Indian firms have declined to USD 733 million with 122
deals so far this year, from 142 deals worth USD 874 million in 2007.
It was PE/VC investments that shaped start-ups like Google, Yahoo! and Facebook into what
they are today, and these are the investors who park funds in business ideas that sound like
growth opportunities of the future.
Companies need such investments at various stages of their businesses -- angel investors provide
the seed capital, while early-stage investors come in when a core team and a business idea are in
place and operations are being started.
Besides, some established companies also get such investments in the form of private equity
placement or strategic stake sale.
\"There definitely has been moderation in deal values as well as number of deals which have
happened in 2008 as compared to 2007,\" PricewaterhouseCoopers' Transactions Group
Executive Director/Partner Sanjeev Krishan said.
\"Government measures as well loss of other avenues like IPO and costlier debt might lead to
increased deal volumes in 2009,\" he added.

Blaming the negative returns from their investments for the decline in deal flow, Jagannadham
Thunuguntla, equity head Nexgen Capital, the merchant-banking arm of brokerage firm SMC
Global said, \"The high volumes of private equity investments in 2006-2007 started to yield
negative returns of as much as 67 per cent in 2008.\"
\"Because of this many private equity fund managers went on a defensive mood besides foreign
funds were under severe cash redemption pressure,\" he noted.
Venture Intelligence CEO Arun Natarajan said that the moderation in PE activity was largely
because of the negative sentiment across both the entrepreneur and investor community, which in
turn was due to the global economic turmoil.
While a recovery is expected to begin in the first half of 2009, it might take longer to return to
the peak investment levels of 2007,\" Natarajan noted.