Tamil Nadu falls off VC radar

Venture capital (VC) investments up to $20 million fell by 58 per cent in volume and 70 per cent in value in 2014 (calendar year) in Tamil Nadu, after rising sharply in 2013. The drop was significantly higher than in neighbouring Andhra Pradesh and Karnataka, where it dropped to 18 per cent and 9.5 per cent, respectively, while the value of deals increased.

According to Venture Intelligence data, Tamil Nadu attracted $39 million of VC funds across 10 deals in 2014 (calendar year), compared to $118 million in 24 deals in 2013.

Year 2013 was considered to be the best for VC investment flow into the state. The number of deals grew about 50 per cent and inflow of money rose 27 per cent, against 2012 levels.

The drop in inflow was high in Tamil Nadu compared with Andhra Pradesh (united) and Karnataka; the latter two states saw an increase in value by 10 per cent and 21 per cent, respectively. Andhra Pradesh received $45 million across nine deals in 2014, compared to $41 million in 11 deals in the previous year. Karnataka attracted $238 million across 57 deals, against $197 million across 63 deals in 2013.

A senior VC firm representative said while large investments have gone to Karnataka, considered an information technology (IT) hub, the flow into Andhra Pradesh was mostly infrastructure investments. In both sectors, Tamil Nadu did not see any large-scale investments. Tamil Nadu has a firm foothold in banking, financial services and insurance, consumer, health care, information technology enabled service (ITeS) and clean-tech.

"Once there is a revival in the investment climate, the state will see more traction, considering it has a strong in entrepreneurship ecosystem," he said.

K Ramakrishnan, executive director and head (investment banking) of Chennai-based investment bank Spark Capital, agreed. The key factors that VCs look at are, he said, profitability, accelerated non-linear growth in a hygienic manner and path to scale, most of which Tamil Nadu-based companies definitely comply with. Sectoral representatives said the drop was reported when the investment climate had revived. But Tamil Nadu had better prospects, thanks to its entrepreneurship system and business opportunities.