Frost & Sullivan Assesses the Investment Climate in India and its Impact on Next-Generation Investors

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Published: June 15, 2015 1:35:00 PM

Prime Minister Narendra Modi’s ‘Make in India’ mantra has had the desired effect on India’s entrepreneurial market. The country now boasts of the third largest number of start-ups globally. This favourable political climate, along with the marriage of interests between the investor and entrepreneurial communities, has given a fresh lease of life to the Indian market.

Prime Minister Narendra Modi’s ‘Make in India’ mantra has had the desired effect on India’s entrepreneurial market. The country now boasts of the third largest number of start-ups globally. This favourable political climate, along with the marriage of interests between the investor and entrepreneurial communities, has given a fresh lease of life to the Indian market.

New analysis from Frost & Sullivan, The Next-Generation Indian Investor, estimates that with the rise in disposable income, angel funding is set to increase. The percentage of angel and incubator funding improved from 3 percent in 2011 to 16 percent in 2013.

For complimentary access to more information on this research, please visit: https://corpcom.frost.com/forms/PR_IndianInvestor.

The new government has rolled out initiatives such as single window clearances and promised soft terms to attract venture capitalists (VCs) and investors. Additionally, it intends to set up an INR100 billion fund to propel start-ups. The resultant hike in investment inflow will stoke competition among investors for opportunities in the best companies.

“VCs and angel investors are tilting toward companies that provide 100 times or even 1000 times the return on investment,” said Frost & Sullivan Senior Financial Consultant K Vinod Cartic. “Enhanced internet connectivity and the ubiquity of smart phones have made them particularly bullish in their approach to technology-centric companies.”

While the government’s policies are luring more investors, the inconsistent budget allocations and slow pace of infrastructure development has stalled growth in several sectors such as logistics. Additionally, the financing available to project developers is limited, and new participants often have to primarily rely on their own capital.

As most start-up founders are from the middle class demographic, they require substantial financial support. Some of the possible substitutes to external early-stage investments include loans from banks and family members. However, banks have a low appetite for start-ups, and family funding is usually restricted to small amounts.

Angels and VCs in India are willing to expand their investment range to include early-stage ventures, if they are convinced of its viability. A case in point is Airbnb, which received a relatively large investment of $600,000 in its early stages and went on to become a $10 billion company within five years.

“Unlike 10 years ago, when they focused on niche markets and specific products or services in the early stage of evolution, investors have begun to invest across the lifecycle of companies and even in stock markets,” observed Cartic. “They are also keen on companies that integrate well with the ecosystem and hence have greater scalability in terms of the range of products and services.”

The Next-Generation Indian Investor is part of the Business & Financial Services (ww2.frost.com/research/industry/business-financial-services) subscription, which also includes research services in the following markets: Investment Opportunities in the Indian Education Market, Investment Opportunities in the Global Energy Management Systems Industry, and Investment Opportunities in the LED Industry, among others. All research services included in subscriptions provide detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants.

Frost & Sullivan’s Business and Financial Services group serves clients around the world in all aspects of financial analysis, market research and monitoring, due diligence, idea generation, opportunity analysis, investment valuation, and other proprietary research.

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