Start-ups attract 20% PE funding

Private Equity (PE) investments in start-ups accounted for 20 per cent of the overall PE investments in the country, which stood at $7.46 billion in 2006 (over 299 deals). The percentage is expected to improve since PE investments are estimated to touch $10 billion in 2007.

Industry experts said that investors are keen to tap the huge growth potential. "In 2006, 48 of the 55 investments in start-ups (0-5 year old) firms were in IT/ ITeS sector, accounting for over $1 billion in PE investments," said Arun Natarajan, chief executive officer, Venture Intelligence.

Sandeep Murthy, partner, Sherpalo Ventures, corroborated Natarajan's views. He said, "The interest areas within IT/ITeS that attracted PE investors were consumer oriented companies, or firms largely focused on the Indian market, e-commerce and technologies that cater to the demanding Indian consumer." PE investors comprised venture capitalists, angel and seed funding. 

CAN IT GET ANY BETTER? Indicative list of big-ticket funds received  by start-ups in late 2005 or 2006
Company name	Funds received in 2006	Investors
Travelguru.com	$25 million in two rounds  of funding of $10 million and $15 million in first and  second round respectively	Sequoia Capital and Battery Ventures
Tutorvista	$12.75 million in two rounds of funding of $2 million in first round and $10.75 million in second round	Lightspeed, Sequoia Capital, SV Bank
BillDesk	$7.5 million	Clearstone  Venture Partners
Seventymm.com	$7 million	Matrix Partners India
Guruji.com	$7 million	Sequoia Capital India

Sherpalo has invested $14 million in 2006 in three companies in India "" Paymate, Cleartrip.com and Info Edge India (late stage investment). Info Edge owns portals like naukri.com and jeevansaathi.com and is now a publicly-listed company.

"The market is good in 2007 and there are a plethora of ideas and we plan to filter through them to find the right stuff and maintain our momentum for investments in India," Murthy said.

Besides PE investor's favourites such as BPO and IT companies, there were over a dozen investments in travel portals such as cleartrip.com, travelguru.com, yatra.com and makemytrip.com, bharatmatrimony.com, shaadi.com and social networking saw companies like techtribes.com and minglebox.com securing funds for their clear focus on the Indian consumer.

For instance companies set-up in 2006 like Guruji.com, an India-based search engine or seventymm.com, India's largest online movie rental service, have already received funds of $7 million each from PE investors, more than double the average deal size for start-ups at $3 million.

It's not only portals but also start-ups like Pandora Networks, a communication services company catering to the small and medium enterprises in the US that has created a niche for itself has attracted investments.

"We have secured $7 million in December 2006 from D E Shaw, a San Francisco-based venture capital company," said Sridhar Muppidi, managing director and CTO, Pandora Networks.