Mumbai: Venture capitalists were eager to back advertising start-ups in India during the second quarter of 2008, according to the Quarterly India Venture Capital Report released today by Dow Jones VentureSource.

The report found that $89 million, almost 37 per cent of the region's quarterly investment total, went to five advertising and marketing companies, more than any other sector.

Overall, India attracted $238 million in venture capital investment, with 17 deals closed in the second quarter, marking a 120 per cent increase over the $108 million invested in 12 deals during the same period in 2007.

"We've seen deal activity in India hold steady for three consecutive quarters but this most recent quarter posted the second-highest investment total on record, due in large part to the $70 million second round for Laqshya Media of Mumbai, the second-largest deal ever completed in India," said Jessica Canning, director of global research for Dow Jones VentureSource.

"This highlights two growing trends within the region -- one being a growing interest in advertising plays that capitalize on India's emerging infrastructure and growing Internet usage; the other being an increase in second-round deals, which is expected as VCs are helping their portfolio companies expand and steering them toward liquidity,'' said Canning.

The research data showed that India saw seven second-round deals completed in the second quarter, garnering a record $161 million and exceeding the $118 million that was invested in second rounds in all of 2007.

Ten seed and first round deals were also completed during the quarter, accounting for nearly $77 million in investment.

No later-stage deals were completed.

Overall, India's business and financial services industry, which includes the advertising and marketing sector, received the bulk of investment with $131 million invested in nine deals, records on both accounts.

Second in terms of investment was India's information technology (IT) industry, which recorded three deals and $33 million worth of investment during the second quarter, a 55 per cent decline from the $73 million invested in nine deals during the same period last year.
Slow on India?

Canning added, "While the size of venture deals in the US, Europe and even China continues to climb, venture capitalists have shown some restraint in terms of investments in India, due largely to the risk still associated with this emerging region. In fact, since we began tracking venture investment in India, the median deal size has dropped from $17 million in 2005 to $10 million in 2006 and now to $8 million in the first six months of 2008."

In terms of development stage, companies with active revenue streams attracted the most capital in the second quarter of 2008, as nearly $151 million went to 10 deals for companies that were shipping products and another $4 million went toward a deal for a profitable company.

Only six deals, worth $83 million, were for companies currently developing products.

The Quarterly India Venture Capital Report covers venture capital investment, which Dow Jones VentureSource defines as early-stage capital made available to entrepreneurial companies in exchange for ownership in the form of private securities.

These investments are often seen as shorter-term and do not include private equity investments such as leveraged buyouts or mezzanine and debt financing.