Vishnu Varshney, managing director & CEO of Gujarat Venture Finance Ltd is widely regarded as a pioneer of Venture Capital funding in India. He has about 30 years of experience in Equity Investments, Project Planning, Implementation and Turnarounds. In July 1990, he was selected by the World Bank and Gujarat Industrial Investment Corporation (GIIC) to start Gujarat Venture Finance Ltd (now known as GVFL) as an independent, autonomous organization at Ahmedabad.
He serves on the screening committee for Venture Capital Funds of Small Industries Development Bank of India (SIDBI), the Board of Rajasthan Venture Capital Management Company.
Varshney revealed his plans for the recently announced Biotech Venture Fund and his views on the current state of venture capital funding in India in an exclusive interview with YV Phani Raj of Pharmabiz. Excerpts:
You had been of the opinion that most of the venture funding has been happening in the country in the 'late stage deals'. What do you think are the major reasons for such practice in India?
In India the VC disbursements in seed funding are around 15% whereas in late stage deals is approximately 41%. The reason behind this trend is that if the investment is made at a later stage then the companies are likely to be larger, more mature and having established business models and correspondingly, the involvement of venture capitalist tends to be much lower.
The reasons that there are lesser venture capital investments in the start up/early stage companies are the problems associated with them. These are high-risk projects with most of them having no prior business experience, unclear industry dynamics and exit route for the VC. VCs investing in start-up companies need to be highly involved not only in strategic issues but also day-to-day operations of the company, and do a lot of hand holding.
How is GVFL different from other venture capital companies?
GVFL has consistently been investing in technology oriented start-up companies and nurturing them to success. It is one of the few venture capital firms in India to have experienced the complete cycle of fund raising investments and divestments including a consistent track record of payback to its investors. Today, GVFL has divested from 36 out of 56 investing companies. Also GVFL is actively assisting other agencies to set up new venture finance companies across the country.
GVFL's largest asset is our team, which is well-placed in terms of experience in the industry. The areas of expertise extend to legal, accounting, technical, appraisal, due diligence and in-house specialty consulting.
How many start-up companies have approached GVFL already for bio-tech venture fund? What would be your basic criteria for choosing companies for venture support?
For the recently launched Biotechnology Fund, we have received five to six good proposals till date, which we are looking into. Though we keep receiving at least two or three proposals on a weekly basis, most of them do not fit into our investment criteria.
As an investment criteria besides the minimum IRR, which any VC would look for in his investment, we would look for investments which are backed by ambitious founders who have high level of integrity, are in the growth market and have a scalable business model.
What is the priority for the venture support from GVFL? For instance, if a Gujarat-based individual or a start-up company requests for venture funding but wants to set up base in other State and in other case if a non-Gujarat based individual or a company wants to put up base in Gujarat, will GVFL fund them?
Under the Gujarat Biotech Fund, GVFL would fund companies who set up their operations in the state of Gujarat. The entrepreneur's place of origin does not matter. The company can always have its subsidiaries or branches in the other parts of the country. For the first three Funds, we have invested all over India.
Gujarat Govt is establishing a BT park at Vadodara and has also funded Rs 5 crore as corpus for GVFL's biotech fund. Will any start-up com-pany funded by GVFL get any specific incentives or benefits to set up base in the park?
GVFL would definitely look at the companies that are being set up in the biotech park but there are no special arrangements between the biotech park and GVFL to fund a start-up company.
What contribution can venture capital companies make to the growth of Indian biotech industry? What bottlenecks do you find in the VC funding in BT?
Biotech sector is growing at the rate of 40%, with a potential to touch US $ 5 billion by 2010. The emerging enterprises in bio-technology sector are high on technology, innovation and product development but lack business expertise. Venture capitalists with the profundity of their experience and expertise can help the companies in issues of corporate governance, complying with legal and statutory requirements, recruitment and team building, mobilization and appointment of experts and arranging of strategic alliances.
There are few bottlenecks that are foreseen in financing biotech companies like long gestation period, and high development costs. The industry itself is at a nascent stage in India.
Which are the countries that have successfully developed biotech industries with the help of efficient venture capital funding? What lessons do we get to learn from them?
USA, UK and other countries of Western Europe have successfully developed biotech industries with the help of efficient venture capital funding. The major lessons learnt are that biotech start-up has a long gestation period and fund requirement is higher than other knowledge industries like IT.
What are GVFL's goals? How many start-up companies you think would be benefited by the biotech venture fund?
After successfully promoting & incubating IT companies in Gujarat, GVFL now sets its sights for developing the biotech sector. Gujarat Biotechnology Venture Fund would be the first in Gujarat and among few VC funds dedicated to promote the biotech sector. In the life of the fund of 12 years, we plan to fund at least 8 to 10 high growth biotech companies.