Deals with the fundamentals of venture capital and the details of venture capital in India

1. A Profile of Venture Capital in India-
B.V.Raghunandan, SVS College, Bantwal-Karnataka-India
Dr.Veerendra Patil College, Bangalore
Karnataka-India
October 21, 2011

2. Definitions of Venture Capital
• Venture Capital is, “finance for young developing firm
in areas of high technology”-William Davis
• VC is, "money put up by financial institutions or
wealthy individuals to back risky commercial venture.
This can be at the beginning of the venture’s life, or it
can be later in its life” -Tim Hindle

3. Definitions of VC…continued
• VC is, “an equity or equity-
featured capital seeking
investment in new
companies, new products,
new processes,
or new service, that offer
the potential of high return
on investment” -I F C
• VC is, “an equity related
investment in a high growth
business in return for a
minority shareholding in the
business or the irrevocable
right to acquire it”

4. Features of Venture Capital
1. Form of Investment
2. New Companies
3. Turn-around Cos
4. High Risk-Return
5. Long-term Asscn
6. Exit Schedule
7. Participation in Mgt
8. Benchmarks
9. Taking Control
10.Technocrat Customers

5. Form of Investment
• Equity Form of
Financing
• Gestation Period
• Avoiding Debt Trap
• Mega Projects
• Risky Projects
• Ownership cum
Management cum
Consultancy
• Finance with
Responsibility

6. New Companies
• Companies Operating in • Technology Content
High Growth Industry • New Graduates
• Sunrise Industry • Industry Requiring
• Service Industry Professionalism

7. Turn Around Companies
• Sick Companies
• Failed Companies
• Poorly Managed Companies
• Restructured Companies
• Changed Product Profile

8. High Risk-Return Ventures
• Expectation of a High Level of
Returns
• A High Risk Profile of Ventures
• Conventional Cost Curves are
Avoided
• Projects of Blue Ocean
Strategies
• Aiming at First Mover
Advantage
• Ability in Timely Project
Completion
• Evaluation of Project
Completion

9. Long Term Association
• Relation Lasting for a Period of around 7 years or
more
• Intimate Association
• Creation of a Data Base
• Basis for Promoting other Projects
• Creation of a Database

10. Exit Schedule
• Target Period-5 to 7
years
• Makes the Company
Profitable
• Makes the Company
to Issue an IPO
• VC sells off all the
Shares & Gets out
• Makes the VC highly
liquid

11. Participation in Management
• Close Watch of Project Implementation
• Technical and Business Consultancy
• Helps the VC to understand the behind-the schedule
implementation
• Finance cum Entrepreneur
• Draws the Collaboration from other Projects financed
in the present and in the past

12. Benchmarks of Performance
• Benchmarks are established
• Close Supervision of project implementation
• Analysis of Causes for Project Delays
• Entrepreneurial Qualities of the VC make the analysis
more understandable and realistic

13. Taking Control of VC Unit
• VC can take-over the VC Unit
• Happens in case of consistent under-performance
• Bring in another management team through MBI
• Finances the other Group to buy the stake from the
Original Promoter

14. Technocrat Customers
• Professional Promoters
• Techno-Savvy Promoters
• Avoiding Family Owned Business
• Promoting the Projects of Fresh Graduates

15. Factors leading to VC Financing
• Free Licensing
Policy
• Well Developed
Capital Market
• New Projects
• Taxation Policy
• Professional
Promoters
• Surplus Funds
• High Risk Funding
• Enterprise Culture

16. Venture Capital Vs Private Equity
Venture Capital Private Equity
• New Projects • Existing Projects
• Manage Initial Problems • No need to manage initial
problems
• Investment Horizon-5 to 7 • Investment Horizon is 3 to 5
years years
• Longer Gestation • Shorter Gestation Period

17. Investment Process
1) Seed Financing 7) Bridge Financing
2) Start-up Financing 8) Management Buyouts
3) First Stage Financing
9) Management Buyin
4) Second Stage Financing
5) Mezzanine Financing
10) Turn-around Finance

18. VC Financing in India
• Term Lending • Private Sector
Institutions • Foreign Funds
• Commercial Banks

19. Term Lending Institutions
• Venture Finance without participation in
management or exit schedule
• ICICI set up Technology Development &
Information India Limited in 88-89
• IFCI set up Risk Capital and Technology
Finance corporation Ltd
• IDBI set up IDBI-VCF
• IL&FS set up IL&FS Venture Corporation

20. • Since April 1999,
C
banks are allowed
to enter VC sector o
• Maximum m
investment in m
corporate er
securities limited
to 5%, but stands ci
enhanced to the al
extent VC finance B
• Many banks a
entered on their
own or as a joint n
venture k
s

21. Private Sector
• Not many until 2000
• Many IT Companies are entering the VC
sector through their surplus funds
• Indus Venture Capital Fund, Credit Capital
Venture Fund, Marigold Capital
Management Limited
• Most of the IT Professionals like Narayana
Murthy (Catamaran) and Azim Premji are
entering VC Financing

22. Foreign Funds
• HSBC Pvt
Equity India Ltd
• Temasek
• Draper
International
• Underbridge
• Overbridge
• General
Atlantic
Partners
• New Vernon

23. Emerging Trends
• Avoiding Exits
• VCs forming Limited Liability
Partnership
• Funded Units become the Limited
Companies under the control of the LLP
• In India, more attention to SME Sector
• More Attention towards fresh Graduates

24. THANK YOU