Some 200 companies are active in the pure biotechnology area in the country, with a combined turnover of $150 million (Rs 750 crore). Majority of the companies have started in the last five years, and a large number of them are headed by first time entrepreneurs who have moved out of academic institutions to turn their dreams into business reality.

As it happens in any such entrepreneurial ventures, biotechnologists too have turned traditional investors in the seed-stage such as family, friends and angel investors. A number of high networth individuals who look for better returns have turned angel investors, apart from non resident Indians, according to the CII-Rabo India report. The report estimates that most of these investments are in the range of Rs 25 lakh to Rs 2.5 crore.

The VCs too have been active and the report said funds such as ICICI Ventures, I LF & S, Westbridge Capital, UTI Venture, Canbank Venture Capital, IFCI Venture have been funding biotechnology companies.

The total private sector investment in Indian biotechnology till 2002 is estimated to be around $50 million ( Rs 250 crore), excluding the investments by corporate VCs. Most of the VC funds prefer listing companies and there are just a handful of them in the country as the industry is still in a nascent stage.

ICICI Ventures, the largest player in the field, has recently set up a $170 million (Rs 850 crore) India Advantage Fund . "Life sciences will get a substantial share of the investments," assured the company’s life sciences head Aluri Srinivasa Rao. ICICI Ventures has made a successful exit from Biocon recently. The investments are in about 10 promising biotech companies, including the Bangalore-based Avesthagen. Most of the investments are the Rs 5 crore range.

There are many companies which have successfully sourced funds from VCs. "Our experience with VCs was encouraging. Our financial model was very clear. On a month to month basis our projections were in tune with their expectations at the time of discussions and order book position was promising," said Sudhir Pai, executive director, Lotus Labs.

"A little skepticism was also there, maybe due to the bitter experience some had with IT companies. They were trying to be overcautious by putting as many conditions as possible to protect their investment. By and large, we felt it was encouraging to see VCs being basically interested," Pai added.

"If bankers are cautious on funding it is because BT is a very complicated subject, gestation periods are high and end results are difficult to predict. It finally depends on the companies to convince VCs or bankers on the financial model" Pai advised.

What has been the experience of one of the country’s’ most successful biotech companies, Biocon? " I have raised several types of funds: private equity, grants, soft loans and regular long-term loans at various stages of my organization’s growth. I have not come across any specific problems in handling the funding agencies," said Biocon’s chairperson Kiran Mazumdar Shaw. She too stressed that lack of understanding of the biotech business opportunities coupled with long gestation timelines had made it a risk-ridden business segment. "However, a demonstration of success and an ability to repay loans clears this hurdle," Shaw added.

"Most of the biotechnology companies in India are looking for the second round of funding. But for them it is going to tough. The sector is passing through a difficult phase. So it has to look at joint ventures, strategic alliances, co-development process and bilateral relations. We can expect the second round of VC funding only after 36 months, when the companies’ start coming out with novel products. Till then we can expect interim VC funding and not the VC funding," Avesthagen founder and CEO, Villoo Morawala-Patell.

Then there are companies like Hyderabad-based Ocimum Bio- solutions which has funded its requirements through promoter’s own resources. " Our group investors and personal funds helped the company in the initial stages. We are now revenue driven and will not be looking at external funds unless we go for massive scale up or an entirely new project in biotech," observed Ocimum’s CEO Anuradha Acharya.

Another Hyderabad-based institution, the LV Prasad Eye Institute has benefited from private public partnership and is close to developing clinical and diagnostic tests. According to the institute’s Director (research) Prof. D Balasubramaniam, Dr Reddy’s Lab sponsored the genetic lab and two other philanthropists supported them completely to start the immunology laboratory and the stem cell lab. "Although we have received ample grant from the government, we are of the view that the assistance from the private sector has given the much-needed fillip to the research programs," he added.

N Suresh

VCs take off in India

The venture capital (VC) industry in India is also emerging as a vibrant sector to support information technology, biotechnology, telecommunication and food processing related industries.

The venture capital industry in India has emerged after the Government of India, in 1988, announced guidelines for setting up venture capital funds (VCFs). These guidelines restricted the setting up of VCFs by banks or financial institutions only. Later, in September 1995, Government of India, issued guidelines for overseas venture capital investment in India whereas the Central Board of Direct Taxes (CBDT) issued guidelines for tax exemption purposes. As a part of its mandate to regulate and to develop the Indian capital markets, Securities and Exchange Board of India (SEBI) framed the SEBI (Venture Capital Funds) Regulations, 1996.

While only eight domestic VCFs were registered with SEBI during 1996-98, more than 30 additional funds have already been registered for 2000-01.Now, there are almost 70 VCFs with a focus on India. Their cumulative assets under management would be somewhere close to $5 billion. The figures from the Indian venture Capital Association (IVCA) reveal that, till 2000, around Rs 2200 crore ($500million)had been committed by the domestic VCFs and offshore funds which are members of IVCA. The figures available from private sources indicate that overall funds committed are around $1.3 billion . It is being hoped that by 2005, India would have $10 billion invested through VCFs.

India witnessed the second highest disbursement of venture capital in the Asia-Pacific region during 2001 at $1.1 billion across 91 companies. Japan received the highest disbursement in the region with $1.8 billion being invested in 39 companies. In contrast, China received only $393 million during the year across 11 companies, which placed it in sixth place among the 13 major markets, which constitute the region. While the total disbursement of $1.1 billion in 2001 was marginally lower than the previous year’s (2000) $11.3 billion.

The situation is expected to change during the current calendar year (2002), with total disbursement projected to be in the region of $2 billion, according to the annual strategic review of the Indian IT industry by the National Association of Software and Services Companies (Nasscom). The pattern of VC disbursements last year indicates a preference for late-stage funding. According to the findings of the review, seed funding accounted for only 15 percent of the total disbursement, while late-stage funding constituted 41 percent. Deal sizes have also undergone a change. First round funding saw deal sizes in the range of $1-1.5 million, second round deal sizes were in the region of $3-5 million, third round deals ranged between $4-8 million and deals in the fourth round were in the region of $5-15 million. The 70 VCs operating in India have $5.6 billion in assets under management. There has also been a significant shift to non-internet investments, with the share of non-internet investments increasing to 68 percent in 2001 against 28 percent in 2000. VCs have moved to longer gestation investments such as health, biotechnology, IT-enabled services and wireless applications.

The biotechnology commitments by different VCFs amount to almost Rs 300 crore. Out of this, (ICICI) and Small Industries Development Bank of India (SIDBI) have almost similar commitments for biotechnology while new entrants like Kerala Venture Capital Fund (KVCF) has committed Rs 20 crore which is just 4 percent of the total venture capital. SIDBI and ICICI have devoted Rs 100 crore and Rs 170 crore respectively. The two other southern states pro-actively supporting biotechnology through venture capital are Andhra Pradesh and Karnataka. Andhra Pradesh Industrial Development Corporation (APIDC) has devoted Rs 50 crore, which is 18 percent of the total amount available at the national level while Karnataka State Industrial Infrastructure Development Corporation (KSIIDC) share 7 percent with an allocation of Rs10 crore Small Industries Development Bank of India (SIDBI) and Department of biotechnology (DBT) have decided to set up a Rs 100 crore Biotechnology Development Fund in 1998. This is to encourage private-public partnerships in the small-scale sector as well as to promote entrepreneurship in biotechnology. It is proposed that the DBT would put in Rs 20 crore, while SIDBI would contribute the rest of Rs 80 crore for the fund.

Earlier the proposal was of DBT-SIDBI for an amount of Rs 50 crore (Rs 25 crore each). National Biotech Venture Fund but the Planning Commission of India did not agree with that proposal on the pretext that it would be better to leave it to the financial intermediaries (FIs) as it would entail nurturing and monitoring apart from financial management which FIs can do much better . At this stage, finer details of the proposal such as whether to give assistance as soft loans or set in place a program with an exit clause that would help the fund sustain itself through royalties and so on are being worked out. The proposal is part of a larger industry orientation proposed by the DBT in its Tenth Plan Approach Paper. In collaboration with the Agriculture Ministry, a large number of decentralized production units (at least 1000 for biofertilisers and biopesticides) in the small scale sector are proposed to be established all over the country with new technology packages by the end of the Tenth Plan.

(Courtesy: Sachin Chaturvedi, Research Associate, Research and Information System for the Non Aligned and other Developing Countries)

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