Tuesday, July 18, 2006


Biotech funds

India's first biotech fund initiated by a public-private partnership, APIDC-VCL raised Rs 150 crore, five times more than the Rs 30 crore envisaged from different financial institutions in a span of just a little over a year. Even local venture capitalists have raised Rs 3,000 crore from local financial institutions like insurance companies, commercial banks, mutual funds and government bodies. The allocations from these institutions have increased from Rs 10-20 crore to Rs 50-100 crore this year.

According to the Indian Venture Capital Association (IVCA), domestic and foreign venture capitalists invested $774 million in 2003 in India up from $590 million in 2002. In 2004, till November, VCs and equity funds invested over $820 million in Indian companies. TSJ Media, a Chennai-based firm that tracks VC investments, reported that less than 10 percent of this money has found its way in the start-up companies. The momentum has just started to pick up after 2000-01 and Indian VCs have undergone a fundamental change.

This clearly shows that there are investors who are really looking at investing in upcoming technology companies like nanotechnology and biotechnology. So money is not a constraint as far as investors are concerned. Then what is it that is stopping them from making investments? Is there a disconnect between the industry and the VCs? Both have valid reasons and apprehensions.

The Association of Biotechnology Led Entrepreneurs (ABLE) arranged a meet between investment bankers, research analysts and CEOs of biotech companies on December 5, 2004 on Mumbai. The meet, sponsored by Biocon, deliberated on the key facts and parameters of investing in biotechnology driven enterprises and to exchange views.

The investors point of view was that it is the risk factor, lack of readily available information on biotechnology, strong management, clear exit model, lack of technical skilled people and experts who can guide VCs as some of the factors making them very cautious. However, they are convinced that India will be the next technology center and research hub owing to intellectual capital, skilled manpower and value addition and that it has sustainable comparative advantage over China.

VCs are looking at tie-ups between Indian and Chinese companies where the Indian product design team can have close relationships with manufacturing teams in China. India and China as a combined market opportunity can weigh much more than they do separately. This model will provide an edge for VCs to invest in India and China against US. Such model is already in place in the field of IT, where the VCs marry two sets of people in the US and India to form a team. The US team brings in the product management and customer interfacing skills and the Indian team brings product design and execution skills.

Utkarsh Palnitkar, head, life sciences, Ernst &Young, who is closely tracking the industry, noted that biotechnology would enter profitability by 2008. VCs are looking at biotechnology with caution in spite of several opportunities in biotechnology i.e., biopesticides, biofertilizers and diagnostics. Indian companies have a lot of opportunities, if risks are broken down into smaller parts. Bundle of ideas are lying in cold storage. To make it a reality and take up risks, sharing of risks is very important. Proper blueprints should be developed for implementing ideas into projects that ultimately deliver results.


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