VCs still flock to IT-ITes sector, despite sluggish growth rate

Jan 22 2013, 03:12 IST
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SummaryEven as India's information technology and IT-enabled services (IT-ITes) industry has witnessed sluggish growth in 2012 with ongoing macro concerns in its biggest markets, the sector is still the favourite destination among venture capitalists to park their funds.

IT industry attracted 136 investments worth $388.11 mn in 2012

Even as India's information technology and IT-enabled services (IT-ITes) industry has witnessed sluggish growth in 2012 with ongoing macro concerns in its biggest markets, the sector is still the favourite destination among venture capitalists (VC) to park their funds.

In the last twelve months, the sector accounted for 65% of the overall VC investments in the country with the emergence of new buzz words like big data, software as a service (Saas) and analytics.

The IT-ITes sector attracted 136 investments, the highest among sectors, worth $388.11 million in 2012, according to data from Venture Intelligence, an investment research firm.

Companies in the areas of online services, enterprise software, IT products and services and mobile value-added services (VAS) received almost 90% of the overall funding for the sector.

Among the top VC investments in the technology space during the period include AbsolutData Research and Analytics, a data analytics services firm attracting funding of $20 million from Fidelity Growth Partners India, followed by online fashion retailer Yebhi.com raising $18 million from Qualcomm Ventures, the VC arm of Qualcomm Inc, Nexus Venture Partners and Catamaran.

Cloud-based software provider Capillary Technologies managed to rope in $15.5 million from Sequoia Capital and Norwest Venture Partners, while Bangalore-based analytics solutions provider Manthan Systems raised $15 million from Norwest.

Venture Intelligence pointed out that the average deal size in the IT-ITes space was about $2.85 million.

“The conventional IT services will attract only minimum VC funding as it has now become the domain of big companies as clients are signing outsourcing deals only with companies with size of $500 million in revenue. Good companies will continue to get funded. Saas -based, cloud and big data companies will attract maximum funding this year,” said IDG Ventures India MD T C Meenakshisundaram. Last year the early-stage VC firm invested in 8 deals across the sector amounting to $26 million.

According to Venture Intelligence the number of deals in the IT-ITes sector climbed 8% year-on-year, while the value of investments declined by 32% in 2012.

Prashanth Prakash, partner, Accel Partners feels that the dip in value is a temporary phenomenon. “Online platforms other than e-commerce will attract investments majorly in the products space who are selling to global small and medium enterprises. Domestic consumption-based online players will also attract renewed investment interest this year,” he said.

According to industry

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