Venture capitalists (VCs), who have been looking for lucrative
proposals in the Indian biotechnology segment for the
last two years, have failed to navigate the potholes in
their investment path unrealistic valuations by
Indian biotech firms and the long gestation period for
the last year, VC funds neither picked up stake in an
Indian biotech company nor sponsored any basic research
and development work. While the global market for the
biotech sector is estimated at $250 billion, the Indian
segment posted sales of just $1 billion in 1999, despite
growing at 20 per cent. This turnover is expected to triple
to $3 billion this year.
V L N Sastry, a leading biotech industry analyst, says:
There is a strong mismatch between the expectation
of the biotech firms and the valuation offered by the
VCs. Besides, the current domestic as well as international
market atmosphere has forced the VC funds to review their
investments programme in the Indian biotech sector.
to a biotech survey on Karnataka, though the total project
investments exceeded Rs 1,000 crore in the last two years,
the sector could only attract VC funding to the tune of
Rs 100 crore, mostly comprising small start-ups funded
with monies ranging from $1 million to $5 million. The
principal VCs accounting for this Rs 100 crore were Global
Technology Ventures, ICICI Ventures, ICF Ventures, Nadathur
Holdings and UTI Venture, besides Small Industries Development
Bank of India (SIDBI).
senior industry analyst says that during 1999-2000, Monsanto
had picked up a 26-per cent stake in Maharashtra Hybrid
Seeds Company for over five times its total business valuation.
In the same period, Agrevo (now Aventis CropSciences)
had picked up a minority stake in Pro Agro for nine times
its total business valuation.
2000-01, ICICI Ventures picked up a 10-per cent in the
Bangalore-based Biocon for Rs 25 crore. The total valuation
given to the companys business was just Rs 250 crore.
During the same year, Morgan Stanley and SBI Mutual Fund
picked up a 6.77-per cent stake in the Hyderabad-based
Shanta Biotechnic for Rs 50 crore.
the Bangalore-based Avastha Gengraine Technologies offloaded
33-per cent stake to ICICI Venture for just Rs 7 crore.
However, in 2001-02, the VCs totally stayed away from
investments in the biotech sector.
leading US-based VC fund backed out after picking up a
20-per cent stake in Bharat Biotech due to differences
of opinion on valuation. The company had projected a valuation
of Rs 1,000 crore, but the VCs projection was only
Rs 600 crore. Last year, Shanta Biotechnic, too, initiated
its second-round funding, but failed to attract any investments.
Though the company offered a low price of Rs 225 per share,
there were no takers.
to a recent survey carried out by the Confederation of
Indian Industry, banks still remain the major financing
source of biotechnology. SIDBI and ICICI Ventures have
committed about 35 per cent each. Internal funding by
individual companies is still insignificant and accounts
for only 10 per cent.
India Finance senior manager Alok Gupta says the long
gestation period involved in the biotech industry has
made VC firms hesitant to invest in biotech firms. The
absence of the proper regulatory mechanism and the Intellectual
Property Rights legislation have made VCs stay away from
Subhash Reddy, the vice-president of the California-based
$125-million e4e Fund: VCs cannot fund projects
taking the discovery route because of their long gestation
periods. VCs have apportioned $15 million to finance Indian
companies, and now there is a dearth of patience
capital among VCs. VCs, who cannot simply lend money
and wait for returns, must generate returns of nearly
25 to 30 per cent compounded year-to-year to satisfy their
investors. While VCs can wait for projects that have a
gestation period of five to seven years, they cannot wait
for projects that may take 17 years.
India chief executive officer Cherian Philip says the
real value creation comes only if the company addresses
issues head on. If it cannot convince the VCs, it
will not get the money. Indasia Fund Advisors chairman
Pradeep Shah says VCs are ready to fund biotech projects
of companies who have large marketing and distribution
networks and strong R&D pipelines. A senior official
with ICIC Venture says VCs face the problem of funding
for life projects that will take seven to eight years
aspect is vivid. There is a clear mismatch between VC
and biotech initiatives, specially start-ups.