India attractive market for US venture capitalists

After a lull of investments in the venture capital space last year, the US venture capitalists are optimistic about the future prospects of this segment in 2010 and said that India and China would attract a large chunk of these fund flows, a study said.

According to leading global audit, tax and advisory firm KPMG, the venture capital community is signaling an uptick in overall venture capital investment in 2010 and expects IPO activity and valuations of venture-backed companies to trend upward next year.

Majority of the respondents were of the opinion that 'China and India are expected to remain very attractive regions for 2010, while Brazil, Israel and Southeast Asia will also see an increased venture investment.'

"There is no question that economic and market conditions of the past two years have been difficult for the venture capital community, but we are clearly seeing indications of a light at the end of the tunnel," KPMG partner and co-leader of its venture capital practice Packy Kelly said.

As many as 68 per cent of respondents said that they expect total VC investment to increase in the year ahead -- a completely different perspective from a year ago when 74 per cent said they expected investment levels to decline. Venture capitalists also expect increases in deal volume (66 per cent) and venture fund-raising (53 per cent).

More than three quarters (79 per cent) of those surveyed said they expect increased IPO activity indicating a clear positive trend and the surge would be as much as 30 per cent or more compared to 2009.

"Venture capitalists are optimistic about the growth prospects of their portfolio companies in 2010, and a more receptive market for venture-backed IPOs," Kelly said.

Meanwhile, as many as 80 per cent of respondents expect revenue to increase in their companies or portfolio companies -- compared to just 52 per cent last year.

Sixty per cent of those surveyed this year expect revenue growth in excess of 10 per cent and a negligible one per cent see declining revenues in the year ahead, the survey said.

The most attractive sectors for VC investments would be Cleantech, life sciences, mobile and wireless.

"The venture capital industry has emphasised the importance of a vibrant IPO market for the healthy flow of investment capital to emerging companies," Kelly said.

The survey was conducted in collaboration with AlwaysON, a venture capital new media organisation, in late November and early December 2009.