Microfinance Private Equity

PE, venture funds eye offbeat sectors to ride out downturn

New Delhi, May 7 The downturn is prompting Private Equity and Venture Capital funds to look at offbeat sectors, as evident in the spurt in investment interest in education, health and microfinance areas in the past ten months or so.

With traditional favourites such as real-estate, infrastructure and IT drying up, funds are focusing on sectors where the outlook is still upbeat to insulate themselves from segments directly exposed to the global financial market turmoil.

Education, for instance, has caught the fancy of PE fund managers, with high returns, scalability and huge mismatch in supply and demand being the key drivers. PE and VC funds have already made over 30 investments worth $300 million in education-related companies in the past 24-months, with much of the activity coming in the recent months.

Among the proposals, Religare Venture Capital Ltd announced in April a 50:50 joint venture with a leading PE player, Milestone Capital, for managing a Rs 600-crore Healthcare and Education fund to be raised domestically.

Mr Sunil Godhwani, CEO and Managing Director, Religare, said: “Healthcare and Education are two sectors which we believe are poised for balanced growth and we have the requisite domain expertise on healthcare which we intend to leverage for the larger benefit of investors of the fund.”

A recent poll conducted by Venture Intelligence — a research service focussed on private equity and venture capital — among 90 PE investors found that over 80 per cent of them were interested in investing in education. According to a CLSA Asia Pacific report, India’s education and training sectors offer private institutions an estimated $40-billion market that could grow at about 15 per cent yearly.

Microfinance is another area that has caught the fancy of the funds, with PE players investing around $250 million in the sector in the last two years. The logic is that microfinance is mainly focussed on rural areas, which has been rather insulated from the downturn. Some of the major private equity investments up to March 2009 include SKS Microfinance’s $75- million investment in Sandstone Capital; Share Microfin’s $27-million fund infusion in Aavishkaar Goodwell; Ujjivan Financial Services’ $21-million investment in Unitus, and MAS Financial Services’ $20-million deal with ICICI Venture and FMO.

There is renewed interest in healthcare as well. Among recent deals, Inventus Capital Partners, a US-based venture capital firm, has invested an undisclosed sum in Insta Health Solutions Pvt Ltd, a Bangalore-based hospital information technology solutions company.

On the trend, Mr Ajay Kumar Kapur, CEO, SIDBI Venture Capital Ltd, said: “I think an idea that has not been funded before is more attractive for a venture capitalist. So, yes, the trend will sure continue… It’s just not VCs who are increasingly looking at the untried; smart entrepreneurs too are pursuing the ‘me too’ strategy with incremental lead over the competition.”

Mr Luis Miranda of IDFC Private Equity said he expected the trend to increase. “VCs are investing in these new sectors either because they see interesting opportunities or because they can’t find opportunities in the sectors they are in currently. ” Funds will increasingly look at alternative sectors for investments in the current market situation, he said.

hindu businessline

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