INTERVIEW — DM Schwartz, Publisher, AVCJ and M & A Asia

‘India has the infrastructure to support VC-type returns’

Daniel M Schwartz is publisher of the Asian Venture Capital Journal (AVCJ) and M&A Asia. On the eve of the AVCJ’s annual conference in Mumbai, an event where top venture capitalists indulge in some furious networking and brainstorming, Mr Schwartz shares his views on how the technology and investment landscape has altered in the past year since the Journal’s last India meet. Providing a curtainraiser to the event in the backdrop of the downturn in the investment scenario, Mr Schwartz offers some valuable insights into India’s current position on the technology and software front, in an interview with Priya Srinivasan. Excerpts:

On the basis of AVCJ’s proprietary research, can you give us some idea of the total funds under management in India today and how it compares with previous years?
The first half of 2001 indicates a total pool of Rs 137,442.5 million as compared to a total pool of Rs 135,053 million in 2000. What is interesting is that there has been a distinct fall in the amounts raised this year when compared with the fact that the investible pool rose markedly from Rs 79,452 million in 1999 to Rs Rs 135,053 million in 2000. The total pool in 1998 was Rs 44,720 million.

What sort of VC interest do you see as far as the Asian region is concerned at this point?
Barring a few places, Asia is not on the investor’s radar screen at all. These few places are Korea, Japan, China and India.

Other Asian countries have disappeared from the scene as far as VC interest goes. Japan and Korea have enormous economies and critical mass and a desperate need for restructuring while India really offers the infrastructure, both financial and legal, to support VC-type returns. Also I think the opportunities in Asia are much broader than those in the West. Europe and US are mature markets and technology was just one avenue for high growth rates whereas in Asia, the investment needs are throughout the economy whether you take education or healthcare or telecom and that is ultimately the reason for the interest, which is more than evident in the kind of participation we are seeing in the event this year. Early indications are that we will have double the number of attendees as opposed to last year.

We are seeing a phenomenon in India where early stage investors have almost petered out. Most funds have moved into later stages of investments. What do you attribute this to and isn’t it cause for concern?
Venture capital is a subset of private equity. VC has a high tech and IT connotation whereas private equity has been related to buyouts, etc. Startups by and large constitute a small segment of the market, they had gained a lot of significance a while ago given the astronomical valuations, but now that the valuations that made startups larger than life have plummeted, VCs ar once again interested in expansion stage funding. In fact, Asia statistics for 2000 reveal that just 5 per cent of the total pool was invested in seed stage companies, 19 per cent in startups and 49 per cent in expansion stage companies.

The conference in Mumbai this year is titled ‘Indian Private Equity - Investing in the New Environment’. How would you define this ‘New Environment’ and on what parameters does it differ from the ‘old one’?
I was going through the speech I made at this event last year and I don’t know if its comical or nostalgic. The conference last year was titled ‘Can Dotcom Deccan Overtake Silicon Valley’ which basically examined the the dotcom phenomenon in India and whether it would overtake Silicon Valley. What interests me now are two prominent forces: one is the transition that India is going through on the software front where it is gradually evolving from body shopping to higher planes like architecture and design. This was an evolution that was well underway when the market crash happened. What has also happened in the meantime is that India is in the process of becoming the world’s back office. The conference this year will explore the theme which deals with whether the Indian software industry can sustain its evolution in a difficult fund raising environment.