Reuters reports that ICICI Bank is close to launching its $150-200 million SME (small and medium enterprise) fund, pending regulatory approvals. The bank wants to address the needs of companies which find it difficult to access equity capital from private equity and venture capital investors, says the report. The bank is already a significant player in the SME segment, which accounts for 4% of its $46.3 billion loan book as on March 31, 2009, says Reuters, quoting the bank’s website. What’s interesting is that this fund is being raised outside the purview of the bank’s private equity investment vehicle, ICICI Venture.
SME funding is a lot like venture capital funding in terms of the deal sizes involved — between $2 million and $6 million, maybe even $10 million. But the similarity ends there. In the SME segment, the target companies are relatively mature businesses and therefore require investors who will provide capital in lieu of minority stakes — between 10% and 12%. Venture capital investors expect stakes anywhere between 30% and 60%, sometimes more, in a startup.
Specialist SME funds do exist in India but are few and far in between. Delhi-based Avigo Capital Partners is in the process of closing its $250 million Avigo SME Fund III — expected to close by the third quarter of 2009, says its website. Mumbai-based BTS India Advisors, which has been investing in SMEs since 1996, is currently investing from the $75 million BTS India Private Equity Fund, raised in 2007. There are a few others in the pipeline. Read what Rakesh Sony, director of Motilal Oswal Venture Capital Advisors, says about how private equity can help SMEs in his Outlook Business column.
