Battery, Other U.S. Firms Cool on India

Venture investment in India slid to $117 million in the first half of this year, down from $413 million last year—a decline of nearly 72 percent. The number of deals also declined, from 67 to 27, according to a survey by Venture Intelligence and the Global-India Venture Capital Association.

Battery Ventures, which said in September that it would close its Indian office, isn’t the only U.S. firm pulling back, according to Naren Gupta, a longtime Silicon Valley tech executive who co-founded Nexus India Capital in Mumbai and Menlo Park, Calif.

More U.S. VCs and private equity investors have been leaving India over the last year than coming in, he says. “The only difference with Battery is they announced it,” Gupta says.

Even though U.S. investors tend to cycle in and out of foreign countries depending on the economy, Gupta thinks something else is going on this time.

U.S. investors in India and other countries are running into more and more competition from local investors, he says, and that makes it harder for U.S. firms to operate and to retain the best people, who are more likely to jump ship.

Limited partners are also growing more comfortable with local firms, which are in turn more likely than U.S. firms to understand which startups will work well in India and which won’t.

We have made a decision to delay building out our team in Mumbai and will continue to invest in India from the U.S. via a commuter model, as we have since 2004.

Statement by Battery Ventures

“The U.S. already has sophisticated logistics companies, but India does not, so what does India need—not the latest, greatest technology,” Gupta says. “Usability, cost and distribution are more important than technology.”

Those U.S. investors that have done well, he says, are firms like Sequoia Capital, which bought an existing Indian venture fund, kept the team and its camaraderie intact, and renamed the fund.

For its part, Battery said its decision to close its India office was related to the “mutual conclusion” by General Partner Mark Sherman and Battery that he will leave the firm once its current fund is fully invested in the first quarter of 2010. Sherman had been part of the firm’s push into India.

“We believe in the potential of India as a strategic investment market, and have three companies in the portfolio,” Battery said in a prepared statement. “With Mark’s departure, however, we have made a decision to delay building out our team in Mumbai and will continue to invest in India from the U.S. via a commuter model, as we have since 2004. Silicon Valley-based Ramneek Gupta will lead investments in the country.”

The statement went on to say: “Not wanting to operate as the lone employee in Mumbai, our partner currently on the ground there, Gautam Patel, has chosen to seek other opportunities. He will also remain with Battery through the new investment period of our current fund.” —Deborah Gage and Dan Primack