India VC trend: ‘Mega funding’

Arvind Mathur is the current president of the Indian Private Equity and Venture Capital Association,(IVCA) which aims to promote the industry and support “entrepreneurial activity and innovation” in India.

Mathur is well-qualified for the job: He worked at the Asian Development Bank in the Philippines for nearly two decades and managed a portfolio of investments in 30 private equity, venture capital funds and general partnerships across the Asia Pacific region.

He recently spoke with OnFrontiers by phone from New Delhi and discussed some of the current investment trends and opportunities in India. Read excerpts from his interview below.

What do you do in your role as president of the IVCA?
We’ve got about 100 private equity and venture capital funds as our members. The objective is primarily to represent them vis-à-vis the government of India and to bring about economic reform in order to promote a smooth capital inflows from private equity and venture capital funds. As well as smooth exits.

What trends are you seeing in India now?
Number one: Private equity and venture capital are investing more and more capital in India. And they are generally bullish about India.

Secondly, there is a strong inflow of venture capital into early stage ventures. Both early stage investing and late stage ventures appeal a lot to venture capital.

Number three, the volume of investments have gone up dramatically in the last two or three years. Last year, in 2015, the total amount of private equity investment was over $21 billion, up from about $12 billion in 2014, according to VCCedge, India’s leading investment research platform.

What we’ve seen in the last two years is what’s called “mega funding rounds.”

These are venture capital fundraisings of more than $100 million in a number of rapidly growing early stage and late stage ventures.

The most popular one has been Flipkart, India’s largest e-commerce company. They had many rounds of more than $100 million when they raised capital last summer. The kinds of sectors that the capital was attracted to tended to be e-commerce ventures.

Also in the private equity arena, many leading firms like KKR, Warburg Pincus, APAX Partners and TPG have been investing actively in India. All of these firms have been interested in India for the last 15 years, but the scale of their investing has increased dramatically over the last two years.

Why are they investing so heavily now?
It’s partly changes to government policies, but mainly it’s the country’s fundamental economic strengths that drive these investments. You’ve got a huge population, huge markets and a lot of sectors where there is rapid economic growth. These are fundamental economic drivers that are natural attractions to investors.

I think foreign investors are more comfortable in India now. Over the years, they’ve started to understand India better. They know it’s strengths and weaknesses and I think overall they have greater confidence.

What are some challenges for investors in India?
The challenges are those of corporate governance, primarily, and understanding the regulatory environment.

One has to really understand the local environment. One has to do the due diligence very carefully in order to select capable and trustworthy partners. This is true everywhere in the world.

Basically, the way I put it, you need to find partners who believe in the same values that the investors believe in.

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