VC Industry to grow in India: Deloitte

Venture capital industry in India and other emerging markets is expected to expand...

With the improving domestic entrepreneurial environment and favourable investment scenario,the venture capital industry in India and other emerging markets is expected to expand in the next five years,while it may shrink in developed nations,says a survey.

According to Deloitte’s 2010 Global Venture Capital Survey,the majority of venture capitalists in China,India and Brazil expect the number of venture firms to increase between now and 2015,while 62 per cent of respondents globally expect the number of venture firms to decrease during the same timeframe.

The report said that 99 per cent of respondents in China expect the number of venture capital firms to increase in their country in the period under review,followed by Brazil (97 per cent) and India (85 per cent).

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On the other hand,92 per cent of venture capitalists in the US anticipate the number of venture capital firms to decline,followed by France (83 per cent),Israel (80 per cent) and the UK (70 per cent),on account of the unfavourable investment climate and tax policies,difficulty in achieving successful exits and unstable regulatory environment.

“The stage has now been set for emerging markets like China,India and Brazil to rise as drivers of innovation,as they are increasingly becoming more competitive with the traditional markets,” said Deloitte USA Managing Partner for National Venture Capital Services Mark Jensen.

But Jensen maintained that traditionally strong markets like the US and Europe will continue to be important hubs,despite consolidation in the number of venture firms.

In India,respondents felt the improving entrepreneurial environment and growing market created a favourable climate for venture capital in the country. Also,the quantity and quality of deal flows will improve significantly,with most expecting an improved or stable environment for valuations.

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“The current venture capital market reflects strength and confidence,despite recent challenges. There is renewed optimism,especially for sectors which are driven by strong consumer demand,with India’s growth expectancy and growing domestic consumer class being key drivers,” Deloitte India Senior Director Rajiv Sundar said.

The survey,which measured the opinions of more than 500 venture capitalists worldwide,found that the majority of respondents feel investment levels in clean-tech,healthcare services,biopharmaceuticals,medical devices and equipment and consumer business will increase.

However,there were mixed reactions on telecom,software,electronics and new media.

Despite concerns over growth contraction in the US and Europe,57 per cent of all respondents believe the quantity of deal flows will increase over the next five years and 56 per cent expect the quality to improve as well. This forecast is particularly strong in respondents from China,Brazil and India.