By G.Sabarinathan, PhD1
On August 6, 2025, IIMB inaugurated the Tony James Centre for Private Equity & Venture Capital, from a generous endowment by Mathew Cyriac, IIMB alumnus and successful fund manager, now founding partner at Florintree Capital.
A hugely farsighted initiative
Mathew’s endowment demonstrates a hugely farsighted vision for two obvious reasons.
One, private capital[2] has been increasing its footprint in India, both in terms of the quantum of funds deployed as well as the activities it has funded. From a relatively small sum of $ 170 mn in 1998 in the tech boom days to $33 bn in 2024, private capital-funded assets under management grew 194 times in 25 years at 22% compounded annually approximately and is now close to 50% of the money invested by foreign portfolio investors in India.
That, in turn, has led to whole new industries like electronic commerce and quick commerce, consolidated supply and capacity in fragmented sectors like manufacturing and healthcare delivery and improved the performance of several underperforming assets in traditional sectors like textiles and more contemporary sectors like technology.
Second, for all its heft, it is a poorly understood business sector and financial asset class. As a consumer of academic research, I find it hard to get answers to basic questions like how much did the industry earn from different methods of exit in a year? What fraction of the funding in the Indian market is from capital of Indian origin and so on. I am not yet talking about the rates of return on specific investments, the performance of investment funds, and so on. That is an even further goal to shoot for.
It is this backdrop that adds to the salience of Mathew’s far-sightedness. Those who know Mathew as a professional will not be surprised by his decision. His career in the industry has been spectacular, to say the least.
A VC-PE primer in two hundred words
The reasons for our primitive understanding of the venture capital (VC) and private equity (PE) industries are many. In order to appreciate those reasons, it would be good to have a rudimentary knowledge of the two industries. In the rest of this article, I will use VC and PE synonymously. The two differ from each other in many ways. For our discussion, we can live with that approximation.
Investors, typically institutional and high net worth individuals and families, pool together funds into a VC or PE investment fund. Such investors are known as limited partners (LPs). The funds most commonly have a defined life of ten years, at the end of which they must be wound up and the capital returned to the LPs.
VC and PE funds are managed by a team of investment professionals known as general partners (GPs). The fund managers (GPs) are paid a fixed fee of 2% of the fund corpus annually as a fixed fee and an additional 20% of the capital appreciation they produce as incentive pay, known in industry speak as carried interest or carry for short.
GPs invest the funds in the first two to four years of raising a fund, grow the portfolio companies in value over a two to five year period after the investment and dispose of their investments once the companies attain a certain level of maturity by listing the shares of the funded enterprise on a stock exchange or selling the enterprise or its assets to an acquiror. When companies do not perform as expected, GPs liquidate their investments or simply shut down the operations of the company and write off their investments. Sale proceeds from investments, as and when realized, are distributed to the LPs, a portion being rated by the GPs as carry.
Though highly stylized and simplified, this description allows us to understand that the VC / PE world has the following key stakeholders, whose welfare is important to the industry’s success: LPs, GPs, entrepreneurs, the management teams of the funded enterprises, collateral institutions that provide support services such as investment bankers, accountants and auditors, law firms, commercial banks and of course government and society at large.
The Indian VC-PE industry: A few distinguishing features
A large chunk of the capital – close to 80% – that flows into the Indian VC-PE industry is from international investors. This capital is pooled into investment funds that are domiciled or registered outside India. The foreign domicile status limits the amount of regulatory scrutiny and disclosure obligations that they are subject to. Their inward remittance of capital does not require any specific approval from the Indian government[3], so long as they are compliant with the regulatory regime. Over the years, that regime has eased considerably.
Cross-border funds face a few interesting challenges. First, most of their investments, which are financial in nature and in pursuit of a financial rate of return, are governed by an administrative regime that is meant for strategic investments or FDIs.[4] FDI is in most countries a politically sensitive subject. Being funds denominated in foreign currency, mostly the US dollar, they are exposed to risks of currency fluctuation. They also face restrictions in terms of the way they can structure an investment. Above all, the regime can change quickly through an administrative fiat, as has happened many times in the past, including the most recent change relating to investments from countries sharing a land border.
Thanks to a regulation that SEBI promulgated in 2012, Alternative Investment Funds Regulation 2012 (AIF 2012), a large number of VC / PE funds have been registered in India over the past decade. These funds are subjected to greater regulatory oversight as well as disclosure obligations to both LPs as well as the regulator.[5] In return, these funds enjoy a few advantages in structuring their investments into companies.
These policy quirks are in addition to the standard features of VC/PE investing. The investments are high risk, way more so in VC, which is early-stage, than PE. The financial performance of funds follows what some observers describe as the power law, indicating that a small number of successful funded enterprises – say one out of a portfolio of ten companies – would yield an outsized return, making up for the mediocre performance or failure of the remaining nine.
And while the GP makes investments and works with portfolio companies to make them successful, the LP may not receive any interim payouts from the fund. Worse, the LP has limited or no say at all in the way the GP manages the fund, except in extraordinary circumstances of misfeasance by the fund manager.
This lay of the VC-PE land throws up many suggestions on how to improve our understanding of the industry through research and disciplined academic engagement.
Towards a research-led programme for the Indian VC-PE industry
First and foremost, good research requires high-quality data at the aggregate industry level as well as at the level of individual funds and portfolio companies. In most countries in the world these data are not the subject of a mandatory disclosure regime. The limited disclosure obligations that foreign investors who are active in India are subject to, make it hard to find data on the funds or their portfolio.
Funded companies are mandated to file with the registrar of companies basic details of the funds raised such as the amount, instrument of funding, investors to whom securities have been allotted, price paid and so on. There again, many key terms of the investment that are important to determine the valuation at entry as well as evaluate performance of an investment even with reasonable accuracy are not available.
Data on funds and investment transactions are presently collected from public sources such as the registrar of companies, processed and made available by a number of providers, a few global and a few Indian firms.[6] In an extended endnote I provide a short overview of the data sources that seem to be commonly in use in India.[i]
Although extensive in coverage, academic researchers might want to be sure of the data gathering processes followed by these providers and the sources these data are obtained from. For a researcher understanding the data source and its integrity is a major concern so that she can be sure that her analyses are free of biases and conflicts of any kind.
There are other related issues. The basis of data classification and cataloguing standard across the different data providers does not seem comparable. A typical rudimentary example would be the labelling of funding rounds and date of closing of that funding round, which seem to differ across databases. The problem gets worse when it gets to exits, which are important for performance measurement.
In the western world, especially in North America, Venture Economics which got off to an early start in the eighties, now operating as VentureXpert has been a source of data for researchers. It allows meaningful and highly nuanced insights to be drawn at the level of funds and portfolios, across fund vintages, at the level of transaction terms, across different cross sections of investment vehicle vintages and so on, just to name a few of the many kinds of analysis that is possible. Even with all the effort and investment that has gone into these and other data sources, Professor Steven Kaplan present in a 2015 paper, the issues with various sources of data in the USA.[7]
Private capital is more than just VC-PE
The private investing space is broad. It encompasses individuals and institutions who make relatively small investments of Rs 1 million or even less, to networks of angel investors who can invest up to hundreds of millions of rupees to micro-VC funds and larger VC and PE funds, some of whom can write cheques running into hundreds of millions of dollars for a single funding round. A variety of institutions such as incubators and accelerators are beginning to make early-stage equity and quasi-equity investments. A range of private debt products, addressing a variety of needs, are entering the Indian private investment marketplace. All of these sources of funding are set to grow manifold as the economy grows in size and complexity.
It would be humanly possible for any single research centre to expand its focus to cover the entire spectrum. That said, research emanating from the centre is bound to address questions relating to each of these segments, as it indeed should. Maintaining that balance between supporting research activities across a broad spectrum of investment activities while focusing other aspects of its functioning such as database creation and maintenance and educational activity to a manageable subsets of investment types needs a carefully articulated roadmap.
Beyond the supply of capital
The discussion so far has been focused on what may be termed as the supply side of capital. Much of the work at global research centres on VC or PE, such as the Centre for Management Buyout Research in the University of Nottingham, seems to be focused on the supply of capital and performance of funds. Increasingly academic research has been looking at questions relating to the process of investment management across the different stages of the activity chain, namely, sourcing investment opportunities, syndication of investments, functioning of investment syndicates and so on.
These practices are bound to vary across markets. Research that would look at these practices in the Indian context will be relevant and useful. It will be useful to understand how VC and PE funds source deals, the due diligence methods they use, the issues they focus on in due diligence, areas they contribute to as part of post financing and how they plan and execute exits.
Moving beyond the supply a host of areas need understanding on the demand for VC and PE funding. How do Indian entrepreneurs manage their relationships with investors at the board level? How different is governance at the VC funded board vis-à-vis non-VC-funded boards. For example, as part of his keynote address at the inaugural event, Vikram Pandit, Senior Partner in McKinsey & Company mentioned that very few VC funded enterprises – even among the unicorns which are, by definition, well capitalized and therefore presumably larger, more mature startups – have independent directors on their boards, a key institutional practice for bringing about better governance at the board level. It would be good to know why that is the state of play and how that could be improved.
Not much is known at an aggregate level about how efficiently Indian startups utilize capital, especially the ones that raise large amounts of funding. Concerns are expressed frequently that some of them may not have been efficient in their utilization of funds and are now beginning to do so as investment funds that have backed them have issued a call to get profitable. Anecdotally, it would appear that call to profitability appears to have worked. Which raises the important question of they were lax in their capital allocation standards to begin with. These are extremely challenging questions to answer. That should not deter an attempt to find out explanations. Those insights can be helpful for both the entrepreneurs and investment professionals.
Straddling the domestic-foreign divide
An interesting feature of the Indian VC-PE industry is that it is perhaps one of the few, if not the only, industry which has been divided by the regulatory dispensation into different camps, namely funds registered with SEBI and funds registered outside India.[8] The schism is not so apparent to a casual observer. Interestingly many of them are members of the same industry association, namely the Indian Venture and Alternate Capital Association.
But when one looks at the sources of funds, their flexibility in making investments, their disclosure obligations both at the time of raising capital as well as when the fund is in operation and the challenges in engaging with the regulator, it would appear that the two types of investment vehicles, merely separated by their domicile, are not the same, although they are addressing the same investment opportunity space.
Admittedly, there are larger policy considerations that constitute a sound rationale for the two different dispensations. From an efficiency perspective though it is worth asking if there is a case for some kind of harmonization of these two dispensations. Any attempt at such harmonization should obviously be based on an analysis of the data relating to the constitution and performance of these two types of funds, an examination of whether these dispensations result in a systematic difference in investment outcomes and whether they can be attributed, however tenuously, to the respective regulatory dispensations. If it indeed does turn out that the dispensation matters, a case needs to be built for why or how the harmonization of the dispensations will help at all and a roadmap prepared for the same.
Bridging the talent gap
The VC-PE industry is manpower intensive, although funds investment themselves are compact organisations. The different players in the marketplace who support the investing activities of VC and PE funds has been noted in an earlier paragraph in this article. Each of the constituents needs an understanding of the industry sliced differently to meet their professional needs. The centre could, on its own or in collaboration with other institutions of excellence, such as law schools or the Institute of Chartered Accountants of India, The Institute of Alternate Investments and so on develop training programmes that meet these highly specialized training needs.
A platform free of conflict
An academic centre could be the place where different stakeholders in the industry converge through periodic, planned and structured interactions. More importantly such a platform could provide a truly independent view on issues such as approaches to valuation of privately funded companies, based on the tremendous amount of data that they may have at their disposal, valuation of funds and their portfolios, which is often a contentious issue. It could examine the economic fallout of extant and new policies on the industry, free of biases, which is a sine qua non for better policy making, just to cite two examples of the kind of output that the Centre could contemplate.
Mathew Cyriac could not have endowed the Centre a day sooner. And where else could such a centre be located, other than Bangalore, the epicentre of entrepreneurial activity in India?
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[1] G. Sabarinathan, PhD, retired as a faculty in the Finance and Accounting area at IIM Bangalore. He currently leads a project at IIMB’s online learning centre for designing a programme. Views expressed are his own. This article is intended to merely stimulate a discussion and is not prescriptive.
[2]I use the term private capital to distinguish it from public capital, which I use to denote capital mobilised from the broader public including retail, individual investors. In India the market for public capital is regulated by Securities and Exchange Board of India (SEBI) and is subject to extensive disclosure requirements and oversight by the regulator.
[3]Following the clashes in Galwan in 2020, investments from countries that share a land border require approval from the Government of India on a case by case basis. This is one of the major exceptions to an otherwise benign cross-border investment regime for VC/PE funds domiciled outside India.
[4]Extant law allows limited investments to be made as foreign portfolio investments, which arguably face an easier administrative regime. But very few VC/PE investments take that route.
[5]In recent times these obligations seem to have become a source of anxiety for GPs as well as LPs.
[6]Through this discussion I merely to intend to provide a broad idea of data sources and availability. This is not intended to be a comprehensive survey of data sources or their quality or a recommendation of any of these sources. In the interests of full disclosure I add that as a teacher and an occasional writer on VC-PE I have used all of these sources over time. Students who did projects under my guidance have also used one or more of these data sources.
Issues that are common across all these sources that an academic researcher is likely to face are the following. One, their sources of data are not disclosed. Nor is the basis of data classification standard or adequately described. A typical rudimentary example would be the labelling of funding rounds and date of closing of that funding round which seem to differ across databases. The problem gets worse when it gets to exits which are important for performance measurement. In the absence of these researchers cannot be sure of the data that they are working on or the defensibility of the conclusions they draw.
In the western world, especially in North America, Venture Economics which got off to an early start in the eighties has been a source of data for researchers. It allows meaningful and highly nuanced insights to be drawn at the level of funds and portfolios, across fund vintages, at the level of transaction terms across different cross sections of investment vehicle vintages and so on, just to name a few of the many kinds of analysis that is possible.
[7]Venture Capital Data: Opportunities and Challenges by Steven N. Kaplan* and Josh Lerner, June 2015 , published by National Bureau of Economic Research, accessed at https://www.nber.org/system/files/chapters/c13495/revisions/c13495.rev1.pdf
[8]Funds investing in India could be classified in many other ways too. For example there are funds where the investment management teams are completely home grown and are independent as opposed to funds that have significant presence and operations that are part of a global franchise.
Note on a few of the data sources that are more commonly used in India
[i] Pitchbook and Crunchbase are two popular international sources that capture and provide funding transaction level data in addition to data on fund raising activity by VC and PE funds as well as exits, valuation and deal terms. Stated differently, they would appear fairly comprehensive and have become popular both with practitioners and industry professionals. They seem to use contemporary technologies such as web scraping to augment their data sources.
Preqin, recently acquired by Blackrock, has been another popular source of data at the level of funds, probably even before Pitchbook and Crunchbase entered the scene. Venture Intelligence (VI) was among the first to be established as an Indian source of data on VC and PE. Tracxn is a relatively more recent source that seems to have added analytical features to the basic transaction level data that is available from other sources such as VI. VCCircle, another data source, provides news report style data on individual transactions and funds.
In addition to these data provider businesses, many consulting firms that publish periodic or annual reports on the industry seem to be creating their own private repositories of data. One of the more commonly used sources for PE transactions is the report from Bain & Co, while PwC seems to focus more on early stage and typically tech-intensive investing activity. The spheres of investment interest seem to influence the coverage of the data they collect and analyse.
Mainline financial news sources such as Refinitiv, Bloomberg, Economic Times Intelligence Group and almost all mainstream financial press provide news and analyses of developments in the Indian industry. However they are not focussed exclusively on VC and PE and so they may not provide data that researchers can consume directly for their research endeavour. A host of media, focussed on the startup ecosystem such as Inc42, YourStory, Entrackr – just to name a few that I am familiar with – provide extensive coverage by way of industry data and often incisive analyses too.
SEBI provides data on the number of funds which are registered with SEBI under AIF 2012 that are active, the value and number of investments made by them at an industry aggregate level and so on. SEBI also mandates registered VC and PE funds to provide fund performance data to create and maintain a performance benchmarks and disseminate the same.
G. Sabarinathan, PhD, retired as a faculty in the Finance and Accounting area at IIM Bangalore. He currently leads a project at IIMB’s online learning centre for designing a programme. Views expressed are his own. This article is intended to merely stimulate a discussion and is not prescriptive.