Sarath Naru, managing director, APIDC-VCL (Andhra Pradesh Industrial Development Corporation Venture Capital Ltd) spoke to V Phani Raj of Pharmabiz on several issues concerning the VC approach towards the biotech segment . Excerpts:

Could you brief us on what has been the progress made by APIDC-VCL since its inception?

The Biotechnology Policy vision document of the AP Government had actually targeted at creating Rs 45 crore as biotech venture fund, is India's first national fund focused on biotechnology companies. But, with the efforts of APIDC-VCL the corpus fund has reached Rs 106 crore in May, this year and with the strong investor interest who can add value to the portfolio, the target is now expanded to Rs 150 crore.

What is the basic criteria at APIDC-VCL for selecting a company for venture support?

For us, promoter and proposition are the two key factors that determine eligibility for assistance. The promoter and his team should have relevant expertise, experience and exposure in the field concerned to put big ideas into implementation. The proposition of the entrepreneur should be such that it is not only unique but also has scope for building strong competitive advantage.

Are venture capitalists in India giving due attention to biotech sector and funding to the extent needed? What had been your approach?

The biotech industry in India has big opportunities ahead. More funds are required to finance the companies in the early stage, rather than the matured companies. However, Indian venture capitalists believe that funding biotech ventures is a risky proposition for various reasons such as long gestation period, protracted time needed to develop successful drug candidates, lack of interest of commercial institutions to fund BT ventures etc. In the US, VCs fund drug discovery activities liberally. We are talking to few overseas VCs who are interest in joining us for co-funding ventures in India.

Indian VCs had a bitter experience in supporting early stage IT companies few years ago. They are scared to land up in a similar situation. Thus, a majority of them have moved from funding early-stage companies to funding 'matured' and 'well-run' companies, and haven't found many matured companies in the Indian biotech segment. Indian VCs should increase appetite for early stage companies.

The opportunity for venture capital investment into early-stage companies and into 'biotechnology' companies is huge in India. But there is little venture capital targeting such companies as VCs have shied away from early stage businesses, which happens to be the nature of most biotechnology businesses. The Biotechnology Venture Fund will increase the dimensions of such fund availability. We are one of the few that continue to do early stage VC. Other Indian VCs should also increase their appetite for funding early stage biotech companies

What kind of developments do you foresee in the Indian biotech sector and VC funding towards the segment in near future?

Majority of biotech companies are getting conscious on importance of IPR and drug discovery, and are going to step up funds in the Post 2005 regime and this is going to boost the industry in the long run. In India, research and development programmes have been mostly public funded. The Technology Development Board (TDB) and New Millennium Indian Technology Leadership Initiative (NMITLI) programme are going to encourage corporates to take up new initiatives, develop new products and services. The large pool of scientists and academicians is going to provide impetus for growth. APIDC-VCL has tied up with CSIR for technology funds.

The strategy of most of the VCs in India to fund only matured biotech companies is not going to work well as they face cut throat competition from other large VCs who target such established companies in the sector. Thus, the only way left to them is to modify their strategies and target early stage companies.

Bio-informatics is gaining prominence these days. The Centre is planning to develop a National Bio-informatics Policy, which indicates the attention being given to the segment. In this scenario, have you drawn out plans to utilize the investment opportunities?

We have studied the developments in the sector carefully in the past few years. Though many companies have been established, only few are able to survive and make substantial progress. Though the sector doesn't looks promising now, it has scope to improve in the coming years. It is believed that bio-informatics tools are useful only to those companies, which actively carry out research, and there are no many companies in the biotech and pharma sector in India, which can use these tools. APIDC-VCL, at an appropriate time, may come out with a concrete plan for this emerging segment. There are many challenges in funding bio-informatics ventures.