Sunday, August 10, 2008

Domestic VC firms get a reprieve

The new guidelines, being drafted by the finance ministry and the capital market regulator SEBI, may not allow VCs to invest in listed companies and restrict them only to startups.

I see this as an attempt to remove the differences in treating foreign and domestic VC funds. One of the aspects being reviewed is the minimum capital required for VCs to set up shop in India. Currently, domestic VCs need to have a minimum capital of Rs 5 crore to operate, while foreign VCs don’t have any such requirement.

So end of the road for pipe investors? Not really. I say this to PE firms. Mature. Now that valuations are beaten down, start looking for buyouts (or buy-ins). Act like a true blue private equity investor. Don’t harp at pre-IPO minority stake buys, listing gains and easier exits. Develop specific domain expertise and prowl for worthless company managements that are badly screwing up shareholder wealth. Believe me, there are plenty of them across the listed segment – Large cap, mid cap and small cap. Get immersive, play active roles in shaping the fortunes of those companies and see if you can truly make a difference.

If yes, you’re in the game. Stick around and have fun.

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