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Projections about Early Stage Investments in India; Could Grow to $3 Billion Annually within a Decade

Jubin Mehta
28th Sep 2012
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The Government of Planning Commission recently came up with a report which had some perspicacious insights into angel investment and Early Stage Venture Capital in India. Invesments being one of the biggest challenges, the report complimented the sentiment by stating, “Creating a vibrant entrepreneurial ecosystem will require strong capital flows to entrepreneurial ventures   – the Committee expects that Rs. 3 lakh crore (or around $55 billion) of capital would be needed over the next decade with around half of this in form of debt.”

The current investment scenario was shown to be inadequate with the following support:

  • In 2011, Indian angels, constrained by regulations that make both investing and exits cumbersome, invested only about Rs 100 crore (approximately $20 million) in around 50 deals as compared to Canada– where angels invested Rs 2,000 crore ($390 million). Even as a proportion of early-stage investing (investing in the initial or growth phase of the venture), angel investments in India comprise around 7 per cent as against around 75 per cent in the US.The report estimates that a well-developed ecosystem would expand these investments to around Rs. 3,500 crore ($700 million) annually in next 10 years.
  • India also lags in early-stage venture capital investing4. Annual investments are around Rs.1,200 crore ($240 million) as against Rs. 29,000 crore ($6.3 billion) in the US and Rs. 3,000 crore ($700 million) in China. Around 90% of the early stage venture funds in India come from offshore sources rather than from domestic investors.The report estimates that these investments could increase to around Rs. 14,000 crore ($3 billion) annually in the next 10 years as both the number of funds and propensity to invest increases with a larger entrepreneurial base.
  • Impact investing, or investing for both social and financial return, is an imperative in India. This kind of investing seeks out businesses and social ventures that can deliver measurable social and/or environmental impact as well as appropriate financial returns in sectors such as education, healthcare, sanitation, environment, and infrastructure. In 2011, around Rs 400 crore ($80 million) of such investments were made by impact investors. Impact investing needs to grow dramatically to support businesses that target India’s 900 million strong base of-pyramid population.
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