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M&A, Venture Capital, and Private Equity:
A Thriving Investment Climate
“The focus in India today is to create the “disruptive business model” as opposed to America where the
focus is on “disruptive innovation”.
Vinod Dham, NEA Indo-U.S. Ventures
Key Findings:
• Foreign direct investment (FDI) liberalization has lured private equity, and deal size has
doubled since 2005.
• Non-hostile “influential” strategic stakes in companies are favored over mergers and
acquisitions (M&A).
• Investment has spread from IT/BPO to business and consumer services.
• Seed venture capital (VC) prospects grow as returnees with management expertise
launch startups.
• Insurance and pension funds look to property—REITS and project developers that
own land.
• Tight credit and capital outflows have slowed development.
• Venture firms invest directly or through dedicated India funds, and consumer markets
are a target.
• Outbound FDI is growing, as Indian firms seek vertical integration and global scale.
While the environment for two-way India investment has become less hospitable in the wake of
the global downturn, India remains a favored long-term play in a range of industries, and its
companies are no less focused on developing global scale and reach. As numerous experts interviewed
for this report have said, a bad year for India is 6–8% GDP growth.
Over 1991–99, Indian government policy on foreign direct investment (FDI) underwent a tectonic
shift. Where it had broadly prohibited FDI except for specific, exempted areas, gradually
more kinds of investment were moved to the automatic approval list until, in 1999, the government
took a new position that freely allowed FDI except in specific sectors felt to be sensitive.
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