Eek – A Competitor Just Raised $50 Million – Now What?

Today’s great post(s) come from Ken Gaebler and are titled My Competitor Raised $50 Million – Great! and conversely My Competitor Raised $50 Million – Yikes!  Ken did a nice job of being both an optimist and a pessimist around the issue – and addresses a bunch of the opportunities and concerns that ensue.

  • Growth of the Indian PE Market and the Future Outlook
    It is impossible to overlook the massive profits investors have earned in the Indian market over the past several years. As a result, private equity and venture capital firms are now aggressively looking to invest in India. According to research conducted by Evalueserve, the global research and analytics firm, there are more than 366 PE and VC firms currently operating in India and another 69 are planning to start operations soon. Although institutions, such as Risk Capital Foundation, IFCI, IDBI, and ICICI, were providing capital to Indian enterprises during 1976–95, the volume of investment made was not very impressive. However, the period 1996–2000 saw several international and domestic VC and PE firms raising capital internationally and investing in India. The worldwide dot-com boom propelled the rate of growth of investment in the country substantially; the total number of deals reached 280 in 2000. After a brief post dot-com pause, the party resumed in earnest in 2004.
    Since 2003, the Indian economy started growing at 8–9% annually in real terms and at 13–15% in nominal terms (including inflation). Some sectors (services and high-end manufacturing) started growing at 10–14% in real terms and 15–20% in nominal terms, thereby attracting VC-PE investment. VC-PE firms invested USD 1.65 billion in 2004, surpassing the investment of USD 1.16 billion in 2000 by 42%. Some of the salient developments in the market during 1996–2006 are as follows:
    • The number of deals grew exponentially from 5 in 1996 to 299 in 2006.
    • The deal value stood at USD 7,460 million in 2006 as compared to USD 20 million in 1996.
    Apart from the rapidly growing economy, an improved exit climate available to PE investors is another driver for investment growth. Besides listing on stock exchanges, PE firms are increasingly opting for secondary buy-outs or sale to other PE firms as exit options.
    In the light of these developments, Evalueserve forecasts robust growth in PE-VC investment in India (both in terms of number and value) between the second half of 2007 and 2010. If the current trends continue, India would receive USD 13.5 billion in PE funding during 2007, thereby becoming one of the top 7 countries receiving such funding in 2007. Furthermore, this funding could rise to almost USD 20 billion in 2010. The PE-VC firms have already amassed USD 48 billion for investment in the country during the next three and a half years, i.e., July 2007–December 2010.
    Moreover, several firms contacted by Evalueserve during the research mentioned that they would be willing to invest even more if they saw good investment opportunities. Furthermore, from a demand perspective, assuming an annual growth rate of 8%, an annual inflation of 5%, and a constant exchange rate of 40 Indian Rupees to one US Dollar, Evalueserve analysis shows that the Indian economy will grow from approximately USD 1,030 billion during the calendar year 2007 to approximately USD 5,040 billion in 2020 (in nominal terms). Therefore, it can easily absorb USD 60 billion during 2007–10 and as much as USD 490 billion during 2007–20.
    However, the future is difficult to predict as PE investments are based on a complex combination of macroeconomic, microeconomic, and financial policy-related factors, which affect the rational and emotional sentiments of the investor community. For example, an economic slow-down in the country or a tightening of liquidity around the world could lead to substantially lower PE investment. In addition, for such investments to be valuable and wealth-creating, they have to be broad-based and in diverse sectors (not limited only to IT and ITES, or the healthcare sector).