Venture Capital in India

1. Submitted by:-
Manpreet kaur
class: M.com

2. Meaning
 Venture capital is a capital provided by firms of
professionals who invest alongside management in
young, rapidly growing or changing companies that
have the potential for high growth.
 Venture capital is a form of equity financing especially
designed for funding high risk and high reward
projects.

3.  The SEBI has defined Venture Capital Fund in its
Regulation 1996 as ‘a fund established in the form of a
company or trust which raises money through loans,
donations, issue of securities or units as the case may
be and makes or proposes to make investments in
accordance with the regulations’.

4.  It is investment of long term finance made
in:
Ventures promoted by technically or professionally
qualified but unproven entrepreneurs ; or
Ventures seeks to harness commercially unproven
technology ,or
High risk ventures.
 Venture capital represents financial investment in a
highly risky project with the objective of earning a
high rate of return..

5. Characteristics
 Long term investment
 Lack of liquidity
 High risk
 Equity participation
 Participation in management
 Achieve social objective

6. Methods of Venture Financing
The financing pattern of the deal is the most important
element. Following are the various methods of venture
financing:
a) Equity
b) Conditional loan
c) Convertible loans

7. Stages of financing
 A early stage financing :-
1. Seed capital and R&D projects:
Low level financing needed to prove a new idea.
2. Start-up:
Early stage firms that need funding for expenses
associated with marketing and product
development.
3. Second-Round:
Working capital for early stage companies that are
selling product, but not yet turning a profit .

8. B. Later stage financing
Later Stage Financing: Later Stage Financing is
financing a company just before its IPO (Initial
Public Offer).
1. Development capital /mezzanine :
funds are needed for the purchase of new
equipment/plant, expansion of marketing and
distributing facilities, launching of product into new
regions and so on.
2. Expansion finance/bridge :
Venture capitalists perceive low risk in ventures
requiring finance for expansion.

9. 3. Buyouts:-
management buyouts(MBOs)
management buyins(MBIs)
4. Replacement capital:-
fund for the purchase of existing share of owner.
5. Turnarounds:-
it involves buying the control of a sick company
which required very specialized skills.

10. Who will invest in Venture Capital?
Venture Capital raises money both domestically and
across the world
Kinds of Investors-
• Angel Investors-High net worth investors
having appetite for high risk and higher returns;
• Institutions with diversified portfolios like
pension funds, insurance companies etc;
• Fund of Funds

11. VC investment process
Deal origination
Screening
Due diligence (Evaluation)
Deal structuring
Post investment activity
Exit plan

13. EXIST ROUTES
 IPO
 Acquisition by another company
 Purchase of the venture capitalist shares by
the promoter
 Purchase of the venture capitalist shares by
outsiders


14. DEVELPOMENT OF
VENTURE CAPITAL IN
INDIA

15.  In the year 1976, initiative had been taken by the
government of India to create Technical Development
Fund(TDF) in the Ministry of Industry with the
assistance of world bank. It provide finance for the
modernization programmes.
 In the year 1986, govt. announced the setting up of
venture capital fund(VCF) to encourage the enterprise
based on indigenous technology and up-gradation of
existing technology.
 ICICI enter into the field of venture capital by
establishing a venture capital fund for assisting small
and medium entrepreneurs with equity capital.
 This was provided for developing and
commercialization the indigenous technology.

16.  A significant feature of venture capital financing in
India, which is little recognized,
 is support the commercial banks provide to small
scale industries.
 venture capital financing in India can be divided into
following categories.
1. Specialized financial institutions and financial
schemes
2. Funds promoted by state level institution.
3. Funds promoted by public sector banks.
4. Private agencies.
5. Overseas venture capital funds.

17. Specialized financial institutions and
financial schemes
 IDBI, ICICI, IFCI are the major three institution, which
are engaged in the financing of high tech new ventures.
 A . RISK CAPITAL SCHEME OF IFCI:-
it providing risk capital assistance on soft terms to
first generation entrepreneurs.
Those corporation provide assistance who don’t have
adequate resources to contributing to equity capital of
industry projects undertaken by them with a view to
enlarging entrepreneurial base for wider dispersal of
ownership and control of industry in national interest.

18.  The corporation is continuing its efforts through the
newly formed Risk Capital and Technology Finance
corporation Ltd. Set up in 1988
 It is wholly owned subsidiary of the IFCI.
 Providing support to such activities in the area of
innovating technology, energy conservation and
environmental pollution.
 RCTC also manage a Venture Capital Unit scheme
VECAUS-III (stared in mid- 1991) with a resource base
of Rs. 30 crores with participant from the UTI, IFCI
and World bank in equal proportions.

19. B. Technology development
&information company of India Ltd. Of
ICICI
 Encourage by the response to technology financing,
ICICI floated a separate company – TDICI in
collaboration with UTI in 1988.
 It give preference to companies which are unable to
raise public share capital and would not be finance by
anyone else.
 In addition to equity participation , TDICI offer the
unique option of conditional loans.
 The entrepreneurs neither pays interest on it nor does
he have to repay the principal amt.

20.  If the venture succeed , TDICI recovers back its
investment in form of royalty on sales which ranges
between 2% to8% .
 On contrary, if fail to take off after 5 years, TDICI will
consider writing off the loan.
 Some projects finance by ICICI include-
Mastek a Bombay based software firm
• Invest 42 lakh in equity in 1989 went public in 1992.it
showed annual growth of 70%to80%.
Temptation foods which exports frozen vegetables
and fruits
• Invest 50 lakh in its equity. Went to public in nov,1992.

21. C. Seed capital scheme or venture
capital fund of IDBI
 IDBI’s scheme is known as “Seed Capital Scheme”
intended to help create a new generation of entrepreneurs.
 The assistance is provided for meeting the risk capital
requirement of entrepreneurs.
 Engage in promotion and development of indigenous
technology, that is new and untested in India .
 The financial assistance is provided under the area of
chemical, software electronics , bio-technology, food
products and medical equipment.
 The project cost varies between 5 lakh to 250 lakh..

22.  IDBI provides assistance both for financing the cost of
fixed assets as well as for meeting operating expenses
in form of unsecured loan carrying a concessional
interest Rate of 6%p.a. during the early stage of
development

23. II. FUNDS PROMOTED BY STATE
LEVEL INSTITUTIONS
 IT INCLUDE:-
a. APIDC-venture capital Ltd.:- it aims at specializing
fund management company. it is established with
capital of 13.5 crores contributed by APIDC, IDBI,
Andhra bank and IOB and few small organizations
b. Gujarat venture financial Ltd.:-the GVFL is a fund
management finance company, and presenting acts
as a trustee manager of a venture funds namely
(GVFL) , started in 1990.
GIIC association with Gujarat lease finance
corporation Ltd, Gujarat Aklalies and chemical Ltd.,
and Gujarat state Fertiliser corporation Ltd.

24. III. Fund Promoted by public sector
banks
 This is promoted by Canara bank and its subsidiary –
canbank financial services Ltd.
 It set up in 1989 as trust.
 It provide financial in form of equity , conditional
loan, conventional loan or both.
 It capital base is 24 crores.
 Support for commercial exploitation of new tech.
technology up-gradation to improve quality etc .

25. IV. PRIVATE AGENCIES
• It was establish in in 1986. it has
capital base of 10.8 crores.
• It provide assistance to 50 lakhs.
Credit capital venture
fund
• It has resource base of 20 crores
• Aims at receiving the sick industries
20th century venture
capital fund
• It is mainly subscribed by NRIs. The
fund is offshore company owned by
NRI investors incorporated in early
1987
• Fund provides equity to newly
establish or Indian companies
India investment fund

26. AN OVERSEAS VENTURE
CAPITAL FUND
. Overseas venture capital funds look for investment in areas
ensuring high and guaranteed return .
such as tourism , hospital, air transport, IT, communication,
textiles etc. For example:
- Walden Nikko Indian Management company Ltd-it is not
registered with SEBI and operates as a foreign institution
investor (FII) . Investments focus on the rapid development
information technology sector as well as sector related to the
growth in consumer and capital spending in India. It also invest
in following categories of company:-
 Indian tech. companies that are export oriented.
 Oversea tech. companies with an Indian development centre,
 Technology-based Indian services companies addressing the
Indian market.

27. - HSBC Private Equity
management Mauritius Ltd
 It is offshore venture capital company registered in
Mauritius on April 17, 1995. and in India on 25 July 1995.
 It is managing a fund “ the HSBC Private Equity
Management Ltd.” that is contributed totally by FIIs.
 Investment strategy is to invest in well managed
companies, which place to grow rapidly and to take
advantage of the favourable economic conditions existing
with in the region.

28. THANKS