For the first time since the IndUS Business Journal started its annual venture capital report in 2002, South Asian entrepreneurs saw a drop in venture capital fundraising from the previous year, raising $1.54 billion in 2008, down from $2.07 billion raised in 2007. And the downtrend continues this year, with only $292 million raised in the first six months of 2009 — a far cry from the $1.07 billion raised by South Asian entrepreneurs in the first six months of 2008.
||A Closer Look
The $1.54 billion venture capital raised in 2008 by South Asian-run companies is a 34 percent drop from the $2.07 billion raised in 2007.
However, South Asian entrepreneurs raised a respectable 5 percent of the $30.49 billion in venture capital funding raised by U.S.companies in 2008.
The numbers are part of a recently released survey of venture capital raised by U.S.-based, South Asian-run companies completed by the IndUS Business Journal.
The 2007 total of $2.07 billion in venture capital raised was a 37 percent increase in funding from the previous year, which reflected the largest year-to-year increase since the newspaper began its venture capital survey seven years ago. However, the 2008 total of $1.54 billion raised by South Asian-run companies swings the other way, dropping 34 percent from the 2007 total.
In 2008, 87 South Asian-run companies raked in venture capital funding, also down from the 130 companies that raised money in 2007.
South Asian entrepreneurs raised 5 percent of the total venture capital raised by U.S. companies in 2008. Overall, U.S. companies raised $30.49 billion in venture capital funding in 2008, according to Dow Jones VentureSource, which is published by News Corp. subsidiary Dow Jones & Co. This is a 3.6 percent decrease from the $31.61 billion in venture capital raised by all U.S. companies in 2007.
In this light, South Asian entrepreneurs suffered a significantly higher decrease in overall funding than the national decrease from 2007 to 2008.
However, South Asian-run companies continue to impress in terms of the amount of funding that they were able to attract. The average deal size for South Asian companies last year was $17.78 million, according the IndUS Business Journal survey, compared to an average deal size of $7 million for all U.S. companies, as reported by Dow Jones VentureSource. In fact, though fewer South Asian-run companies raised funding in 2008 compared to 2007, the average deal size of $17.78 million in 2008 betters the $15.78 million average deal size for South Asian-run companies in 2007.
According to Jen Richman, IndUS Business Journal research associate, the dollar amounts and number of deals reported in the newspaper's venture capital survey are conservative because some companies did not respond to inquires or do not release investment numbers.
The top South Asian venture capital recipients in the 2008 survey include: Range Fuels Inc. of Broomfield, Colo., with $166 million; SunEdison LLC of Beltsville, Md., with $131 million; Achronix Semiconductor Corp. of San Jose, Calif., with $52 million; Soma Networks Inc. of San Francisco, with $51 million; and Suniva Inc. of Atlanta, with $50 million.
Range Fuels Inc., founded by VC giant and startup legend Vinod Khosla in 2006, is a green technology company that converts plants and lumber into ethanol for energy consumption. Investors include: Morgan Stanley Capital Group, Passport Capital, BlueMountain, Khosla Ventures, Leaf Clean Energy Co. and Pacific Corporate Group.
The top-five states for venture capital raised by South Asian companies in 2008 are California, with 50 companies raising $776.97 million; Colorado, with one company raising $166 million; Maryland with one company raising $131 million; Massachusetts with nine companies raising $130.75 million; and Texas with seven companies raising $71.65 million.
California has perpetually been the top state for venture capital raised by South Asian entrepreneurs, though its numbers — reflective of the overall drop — also fell in 2008, down from 67 companies raising $1.02 billion in 2007. Colorado and Maryland, on the back of Range Fuels' $166 million and SunEdison's $131 million, made their first foray into the top states in the South Asian venture capital scene. Massachusetts, a perennial runner-up to California in terms of funding raised by South Asian entrepreneurs, dropped over $100 million from the $233 million the state raised in 2007.
The first six months of 2009 suggest that the 2008 decrease in overall venture capital funding raised by South Asian-run companies will only continue to worsen. With only $292 million raised by 28 companies, South Asian entrepreneurs are nowhere near the $1.07 billion raised in the first six months of 2008 and setting a pace to perhaps fail to cross the $1 billion dollar mark, which has not happened since the IndUS Business Journal started its survey of venture capital raised by U.S.-based, South Asian-run companies. The lowest year total, found by the survey, was just over $1 billion raised by South Asian-run companies in 2002.
Still, the lower numbers for South Asian entrepreneurs is only a sign of a continued overall venture capital slide. According to Dow Jones VentureSource, U.S. companies raised just $9.27 billion in venture capital funding in the first six months of 2009, well below the $16.46 billion they raised during the same period in 2008. South Asian-run companies continue to hold steady in terms of getting their piece of the venture capital pie, though, grabbing 5.5 percent of the overall venture capital raised so far this year; in 2008 South Asian entrepreneurs raised 5 percent of the total venture capital.
The average venture capital deal size for South Asian companies in the first six months of this year was $11.64 million, according the IndUS Business Journal survey, also down considerably from the average deal size of $19.5 million in the first six months of 2008, and the average deal size of $17.78 million for the full year. The average deal size for U.S. companies overall in the first six months of this year was $5 million, according to Dow Jones VentureSource.
The top South Asian venture capital recipients for the first six months of 2009 include: Cempra Pharmaceuticals Inc. of Chapel Hill, N.C., with $46 million; Deeya Energy Inc. of Fremont, Calif., with $30 million; Zetta Core Inc. of Englewood, Colo., with $21 million; Mavenir Systems Inc. of Richardson, Texas, with $17.5 million; and Transera Communications of Sunnyvale, Calif., with $17 million.
Top-funding getter Cempra Pharmaceuticals develops antibiotics and is headed by Chief Executive Officer Prabhavathi Fernandes. The Chapel Hill, N.C.-based company was founded in 2006 and is backed by investors that include: Quaker BioVentures, Devon Park Bioventures, Aisling Capital, Intersouth Partners, Wistar Morris III and Teacher's Private Capital.
The top-five states for venture capital raised by South Asian-run companies for the first six months of 2009 are California, with 13 companies raising $150.4 million, as well as three companies raising undisclosed venture capital rounds; North Carolina, with one company raising $46 million; Massachusetts, with five companies raising $45 million; Colorado, with one company raising $21 million; and Texas with two companies raising $18 million.