VCs say they’re bio shy

Praveen Chandran
09 October 2002

Mumbai: 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 investment returns.

During 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 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.”

According 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).

A 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.

In 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 company’s 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.