Indian IT Cos need to focus on capital efficiency

CIRCUIT EC / Hyderabad

With company valuations becoming more attractive to overseas investors and the Indian industry riding the outsourcing wave, US-based venture capitalists are willing to bet their shirts on entrepreneurial ventures in the country. However, Pramod Haque, managing partner of the US-based Norwest Venture Partners (NVP), which manages more than $1.8 billion in venture capital says that in order to take advantage of this trend, Indian companies need to get their capital efficiency levels right. Right from conceptualisation to designing, planning, and executing, Indian entrepreneurs need to be cautious, added Haque. He was in Hyderabad to meet some prominent industrialists from Andhra Pradesh. According to him, Indian telecom, domestic IT and other sectors that get a significant chunk of their revenues from outsourcing have good potential and offer attractive returns to venture capitalists.

“Indian corporate IT spending will be a $16 billion market in the near future and the domestic telecom market that is the fifth largest in the world will grow to occupy the third place soon. I estimate that the number of programmers in India will touch one million in the next five years, which will add value to the Indian outsourcing market. Indian entrepreneurs continue to make their mark on the world IT map and obviously venture capitalists would prefer them for funding. A hybrid model would be very attractive as product development could be done in India, while marketing could be done by the US-based facility,” says Haque.

Forbes recently named the Shimla-born Haque as the ‘number one venture capitalist’ in the US. NVP has invested about $15 million in Indian software and product companies. “Typically we invest about $ 20 million in a start-up with a break-up of $5 million of annual investment over four years. Entrepreneurs need to focus on quality and marketing instead of raising equity,” Pramod Haque said.

“During 1995 to 2003, about $ 3.3 billion of venture capital funds came to India, which was three percent of the total VC funding in Asia. In India, we have 85 VCs and of these the Top Ten have invested two-thirds of the total funding in the country. The domestic IT industry accounts for more than 30 percent of the total VC funding in the country,” said J A Chowdary, president, The Indus Entrepreneurs (TiE).