Foreign venture capital worth $1.5-$2 billion and another Rs 10,000 crore (Rs 100 billion) from Small Industries Development Bank of India's SSI Fund are expected to bolster small companies in the country this year, according to industry experts.
"About $1.5-$2 billion are expected to be invested by private equity funds this year. Many new players are entering the country," Citigroup Venture Capital India head Ajay Relan said at the National Association of Software and Service Companies-SME forum, in New Delhi on Friday.
Citigroup's venture fund alone plans to invest about $100-$200 million in start-ups, he said.
The group has so far invested $200 million in equity of small companies.
Other funds like ChrysCapital are also eyeing India as a potential investment destination.
In 2003, the country witnessed a slump in venture funding at $530 million compared to $1.1 billion in 2002. "This year, we expect a surge in VC funding," Nasscom member and All E Technologies CEO Ajay Mian said.
Apart from foreign equity funds, Sidbi has started lending money to small companies from the newly set up SSI Fund.
"We are looking at services related to telecom along with biotech, pharma and various outsourcing services for the funding," a Sidbi official said.
He said the Rs 10,000 crore SSI fund would be used to restructure debt of small and medium-sized companies.
Sidbi also plans to increase the corpus of its venture capital fund -- India Growth Fund -- to Rs 500 crore (Rs 5 billion) from the present Rs 100 crore (Rs 1 billion). The fund would invest in equity of companies and enable them to carry out expansion.
Although venture capitalists are optimistic of the small companies in India, the industry experts said that there has been no major gain to them due to a variety of reasons.
Relan said the VC funds want easy exit route but most of the software companies do not offer that opportunities.
Moreover, there has been no major mergers and acquisitions in the IT sector, which might have given the VC funds opportunities to gain from their initial investments, he said.