Venture Capital funds prefer existing companies: Study

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New Delhi, Aug 6 (UNI) A new study by ASSOCHAM and Deliotte brings out that Venture Capital (VC) firms prefer to expand their investments in existing companies, rather than backing new technologies and services.

The picture is a contrast to VC investments in countries like the United States, Europe and Israel where these funds are dedicated to backing new areas, technolgies and services. In India, investment pattern continues to be conservative.

The future secanario in India, however, may change as global VC and PE firms try out new fields of investments.

The paper says venture capital investment is undergoing an interesting transition. Developing economies like India and China continue to attract investments, with early stage finance becoming increasingly globalised.

Investors are backing consumer and retail firms to benefit from the rise of the Indian middle class.

In Asia, venture capitalists are still in the process of developing common evaluation criteria for investment, unlike in the matured markets,where a common criterion is the level of attention paid to the entrepreneur's personality and experience.

In Asia, different classes of stocks with different voting rights are relatively uncommon. Asian investors thus have to rely mostly on common stocks and other means to manage their portfolio risk.

Traditional venture capitalists are expected to actively assist their portfolio companies in what are termed as value-added activities. Most of the Asian venture capitalists' assistance remains restricted to providing advice on financial matters.

The dynamics in emerging venture capital markets differs from those in developed venture capital markets.

The emerging private equity markets focus primarily on growth of capital investments through minority equity participation. Emerging venture capital markets, although not without challenges, thus present a host of opportunities.

The new areas of interest to VCs include bio-technology and life sciences, logistics, clean technologies, film production and education.

The high GDP growth, need for skill development and India's stable democracy are factors that serve as a magnet for investors.


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