where is the investment dollar going?

I discussed “no money for early stage” earlier and I said there is not enough money flowing into early stage investment. I also cited a couple of reports that corroborated my thoughts. But after that post, I found following comment on mercury news.

In India, VCs have made 53 early-stage investments in start-ups worth $355 million during the first nine months of 2006. That’s still nearly twice as much activity in that period than the two previous years combined, according to Venture Intelligence, a Chennai research service focused on private equity and venture capital activity in India” .

This statement directly contradicts where I was going with my entire theory as it seems that there is a lot of dough flowing into the market. So I wanted to look into this in more detail. After talking to some people, I got mixed comments and I thought it would be best to contact Arun Natrajan of Venture Intelligence. According to Arun, Over 90% of early-stage investments went into IT & ITES companies. Among sectors, Online Services, Mobile VAS and BPO (high value and vertically focused) companies are attracting the most interest.

Top 10 companies in terms of amount raised are Travelguru, PharmARC, 24X7 Learning, Mauj Telecom, Applabs, Bubblemotion, Newgen Imaging, Secova, Billdesk, Seventymm. I am trying to compile a list of investment funds to understand what really constitutes early stage for a startup. To start with, I created this table in our resources section, from various sources to give us a start on different firms and their portfolios. I don’t see a lot of online services companies here. Where is the money going? I want to investigate various portfolios from seed fund, early stage and later stage to understand where money is flowing and which companies are making best use of it. Let us know if you know of any such funds that are not covered in the list.

In comments to the post “no money for early stage“, an interesting question was raised. How much money is good enough to bootstrap a web2.0 startup in India and how much money is required for subsequent stages? It seems there is not one good answer. $355 million in 53 startup means ~$6 million each but Arun says this amount varies hugely by sector and the inclination/ability of the company to bootstrap. Travelguru has taken in $25 million, while Seventymm has attracted $8 million. The number is also driven by the VC industry’s economics: given their growing fund sizes, they can’t be bothered to deploy anything less than $2 million per investment. Santosh from Sukshma.net argued for somewhere like $500,000 to bootstrap which looks more realistic to me personally. All this makes the line between seed, early and later stage funding blurry to me. I think the most essential is bootstrapping and with low startup costs for internet companies, a lot of people are turning to self/angel funding instead of going to VCs. Like onyomo and redbus founders told us that VCs are waiting on sidelines for traction. And they will get in sometime after early stage (midstage anyone?). Once their concept is proven it is the series of rounds (we can call it early or later), that will make or break the companies in longer run. Collecting more data will shed some more light on sector and willingness of VCs to participate in these rounds.

As always, your comments are most welcome. Also, read more on seed, early and later stage from our trusted sources powered by Google custom search which I use extensively for my own research.

One thought on “where is the investment dollar going?”

  1. Pingback: IndianPad

Comments are closed.