Click to play videoChicago: With a lot of start-ups being launched, and high liquidity in the equity markets providing a good exit outlet, private equity is beginning to rush into India.
Around $2.5 billion poured into India in the first quarter of 2006, as against a similar amount in all the quarters of the previous year.
CNN-IBN's Indira Kannan spoke to the experts at a recent Tata India Business Conference in Chicago.
In the conference, which was held at the University of Chicago’s Graduate School of Business, one of the most sought after panels was on investing in India
While experts agree that India is emerging as an increasingly attractive prospect for both late-stage and early-stage private equity, one of the bottlenecks is finding the right talent.
"If you look at Silicon Valley 30 years ago, you had a lot of smart people but you did not have entrepreneurs who had gone through the learning curve," said business partner Ajit Nazre of US-based equity firm, Kleiner Perkins Caufield & Byers.
"Three generations, three decades later, it’s a different story altogether. The same thing is true with India. Another concern is that too much money coming in could leave investors out in the cold as it did in the US during the tech boom in the late 1990s," he added.
Professor Steven Kaplan of Entrepreneurship & Finance, University of Chicago, said that it is the tendency in private equity firms to invest somewhere where they get cumulative returns.
"However, that’s not good for the investors. It turns out great only for the companies and sectors in which money goes because a lot of money goes into that sector and it ends up growing," said Professor Kaplan.
"So I think one challenge for the investors is finding good things to invest in," he added.
Experts say the next big phase of investment in India will be debt-driven, with high-growth areas being housing, pharma, IT, and finance, among others.
"In the last three years, one of the biggest convertible markets in Asia, has been India," said Global head of Correlation Trading, Merrill Lynch, Ranodeb Roy.
"India is where fast-growing small, medium, and large-size companies have raised money through the convertible space, and put investments in projects themselves," he added.
Meanwhile, private equity is expected to provide plenty of opportunities for those willing to take long-term positions.
India will still remain an attractive destination for private equity investment.
But to keep the money flowing and to tempt more venture capital, the country’s entrepreneurs will have to step up to the plate and be willing to take a few knocks.
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