SMEs still to reap benefits of PE funding: report

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SME Times News Bureau
A recent media report has revealed that funds are invariably a pressing issue for most entrepreneurs, especially for small or medium enterprises (SMEs).

The report published in the DNA (Daily News & Analysis) newspaper's Tuesday edition said that though venture capital (VC) and private equity (PE) funding has grown considerably in the last decade or so, micro, small & medium enterprises (MSMEs) are still founded mostly with the entrepreneur's own money or, in some cases, with loans from banks.

Ramesh Kumar, MD and CEO, Zwirn Pragati Capfin, a Delhi-based non-banking finance company which is into VC funding and microfinance, told the newspaper that PE opportunities in India vis-a-vis globally are relatively not much. "And whenever they have been realised, it's the larger players who have benefited," the newspaper quoted him as saying.

Whatever funding happens for MSMEs is late-stage funding, when risks for the investors are less than at the time of founding of the company, the report said.

Between January 2008 and July 2009, there have been only 35 deals worth Rs 937.5 crore by seven VC/ PE funds with MSMEs. "The requirement is at least 40-50 times more," Kumar said.

The downturn played its part in further slowing momentum in PE funding for MSMEs. Seed funding, or early stage funding, for MSMEs dropped nearly 90% in 2008, while late-stage funding was relatively unaffected, an industry expert said.

According to a report by data service provider Venture Intelligence, the first nine months of 2009 saw 140 deals worth $2.36 billion compared with 365 deals valued at $9.48 billion in the same period last year. Though things are better than a few months back, PE activity is expected to be subdued over the next 12 months.

When the newspaper put forth the question: 'What ails PE funding in MSMEs?' Chandrakant Salunkhe, president, SME Chamber of India said: "Lack of awareness is a primary issue."

Moreover, any proposal from an MSME is looked at with skepticism because of a lack of business plan and transparency. Harsh Kaul, CEO, Sidbi VC, was also quoted as saying that given the stringent norms, only 10% of the MSME units will qualify for funding.

"I come across issues like income-tax and provident fund default in MSMEs," Kaul told DNA.