India investments continue slide

Venture capitalists have long hoped to curry favor with Indian entrepreneurs.

VCs flocked to India in droves during 2005 and 2006, but exits have been few and far between in the country as the global economic slowdown has hit venture investors in India particularly hard.

It should then come as no surprise that VCs invested only $77 million in 17 deals in India during the third quarter, down significantly from the $298 million that VCs invested in 55 deals during the same quarter a year ago, according to a recent survey by Venture Intelligence and the Global-India Venture Capital Association.

Information technology and financial services companies accounted for 70% of all deals, according to Venture Intelligence.

Even successful firms with a deep involvement in India have slowed their pace. Consider Kleiner Perkins Caufield & Byers, which previously backed Info Edge, a New Dehli-based operator of a Indian careers website, and Sequoia Capital, which rolled in Westbridge Capital into its fund family several years ago.

Kleiner Perkins and Sequoia combined invested in 20 startups that raised a total of $252 million in 2008, according to data from Thomson Reuters (publisher of PE Week). So far this year, the two firms have only invested in six startups that raised a total of $47 million.

In addition, Draper Fisher Jurvetson cut eight checks for Indian startups during 2008. So far this year, it has slowed its pace to just three deals, records show.

Other marquee firms have either dramatically decreased their involvement in the country or pulled out all together. Battery Ventures, for example, announced last month that it was closing its Mumbai office and said it would still consider investments in India via a “commuter model.”

Other firms, such as Matrix Partners, have held constant. The firm has backed three Indian startups to date in 2009, the same number it backed last year, according to Thomson Reuters. The firm has committed to invest $450 million in India, although it’s unclear how much of that has been put to use.

Other firms are doubling down on their India investments. Accel Partners, for example, hired Neeraj Bharadwaj late last month to help the firm invest in India. Bharadwaj had worked in India as an investor with Apax Partners for a decade before joining the Accel team. He will be working both with the $60 million Accel seed fund that closed last year as well as writing larger, growth equity checks.

Moves like Accel’s give industry watchers hope that the market for early stage finance will rebound in India. And as dismal as third quarter investment totals were, they were actually slightly better than second quarter venture commitments, when VCs put only $54 million to work during the three-month period.

“We expect the investing momentum to pick up even further,” says Sudhir Sethi, a managing director of IDG Ventures India. —Alexander Haislip