1. VENTURE CAPITAL
Happy
Afternoo
n Prepared & Presented By
Vinod Raj
Gowrish Bhargav

2. VENTURE CAPITAL
• An Undertaking • Amount invested by the
involved Risk person/s to carry out the
newly established
OR
business
• Dare to do or
Say some thing

3. Meaning
 Venture capital means funds made available
for startup firms and small businesses with
exceptional growth potential.
 Venture capital is the financial support to young,
rapidly growing companies/ individuals that have
potential to develop into significant economic
contributors by the Business men/ Group to create a
product or service which has a unique idea.

4. Features/Characteristics of Venture Capital
High risk
Participation in management
Provided at earlier Stage
Finance to Smaller and Less Mature companies
Finance new and: rapidly growing companies
 Lack of liquidity
 Long time horizon

5. Need of Venture Capital
 To bridge the gap b/w Capital and Knowledge
 Maximum utilization of available resources

6. ADVANTAGES OF VENTURE CAPITAL
 To Investors
 To Venture Capital Undertakings
 To Society/Economy

7. TYPES OF FUNDING
 Seeding Capital
 Startup capital
 Early Stage Capital
 Expansion Capital
 Last Stage Capital

8. RISK IN EACH STAGE
Financial Stage Period (Funds Risk Perception Activity to be
locked in years) financed
For supporting
Seeding Capital 7-10 Extreme a concept or
idea or R&D for
product
development
Initializing
Start Up Capital 5-9 Very High operations or
developing
prototypes
Start
Early Stage Capital 3-7 High commercials
production and
marketing

9. Continue…
Financial Stage Period (Funds Risk Perception Activity to be
locked in years) financed
Expand market
Expansion Capital 3-5 Sufficiently high and growing
working capital
need
Market expansion,
acquisition &
Late Stage Capital 1-3 Medium product
development for
profit making
company

10. VENTURE CAPITALIST
A venture capitalist is a person or investment firm that
makes venture investments, and these venture
capitalists are expected to bring managerial and
technical expertise as well as capital to their
investments
Characteristics
 Well Managerial Skills
 Well Knowledgeable
 Sophisticated Investors – Comes forward to take risk
 Decision Making Ability
 Analyzing Skills
 Technology Back Ground – Scientist/Researchers

11. SERVICES GENERALLY PROVIDED BY VCS
 Finance to new and: rapidly growing companies
 Finance to Typically knowledge-based sustainable,
up scaleable companies
 Purchase equity/quasi-equity securities
 Assist in the development of new products, or
services
 Add value to the company through active
participation

12. FUNDING PROCESS
 Step 1
Business Plan Submission
 Step 2
Introductory Conversation/Meeting
 Step 3
Due Diligence
 Step 4
Term Sheets and Funding

13. METHODS OF VENTURE CAPITAL FINANCING
 Equity
 Conditional loan
 Participating debentures
 Quasi equity
 Income note

14. VENTURE CAPITAL FUND
 A venture capital fund refers to a pooled investment vehicle
that primarily invests the financial capital of third-party
investors in enterprises
 As per SEBI (Venture Capital Funds) Regulations, 1996
Venture capital fund means a fund established in the form of
a trust or a company including a body corporate and
registered Under these regulations which
 has a dedicated pool of capital
 raised in a manner specified in the regulations, and
 invests in venture capital undertaking in accordance with the
regulations.

15. Registration of Venture Capital Fund :
• Make an application to SEBI for grant of a Certificate
• In Prescribed Form
• With non refundable fee
• Within prescribed Period
Eligibility Criteria :
1. If a application made by
a. Company
b. Trust
c. Body corporate
2. Not refused/suspended/cancelled under regulation 30

16. Procedure for Grant of Certificate
• Satisfy the Eligible Criteria
• Pay Prescribed Registration Fee
• Inform SEBI in writing
Effect of Refusal to grant Certificate
• Cannot carry activities of Venture Capital Funding
• Issue the directions
• Appointment of Person

17. Investment Conditions and Restrictions
• Raise Funds
Any Investor
Not Less than Rs. 5 Lakh
• Minimum Rs. 5 Crores required to startup Operations
• Invest not More than 25 % of Corpus in one VCU
• May invest in Foreign Companies subject to Guidelines issued
by RBI or SEBI form time to time
• Atleast 66.67% of Investments on Unlisted Equity Shares
• Not More than 33.33% of Investments in Debt and IPO’s
• No investments to be listed without maturity of 3 years
• No to Financial Services Providing Institutions
• Preference to Sick & Financially Weak Companies

18. General Obligations and Responsibilities
•No Public Offer
Maintenance of Books and Records
•Proper Books of Accounts, Records and Documents
•For a period of 8 years
•Place where books are maintain
Power of SEBI
•Call for Information
Winding Up
• Intimate to SEBI
• No Investment to be made
• With in 3 months

19. Venture Capital
Continue by Gowrish

20. Income Tax Provisions For VC
 Sec 10(23FA) – Exemption of
- dividends [other than dividends referred to in section
115-O], or
- long-term capital gains
of a venture capital fund or a venture capital
company from investments made by way of
equity shares in a venture capital
Undertaking

21.  Provisos
- Such venture capital fund or venture capital company is
approved by the Central Government
- any approval by the Central Government shall, at any one
time, have effect for such assessment year or years, not
exceeding three assessment years, as may be specified in
the order of approval :
- This clause will apply only in respect of any investment
made before the 31st day of March, 2000.

22. Explanation – Meaning of certain terms for the purpose of
this clause
(a)―venture capital fund‖ means such fund, operating under
a trust deed registered under the provisions of the
Registration Act, 1908 (16 of 1908), established to raise
monies by the trustees for investments mainly by way of
acquiring equity shares of a venture capital undertaking
in accordance with the prescribed guidelines;
(b)―venture capital company‖ means such company as has
made investments by way of acquiring equity shares of
venture capital undertakings in accordance with the
prescribed guidelines; and

23. (c) ―venture capital undertaking‖ means such domestic company whose
shares are not listed in a recognized stock exchange in India and which
is engaged in the —
(i) business of—
(A) software;
(B) information technology;
(C) production of basic drugs in the pharmaceutical sector;
(D) bio-technology;
(E) agriculture and allied sectors; or
(F) such other sectors as may be notified by the
Central Government in this behalf; or
(ii) production or manufacture of any article or substance for which
patent has been granted to the National Research Laboratory or any
other scientific research institution approved by the Department of
Science and Technology

24.  Sec 10(23FB) –
any income of a venture capital company or venture capital
fund from investment in a venture capital undertaking

25.  Explanation For the purposes of this clause —
(a) ―venture capital company‖ means such company—
(i) which has been granted a certificate of registration
under the Securities and Exchange Board of India Act, 1992
(15 of 1992), and regulations made thereunder
(ii) which fulfils the conditions as may be specified, with the
approval of the Central Government, by the Securities and
Exchange Board of India, by notification in the Official
Gazette, in this behalf

26. (b) ―venture capital fund‖ means such fund—
(i) operating under a trust deed registered under the
provisions of the Registration Act, 1908 (16 of 1908) or
operating as a venture capital scheme made by the Unit
Trust of India established under the Unit Trust of India Act,
1963 (52 of 1963);]
(ii) which has been granted a certificate of registration
under the Securities and Exchange Board of India Act, 1992
(15 of 1992), and regulations made thereunder
(iii) which fulfils the conditions as may be specified, with the
approval of the Central Government, by the Securities and
Exchange Board of India, by notification in the Official
Gazette, in this behalf;

27. (c) ―venture capital undertaking‖ means such domestic company whose
shares are not listed in a recognized stock exchange in India and which
is engaged in the—
(i) business of—
(A) nanotechnology;
(B) information technology relating to hardware and software
development;
(C) seed research and development;
(D) bio-technology;
(E) research and development of new chemical entities in the
pharmaceutical sector;
(F) production of bio-fuels;
(G) building and operating composite hotel-cum-convention centre
with seating capacity of more than three thousand; or
(H) developing or operating and maintaining or developing,
operating and maintaining any infrastructure facility as defined in the
Explanation to clause (i) of sub-section (4) of section 80-IA; or
(ii) dairy or poultry industry

28. Venture capital funds in India
 VCFs in India can be categorized into following five groups
–
- Those promoted by the Central Government
- Those promoted by State Government
- Those promoted by public banks
- Those promoted by private sector companies
- Those established as an overseas venture capital fund

29. Indian Venture capital & Private Equity
association (IVCA)
 It was established in 1993 and is based in Delhi,
the capital of India
 Mission –
- to promote the development of
venture capital and private equity
industry in India, and
- to support entrepreneurial activity
and innovation.

30. Private Policy
 Collection of personal Information
 Use of Collected information
 Secrecy of Data

31. Member Services
 Website - a virtual hub of venture capital and professional
service providers
 Company and individual member listing on IVCA’s searchable
web-site with a direct link to the firms web-site
 Annual IVCA conference (2009)
 Networking events across India
 Information for entrepreneurs and portfolio companies seeking
capital
 Employment database for venture capital and private equity
professionals
 Research, publications and statistical information
 weekly news update and quarterly newsletter
 Discounted registration fees for IVCA members at industry and
networking events
 Preferred speaking opportunities for members at industry events

32. Venture capital industry wise
Segmentation
Percentage
9.03 6.94
IT & ITES
3.36 7.73
Energy
Manufacturing
12.92
11.5 Media & Ent.
BFSI
Shipping & logistics
4.32
Eng. & Const.
11.43
Telecom
Health care
4.82
Others
27.95
Percentage calculated on the total VC investment- 14,234 USB (fig. of 2007)

33. Growth of VC in India

34. Factors for success of VC
 The regulatory, tax and legal environment
 Resource raising, investment, management and
exit should be as simple and flexible as needed
and driven by global trends.
 Venture capital should become an institutionalized
industry that protects investors and investee firms

35. Effects of Recession on VC
 The down market virtually closed the IPO market
for emerging companies.
 With less opportunities for getting ROI investors
tend to scale back, adjust their investment focus
and/or get more picky in funding companies.
 The investors that put money into their funds
became less aggressive during recession so it
was harder for the VCs to raise money.

36. Future prospects of VC In India
 VC can help in the rehabilitation of sick units.
 VC can assist small ancillary units to upgrade their
technologies
 VCFs can play a significant role in developing countries in
the service sector including tourism, publishing, health
care etc.
 They can provide financial assistance to people coming
out of universities, technical institutes, etc thus promoting
entrepreneurial spirits