I think this is really an appropriate time for me to be writing this foreword for the Venture Capital and Private Equity Guide for India 2004-05, as the private equity industry in our country is going through one of its most exciting phase.

To look back in time – the growth of the industry in India can be considered in two phases. The first phase began when the government recognized the need for venture capital as early as 1988. That was the year in which the Technical Development and Information Corporation of India (TDICI, now ICICI Venture Funds Management Company Limited) was set up. This was followed suit by multiple financial institutions that launched various funds, which essentially invested proprietary capital in small and medium enterprises during the next decade. I am proud to be associated with a company, which pioneered the concept of Venture Capital in India. However, I personally believe that the venture capital activity was more in the nature of project financing and was marginal compared to other funding options available to the Indian industry.

The second phase was heralded in by the SEBI (Security Exchange Board of India) Committee on the VC Industry. This committee chaired by Mr. K. B Chandrashekar laid down clear guidelines for VC funds which helped in opening up the industry. In 1998, only 8 domestic venture capital funds were registered with SEBI which by the turn of the century climbed up to 19, a number of them being foreign funds.

In 1999 – 2000, there was a spurt of technology and internet companies in India, which attracted huge amount of capital. This period, while not necessarily the most lucrative for venture capitalists, was one of fostering the understanding of the concept of venture capital/private equity in India.

Today, the Indian venture capital/private equity industry has developed even further. From funding small start up ventures with emphasis only on new age companies, the industry has now matured to cover the entire spectrum of private equity products – seed funding, expansion capital, buy out financing, financing restructuring of companies and providing mezzanine capital across a variety of sectors. Deal sizes have also reached new heights, from sub USD 5 mn in the early days to the current USD 50 mn and more. Apart from enhanced breadth and width of activity, private equity players are also adapting and creating new structures and instruments to suit the requirements of Indian entrepreneurs : unconventional investments for an unconventional market.

ICICI Venture has played a key role in creating this market in India : apart from identifying new sectors of growth such as real estate, it has also increased the level of deal sophistication. It closed the first leveraged buy out deal in India (Infomedia India Limited), and was also amongst the first few players to provide mezzanine capital to a company (Arch Pharmalabs Limited).

On the funding side of the private equity business – it may be worth noting that till the recent past, a substantial portion of venture capital and private equity money in India has flowed from pension fund managers / investment institutions from the US, Far East, World Bank, other quasi governmental organizations, and multilateral development bank. What is striking, however, is the limited presence of domestic Indian investors. The peculiarity of this situation gets accentuated when one views it in the context of a robust banking and financial system present in the country. The availability of investible surplus and paucity of investment opportunities ought to have resulted including private equity funds in the portfolio of large financial institutions.

ICICI Venture took upon itself the challenge to communicate to investors the benefits of including private equity in their asset portfolio. This pioneering effort resulted in raising of the largest domestic fund, the USD240 mn India Advantage Fund. The acceptance of private equity as an asset class among domestic financial institutions is accentuated by the fact that post India Advantage Fund they have also participated in a few more funds.

With India becoming a preferred investment destination, this heightened level of private equity activity is likely to continue for some time to come. India Inc. is definitely rising up to the challenge of not only becoming globally competitive but also in creating enterprises that would dominate the world over a period of time. The financial system especially private equity players need to support the Indian industry in this endeavour.

The ‘VC Guide for India 2004-05' has been serving as a powerful and comprehensive guide to all concerned with Venture Capital and Private Equity – including venture capital companies, intermediaries, regulators, potential investors and last but not the least the entrepreneurs.

This guide includes in-depth profiles of more than 100 leading VC/PE firms investing or would like to invest in India. This guide to my mind can be a useful tool for all entrepreneurs looking to raise private capital for their company. They can not only locate and contact the VC/PE firms but they can also ensure that they are able to raise capital in the most intelligent and focused manner. Rather than conducting a broad-based search, they can spend their valuable time and energy in targeting those venture capital firms within whose investment arena they will best fit and who will be a best strategic fit for their growth plans.