Naren Gupta, Co-Founder, Nexus Venture Partners
The rupee's depreciation over the past few months --- notwithstanding the recent uptick in the Indian currency against the dollar --- has given venture capital firms
, theoretically speaking, and an upper hand in investing in India.
Nikhil Khattau, India Advisor
recently interviewed four Silicon Valley venture capitalists
on how their India investing strategy is shaping up, what sectors they expect to invest in, and the exit options in the India.
Sumant Mandal, Managing Director Clearstone Venture Partners
The four interviewed are: Krishna Kittu Kolluri, General Partner, New Enterprise Associates, better known as NEA; Sumant Mandal, Managing Director Clearstone Venture Partners; Naren Gupta, Co-Founder, Nexus Venture Partners; and Nikhil Khattau, India Advisor, Mayfield Fund. Edited excerpts:
Q: With the rupee devaluing, will it impact your investment decisions in your current and in-the-works investments in Indian ventures?
Krishna Kittu Kolluri, General Partner, New Enterprise Associates
We have pressed pause to see how things turn out because things are currently too volatile. The rupee losing its value against the US dollar is a manifestation of a number of external and numerous internal issues that are a cause of concern for us as investors. Mandal:
The rupee volatility will slow down decision-making. Once a new balance has been reached, investment decisions can be made. As venture capitalists, we focus on long-term trends, not short-term fluctuations, so I remain strongly interested in the Indian entrepreneurial ecosystem. Our investments in India are doing very well compared to other geographies.Gupta:
India is a long-term opportunity. The rupee volatility is a short-term issue and does not affect the fundamental thesis of why India is an exceptional investment opportunity. Khattau:
The rupee devaluation will not impact our investment decisions. We have an India dedicated fund and our investment strategy in India has largely been investments in the non-tech sector-segments of the economy in the process of reorganizing themselves and in which we see discontinuous growth. These segments are not largely impacted by macro economic factors and continue to show robust growth in the domestic market.Q: How do you see the investment scenario changing with the falling rupee? Do you anticipate an increase or decrease in funding specific to your fund and in general?
A lot of service oriented companies with working capital needs that we invest in India are being crushed because of the high 13 per cent interest rate. The Indian government has taken many populist measures that are all contributing to a slowing economy. We are being much more deliberate and circumspect about making any new investments in India at this time. We were hoping to put certain amount of money to work (towards investments in India) but we have pulled back from that to see how things work out.Mandal:
I don't see the climate changing too much. Investors like certainty in policy, which is still a question in India. As things get clearer, funding avenues will start to open up more. India still remains a very interesting and a large potential market for global players. The sophistication of the businesses we are involved in is equal to, if not better than, in the US.
The falling rupee is causing many investors to stay away from India. We see India-focused venture funds facing head winds.Khattau:
The Indian economy has fallen out of favour from the global perspective. The good thing on the ground is that there is a turn in sentiment with the way the Finance Ministry and the Reserve Bank are speaking. We have competent people at the helm in both these places and the policy that should emerge is pro reform and towards getting the economy back on its feet.Q: Which sectors are more promising in this scenario versus others?
We could change our investment strategies. We might shift focus to more export-oriented sectors like garment design, IT services etc.Mandal:
Most obvious are companies that generate revenues in foreign currency. Indian services oriented companies will have better prospects in the short term. Gupta:
Technology companies have generally benefitted from the falling rupee because they tend to have a part of their costs denominated in rupees while the revenue is dollar denominated. Manufacturing and other companies that need to import raw materials or energy are likely to be adversely impacted.Khattau:
Several types of investments have benefited from the rupee fall. Companies focusing on exports of goods and services are seeing a sudden surge in demand like garment exporters.Q: Do you expect a lack of exit opportunities with funding in India in the current scenario?
There's been virtually no liquidity. Currently, I am not seeing exit opportunities. We are hoping for the best from India but recently it is not been very encouraging for us as foreign investors.Mandal:
There is strong interest in strategic and financial investors to have exposure to the Indian market. Exits are possible; however, they will start to look more promising as the rupee volatility decreases and the political and policy climate of the country becomes more stable.Gupta:
Exits are driven by a company's performance and capital markets' demand and supply. We have not seen any impact on exit opportunity as of now, but longer-term exit valuations are likely to be adversely affected if the rupee to dollar exchange rate remains volatile.Khattau:
I don't see a lack of exit opportunities for companies in India. A high quality company with high quality growth has a huge demand in the domestic market for an IPO.