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No diversification please! We are VCs

Rukmini Priyadarshini

BANGALORE, Feb. 21

THOUGH much of the world believes in diversifying risk by spreading the eggs, the venture capital industry still swears by tight focus.

In an industry feeling the cold of large dotcom exposures, some sections talk about non-IT funding as a means to diversify/rebalance their portfolios.

At the 2001 India Summit on Private Equity Investment, Mr Philip Stephenson, President and CEO, International Equity Partners, made a case for putting all eggs in the same basket. ``VCs are not mutual funds. We need not diversify.''

According to Mr Stephenson, a deep understanding, careful monitoring and well-executed value-addition in a tightly-focussed industry group would be the hedge against risks.

In fact, his company has adopted a new business model that is tightly focussed on the technology, entertainment and communication sectors. ``These sectors will be of substantial interest to foreign investors and global capital markets.''

But the VCs that burnt their fingers in the dotcom debacle still make a case for diversification.

Says one such venture capitalist: ``The market is not yet ready for dotcoms and we have taken a beating.'' He says his fund ``is now doing a rejig'' and would consider other interesting sectors such as biotech or pharma.

Others disagree. According to them, the most important contribution by a VC is the understanding that the bring into a venture. ``VCs with investment banking backgrounds think only about the investment. The real work starts after the money is handed over ,'' says Mr Sudhir Sethi of Walden-Nikko Investments. Walden looks at pure-technology plays only.

Intel Capital too makes strategic investments in Internet-enabling technology.

Mr Dileep Pathak, of Warburg Pincus, says his fund ``has invested in healthcare, telecom, media, IT and other services and will continue to do so.'' Warburg Pincus has invested about $350 million in India and had a minimum exposure to dotcoms.

But the general industry sentiment seems to be that for small-medium VC funds, a focussed approach is better. Else, their most important value-addition will be lost.

``We leave it to the bigger funds to develop and build several teams, each focussed on an industry. We will put all our eggs in one basket and watch the basket''.

``Why should we diversify? We are in the venture capital business,'' says Mr Harjit Bhatia, Managing Director-Asia Pacific, GE Equity.