26 Aug 2019
Role of Venture Capital in Fostering Entrepreneurship Growth in India
“The Indian PE/VC ecosystem has grown from $200 million in 1998 to almost $39.5 Billion in 2017, a CAGR of almost 32%.” as per the PE-VC Agenda, India Trend Book – 2018 by E&Y.
Venture capitalists play an important role in developing the startup ecosystem in any country as they provide the funding for entrepreneurs to setup the ventures that have more binary returns. It also develops an angel and seed investor network that acts as a pipe for the Pre-Series A and Series A funds. As more entrepreneurs successfully exit their ventures, their angel investments along with mentorship continue to benefit and provide the smart capital needed to propel this ecosystem forward.
Since 1972, when incremental steps were taken to setup the VC industry by the government based on the recommendation of the Committee of Small and Medium Enterprises, to today having full-fledged government funds i.e. SIDBI providing funding to early stage funds, venture capital in India has come a long way in fostering entrepreneurship and growth in the country.
While the growth of funds has been impressive, a lot of that growth lately has been skewed towards bigger size deals. As per the E&Y report, “72% of the total value of investments in 2017 came on account of deal values greater than $100 Million”. This is driven not only by globally richer valuations but also by a few funds dominating the late stage funding available in the country and therefore a few big deal outliers bringing up the average deal size for the entire ecosystem.
However, alongside this we have also seen a rise in the number of first-time domestic funds raising funds and investing in sectors across the spectrum and not restricting themselves to just the e-commerce players. This has definitely provided the depth we needed to encourage more early stage investors in India i.e. financial services, consumer products, logistics, healthcare and technology which is absolutely essential for driving economic growth across the board.
So, as we see the VC ecosystem maturing and more family offices and institutional investors co-investing in early stage deals, it would be good to recognize the long way we have come as a country to where today we are creating global level startups in India rather than only looking to bring global companies to Indian soil.