September 19, 2006

VC state of affairs in India

"Given that a typical start-up in India would require $9 million during the first three years (i.e., $3 million per year) and even assuming that the start-up survives for three years, investing $2.2 billion during 2007-2010 would imply investing in 150 to 180 start-ups every year during this period, which simply does not seem practical if the VCs continue to focus only on their current favourite sectors." India is a big country, 1B people afterall - the model of figuring out if the investment market is overheating may be different. When I look at 150Investments/year for such a country I don't think it's too many. "Taking Indian Purchasing Power Parity (PPP) into consideration, this would be equivalent to $22 billion worth of investment in the US. Since about $1.75 billion (or approximately 40% of $4.4 billion) has been already raised, even if only $2.2 billion is raised by December 2006, Evalueserve cautions that there will be a glut of VC money for early-stage investments in India." This is when it hits home - the equivalent of $22B worth of investment in the US. This is 1B shy of the all time record in the US software industry of 2000(IT is a larger category). Last year number was 11.96B down 4% from the year before, so this could indicate over heating in the VC world of India. Numbers are from USA Today and ZDNet

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