While venture capital funds invested a huge $3.32 billion in US in biotech firms last year, in Europe it ammounted $1.74 billion. However, for India, industry estimates suggest that a meagre $200 million of VC funding has been pumped till date.

Biocon CEO Kiran Mazumdar-Shaw feels, "There is a natural hedge in terms of cost base which would translate to a comparable $1 billion VC investment in US/Europe."

According to Kiran, the reasons for low VC interest in Indian biotech industry is the low cost base and also because angel funding and soft loans have met funding needs of smaller firms.

Early stage VC continues to be a problem in India. To begin with, the size of ventures is not very large, thereby making it unattractive to most VCs. Moreover, exit routes are not well defined and viable business models are still nascent, analysts say.

"Foreign firms are increasingly recognising the latent Indian biotech potential, resulting in many outsourcing partnerships evolving into equity investments. However, the high risk factor has deterred active flow of VC into the sector,"says Utkarsh Palnitkar, Industry Leader Health Sciences, Ernst& Young India.

An Ernst & Young report says finding suitable valuation benchmarks in the Indian biotech sector is often a challenge and a changing regulatory and policy structure adds to the complexity of valuing firms. Companies are successfully tapping investors for cash, with some hedge funds also joining the momentum.

Ravi Sardana, V-P, ICICI Securities says "The small size, risk profile and long gestation period has kept venture funds from investing in biotech. The industry needs seed capital in the form of an incubation fund for facilitating financing on a larger canvas."

(http://timesofindia.indiatimes.com)