2. VENTURE CAPITAL:
Money provided by investors to startup firms and small
businesses with perceived long-term growth potential.
This is a very important source of funding for startups
that do not have access to capital markets. It typically
entails high risk for the investor, but it has the potential
for above-average returns.
investment made in a business or industrial enterprise
that carries high elements of risk, insecurity and
probability of business hazards.
Venture capitalists are full-time professional investors
who invest for their partnership funds
3. VENTURE CAPITAL…
Before making an investment, they carefully
scrutinize the founders and their business
concepts
After the initial investment, venture capitalists
tend to be very active in the process of raising
additional funds for their portfolio companies
They also continuously monitor their
companies, both formally through participation
at the board level and informally
4. POTENTIALITY OF INDIA:
India, along with Israel, Taiwan and the United
States, is recognized for its globally competitive
high technology and human capital.
The success in software and information
technology -- against several odds such as
inadequate infrastructure, expensive hardware,
restricted access to foreign resources and limited
domestic demand, is a pointer to the hidden
potential it has in the field of knowledge and
technology based industry
5. DEVELOPMENT
In 1972, a committee on Development of Small and Medium
Enterprises highlighted the need to foster venture capital as a
source of funding new entrepreneurs and technology. This
resulted in a few incremental steps being taken over the next
decade-and-a-half to facilitate venture capital funds into needy
technology oriented small and medium Enterprises (SMEs),
namely:
Risk Capital Foundation, sponsored by IFCI, was set-up in 1975
to promote and support new technologies and businesses.
Seed Capital Scheme and the National Equity Scheme was set
up by IDBI in 1976
Programme for Advancement of Commercial Technology (PACT)
Scheme was introduced by ICICI in 1985.
Setting up of TDICI AND REGIONAL FUNDS
6. VENTURE CAPITAL FUNDS
1. Venture Capital Fund Scheme IDBI 1987 Rs.
543.6
2. India Investment Fund Grindlays 3i Invest.
Services Ltd. 1987 US$ 7.5
3. Venture Capital Unit Scheme I TDICI 1989 Rs.
300
4. Information Technology Fund Credit Capital
Venture Fund (I) Ltd. 1993 Rs 100
Source: AVCJ, 1994-95
7. TYPES OF VENTURE CAPITAL FUNDS
1 . VCFs promoted by the Central govt.
controlled development financial
institutions
2. VCFs promoted by the state government-
controlled development finance institutions
3. VCFs promoted by Public Sector banks
4. VCFs promoted by the foreign banks or
private sector companies and financial
institutions
8. SOME OF THE PROJECTS FINANCED BY TDICI
MASTEK
TEMPTATION FOODS
RISHABH INSTRUMENTS
SYNERGY ART FOUNDATION
9. FORMS OF ASSISTANCE OF VC’S
(1) Corporate & Independent VC’s help with
obtaining additional financing;
(2) strategic planning;
(3) management recruitment;
(4) operational planning;
(5) introductions to potential customers and
suppliers;
(6) resolving compensation issues.
10. RETURN ON INVESTMENT TYPICALLY SOUGHT BY
VENTURE CAPITALISTS:
Stage of Business Expected Annual Return on Expected Increase on Initial
Investment Investment
Start-up business 60% + 10-15 *investment
(Idea stage)
First-Stage financing 40%-60% 6-12*investment
(New business)
Second-Stage financing 30%-50% 4-8*investment
(Development stage)
Third–Stage financing 25%-40% 3-6*investment
(Expansion stage)
Turnaround situation 50% + 8-15*investment
12. SECTOR WISE INVESTMENT IN 2010
NOT AVAILABLE
3% PERCENTAGE
ENERGY SHIPPING AND
RELATED LOGISTICS NOT DISCLOSED
3% 2% EDUCATION 1%
1%
FOOD AND AGRICULTURE OTHERS
2% 4% IT & ITES
18%
GREEN AND CLEAN TECH
4%
ENGINEERING
CONSTRUCTION AND
HEALTH CARE
INFRASTRUCTURE
11%
5% TELECOM
6%
REAL ESTATE
10%
MEDIA & ENTERTAINMENT
MANUFACTURING 9%
BANKING AND FINANCIAL 8%
SERVICES
6%
CONSUMER PRODUCTS
7%
13. GROWTH IN REGISTERED VENTURE CAPITAL
FIRMS IN INDIA
Chart Title
year number of vc firms
180
160
105
86
81 78
2004 2006 2008 2010
2000 2002
1 2 3 4 5 6
14. CLASSIFICATION OF INVESTORS
Corporate Venture (CORPVEN)
Financial Corporations (FINCORP)
Investment Banks (IBANK)
Government Institutions (GOVT)
Private Equity/ Venture Capital Firm (PRIV)
15. ROUTES OF VCPE INVESTMENTS IN INDIA
There are 4 major routes through which VCPE
investments happen in India:
1. The investor can register with SEBI (Securities Exchange
Board of India) as a Domestic or Foreign Venture Capital
Fund.
2. Direct Investment in an Indian company from outside
India
3. Investment in an Indian subsidiary of a US company
4. a US company invests in a subsidiary in India by routing
the investment through a Mauritius subsidiary of the US
company
16. VENTURE CAPITAL IS TYPICALLY AVAILABLE IN
THREE FORMS IN INDIA
Equity : All VCFs in India provide equity but
generally their contribution does not exceed 49
percent of the total equity capital.
Conditional Loan: It is repayable in the form of a
royalty after the venture is able to generate sales.
No interest is paid on such loans. In India, VCFs
charge royalty ranging between 2 to 15 percent;
Income Note : It is a hybrid security which
combines the features of both conventional loan
and conditional loan
17. SOME IMPORTANT VENTURE CAPITAL FUNDS IN
INDIA
1. APIDC Venture Capital Limited, Hyderabad
2. Canbank Venture Capital Fund Limited,Bangalore
3. Gujarat Venture Capital Fund 1997, Ahmedabad
4. Industrial Venture Capital Limited, Chennai
5. Auto Ancillary Fund Opp. New Delhi
6. Gujarat Venture Capital Fund , Ahmedabad
7. Karnataka Information Technology Venture Capital Fund .Bangalore
8. India Auto Ancillary Fund, Mumbai
9. Information Technology Fund, Mumbai
10. Tamilnadu Infotech Fund , Mumbai
11. Orissa Venture Capital Fund, Mumbai
12. Uttar Pradesh Venture Capital Fund, Mumbai
18. TOP FIVE CAPITAL VENTURE FIRMS IN 2010
iYogi
Aryaka Networks
Agni Property
Webaroo Technology India
NetAmbit InfoSource & e-Services
19. CURRENT SCENARIO
- Private equity and mutual venture investment in India in February
2011 dropped by 30.85% to $334 million as compared to the same
period last year.
- The median deal amount and the average value of deals was $13
million and $24 million, respectively.
- Financials, consisting of BFSI and Real Estate, was the most targeted
sector with a cumulative investment of $221.47 million across 5
deals.
- Exits took a backseat with investors realizing only $53 million of
capital across 8 deals as compared to $485 million realized from 11
deals during the same period last year.
- Fund raising activity gained momentum with three funds raising $347
million and another three funds gearing up to raise money from
limited partners.
