70% Rise in Private Equity Investments in Indian SMEs in Jan-Feb 2011

Small and Medium enterprises (SMEs) have seen a 70% increase in private equity (PE) investments in January – February 2011. This indicated that the entrepreneurs are interested to open up and increase accessibility to PE funds in India. It was found that funds like Warburg Pincus, Carlyle Group, Reliance Asset Management and Zephyr Peacock preferred to partner with companies whose turnover is less than Rs. 500 crores.

According to the VC Edge, a financial research agency, as of January – February 2010, PE funds invested USD 38.619 crore while it increased to USD 66.39 crore in January – February 2011. Even the average deal size was found to increase by 80% to USD 2.254 crore. It was the financial sector which had the highest PE investments that gained USD 19.8 crore through three deals. It was followed by the utilities sector with USD 13.253 crore. However, the PE funds were no longer reluctant towards the SMEs. They were found to welcome MSMEs or those rising funds for the first time.

Nowadays, it is found that SMEs not only require funds for funding expansion plans but also need support for managing funds, hiring right employees, networking with channel partners, accessing export markets and building foresightedness. However, the SMEs were found to turn towards the PE funding because of the non-performance of the initial public offerings. The upsurge in investment was largely due to changing mindset among promoters of small companies and the rise in accessibility of funding in the country.

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