VC funds breaking fresh grounds

Look to expand portfolio this year.

With the economic environment improving, venture capital (VC) investors seem to be expanding their portfolios and looking to invest in newer companies.

Today, Sequoia Capital announced an investment of Rs 50 crore in Bangalore-based Stovekraft — a company manufacturing and marketing kitchen appliances and modular kitchens.

Similarly, Norwest Venture Partners (NVP) has invested $6 million (around Rs 27 crore) in online classified firm Quikr along with Matrix Partner, Omidyar Network and eBay Inc.

During the first quarter of 2010 (data available for the period up to March 22), VCs had invested $80 million (around Rs 360 crore) across 13 deals, said Venture Intelligence. While the value of invested funds remain the same, 22 deals were clinched in the first quarter of 2008. VC investments in 2009 almost halved to 82 deals worth $444 million, down from 154 deals worth $841 million in 2008.

The change this year is that only three of the 13 deals announced in the first quarter were follow-on investments. This means VCs have invested in new firms. Those active include some of the big names such as Intel Capital, Sequoia Capital, NVP, Reliance Venture Asset Management, Matrix Partners.

The theme for 2010 was going to be new companies, said Arvind Sodhani, president of Intel Capital and executive vice-president, Intel. “Last year, we did see a need to focus on portfolio firms due to the global economic situation and, hence, our follow-on investment was also high. But, portfolio firms are in a better position this year. For 2010, we do see a shift towards new investments,” he added.

"New investments will be the focus in 2010. This is also because firms are seeing more growth opportunity and they will need capital for that. Many of the firms received investments two-three years back and they will now be in the market again to raise funds. This does not mean follow-ons will not happen. For Nexus in particular, we do see a good deal flow. We will continue to invest in early-growth stage firms with an investment range of $5-$7 million,” said Sandeep Singhal of Nexus Venture Partners (NVP). The firm invested in the normal range in six firms in 2009, Singhal added.

Intel Capital, the investment arm of technology giant Intel, announced an investment of $23 million (around Rs 103 crore) in three Indian technology firms — July Systems, KLG Systel and commodity exchange MCX.

Agrees Rahul Khanna of Clearstone. “In terms of investment, 2010 will be much better than 2009, but I don’t think we will see the high of 2007. I think the volume will be up 25-50 per cent. Even for us, we see opportunity in the early-stage segment,” he added.

“We definitely see investments looking up, especially when compared to last year. Things did start improving from the October-December quarter. This has more to do with investors’ (limited partners) perspective. With the liquidity situation now sorted, VCs are in a better position to invest. But, fund-raising will continue to be a challenging proposition,” said Arun Natarajan, managing director and chief executive officer, Venture Intelligence.

VCs have also started to move away from investing only in technology companies. While information technology (IT)/ information technology-enabled services (ITeS) continued to be a favoured sector for investment, sectors such as education, healthcare, financial services are emerging as favoured sectors.

“IT has continued to attract investment. I don’t think IT has ever gone below the 50 per cent range in terms of overall investment. The last quarter was an exception though. But, VCs are increasingly looking at product firms, especially those focussing on the domestic market,” added Natarajan.