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TRANSCRIPT
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A Project Submitted for a
“STUDY OF VENTURE CAPITAL IN INDIA
PRO!ECT
SU"#ITTED TO
ANNA#ALAI UNIVERSITY
SU"#ITTED "Y
PRAS$ANT S% !AD$AV
E&ro''me&t &o( ) *+*,-,,,./
PRO!ECT 0UIDE
PROF% A#IT 0OEL
#"A 1FINANCE23 CA%
#a4ter4 of "u4i&e44 Admi&i4tratio&(Applied Management)
(Second Year)
NIS ACADE#Y
Sakinaka, Andheri (E).Mumbai.400072
200 ! 20"0
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PRO!ECT TITLE()
“STUDY OFVENTURE CAPITAL
IN INDIA
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DECLARATION
$, the under%igned, %tudent o& '$S AAEMY o& #a4ter4 of "u4i&e44
Admi&i4tratio& 1A55'ied #a&a6eme&t2 Second *ear hereb* declare
that $ ha+e completed thi% ro-ect o& Stud7 of Ve&ture Ca5ita' i&
I&dia/ in the academic *ear 20020"0.
1he in&ormation %ubmitted in thi% pro-ect i% true and original to the be%t
o& m* knoledge.
Mr. ra%hant 3adha+
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CERTIFICATE
1hi% i% to certi&* that #r% Pra48a&t S% !ad8a9 ha% %ucce%%&ull*
completed the pro-ect ork a% partial &ul&illment% o& the reuirement
&or 1he #a4ter4 of "u4i&e44 Admi&i4tratio& 1A55'ied #a&a6eme&t2
in the academic *ear 20020"0.
Si6&ature of Project 0uide Si6&ature of Locatio& $ead
#r% Amit 0oe' #r4%Rita "a'ac8a&dra&
Date( Date(
Co''e6e Sea'
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AC:NO;LED0E#ENT
6ne o& the plea%ant a%pect% o& preparing a pro-ect report i% the
opportunit* to thank to tho%e ho ha+e contributed to make the pro-ect
completion po%%ible.
$ am etremel* thank&ul to #r% Amit 0oe' < #r4% Rita
"a'ac8a&dra&% 8ho%e acti+e intere%t in the pro-ect and in%ight%helped u% &ormulate, rede&ine and implement our approach toard% the
pro-ect.
8e are al%o thank&ul to all tho%e %een and un%een hand% 9 head%,
hich ha+e been o& direct or indirect, help in the completion o& thi%
pro-ect.
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PREFACE
$n $ndia, a re+olution i% u%hering in a ne econom*, herein ma-or in+e%tment
are being made in the knoledge ba%ed indu%tr* ith %ub%tantiall* loin+e%tment% in land, building, plant and machiner*. 1he a%%et; collateral backed
lending in%trument% adopted &or the hard &or the hard core manu&acturing
indu%trie%, are pro+ing to be inadeuate &or the knoledge ba%ed indu%trie% that
o&ten %tart ith -u%t idea.
1he onl* a* to &inance %uch indu%trie% i% through <enture apital. <enture
apital i% in%trumental in bringing about indu%trial de+elopment, &or it eploit%
the +a%t and untapped potentialitie% and promote% the groth o& the knoledge
ba%ed indu%trie% orldide.
$n $ndia too, it ha% become popular in di&&erent part% o& the countr*. 1hu%, the role
o& +enture capitali%t i% +er* crucial, di&&erent, and di%tingui%hable to the role o&
traditional &inance a% it deal% ith other%= mone*. $n +ie o& the globali>ation?
+enture apital ha% turned out to be a boon to both bu%ine%% and indu%tr*.
1hi% report, hich contain% indepth %tud* o& <enture apital $ndu%tr* in $ndia, i%
made ith an inten%ion to get through all the a%pect% related to the topic and to
become able to make %ome %ugge%tion at the indu%tr*. 1hi% report deal% ith the
concept o& <enture apital, ith particular re&erence to $ndia. 1he report include%
all &act%, rule% and regulation% regarding <enture apital.
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E=ECUTIVE SU##ARY
<enture capital i% a groing bu%ine%% o& recent origin in the area o& indu%trial
&inancing in $ndia. 1he +ariou% &inancial in%titution %etup% in $ndia to promote
indu%trie% ha+e done commendable ork. @oe+er, the%e in%titution% do not
come up to bene&it ri%k* +enture% hen the* are undertaken b* ne or relati+el*
unknon entrepreneur%. 1he* contend to gi+e debt &inance, mo%tl* in the &orm o&
term loan% to the promoter% and their &unctioning ha% been more akin to that o&
commercial bank%.
Starting and groing a bu%ine%% ala*% reuire capital. 1here are a number o&
alternati+e method% to &und groth. 1he%e include the oner or proprietor=% on
capital, arranging debt &inance, or %eeking an euit* partner, a% i% the ca%e ith
pri+ate euit* and +enture capital.
<enture capital i% a mean% o& euit* &inancing &or rapidl*groing pri+ate
companie%. inance ma* be reuired &or the %tartup, de+elopment;epan%ion or
purcha%e o& a compan*. <enture apital &irm% in+e%t &und% on a pro&e%%ional
ba%i%, o&ten &ocu%ing on a limited %ector o& %peciali>ation (eg. $1, $n&ra%tructure,
@ealth;Bi&e Science%, lean 1echnolog*, etc.).
$ndian <enture capital and ri+ate Euit* A%%ociation($<A) i% a member ba%ed
national organi>ation that repre%ent% +enture capital and pri+ate euit* &irm%,
promote% the indu%tr* ithin $ndia and throughout the orld and encourage%
in+e%tment in high groth companie%.
$<A member compri%e +enture capital &irm%, in%titutional in+e%tor%, bank%,
incubator%, angel group%, corporate ad+i%or%, accountant%, la*er%, go+ernment
bodie%, academic in%titution% and other %er+ice pro+ider% to the +enture capital
and pri+ate euit* indu%tr*.
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Member% repre%ent mo%t o& the acti+e +enture capital pro+ider% and pri+ate euit*
&irm% in $ndia. 1he%e &irm% pro+ide capital &or %eed +enture%, earl* %tage
companie%, later %tage epan%ion, and groth &inance &or management
bu*out%;bu*in% o& e%tabli%hed companie%.
<enture capitali%t% ha+e been catal*tic in bringing &orth technological inno+ation
in DSA. A %imilar act can al%o be per&ormed in $ndia. A% +enture capital ha% good
%cope in $ndia &or three rea%on%
ir%t 1he abundance o& talent i% a+ailable in the countr*. 1he lo co%t high
ualit* $ndian ork&orce that ha% helped the computer u%er% orldide in Y2F
pro-ect i% demon%trated a%%et.
Second A good number o& %ucce%%&ul $ndian entrepreneur% in Silicon <alle*
%hould ha+e a demon%tration e&&ect &or +enture capitali%t% to in+e%t in $ndian
talent at home.
1hird 1he opening up o& $ndian econom* and it% integration ith the orld
econom* i% pro+iding a ide +ariet* o& niche market &or $ndian entrepreneur% to
gro and pro+e them%el+e%.
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Tab'e of co&te&t4
Sr% No% Particu'arPa6e No%
Appro+al Batter
eclaration 4
erti&ication 5
Acknoledgment :
re&ace 7
Eecuti+e Summar* C
>% I&troductio& To Project 1S7&o54i42 >/)>+
6b-ecti+e 6& 1he Stud* "#
Statement 6& roblem% "4
Bimitation 6& ro-ect ":
Scope 6& 1he ro-ect ":
Ge%earch e%ign And $n%trument% "7
/% Co&ce5tua' Frame?or@ >-).+
oncept 6& <enture apital "
eature% 6& <enture apital 2"
<enture apital Spectrum;Stage% 2#
<enture apital $n+e%tment roce%% #:
Method% 6& <enture inancing 4#
i&&erence Heteen <enture apital And 6ther und%(ri+ateEuit*)
45
<enture apital 9 Alternati+e inancing ompari%on 47
la*er% <enture apital $ndu%tr* 54
% 0'oba' Sce&ario Of Ve&ture Ca5ita' I&du4tr7 .-)B.
6+er+ie 5
@i%tor* 9 E+olution 5
urrent $ndu%tr* 1rend% :4
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Iroth 6& <enture apital $n Ilobal :7
200 Ilobal <enture apital $ndu%tr* Sur+e* :
hina, $ndia And $%rael 8ill He Mo%t Attracti+e Iroth 6&
<enture apital
C
rimar* Gea%on% or <enture apital $n+e%tor% EpandingIloball*
2
$n+e%ting Iloball* H* $n+e%ting Bocall* 4
$mpediment% 1o Ilobal $n+e%ting 5
*% Ve&ture Ca5ita' I& I&dia B)>*/
E+olution 6& <enture apital $ndu%tr* $n $ndia 7
6b-ecti+e And <i%ion or <enture apital $n $ndia "00
<enture apital $ndu%tr* Bi&e *cle $n $ndia "0"
Iroth 6& <enture apital $n $ndia "05
200 <enture apital $n+e%tment $n $ndia "0C
'eed or Iroth 6& <enture apital $n $ndia "0
Gegulator* And Begal rameork """
Ma-or Gegulator* rameork or <enture apital $ndu%tr* ""2
Gegulation 6& 1he Hu%ine%% 6& <enture apital $n $ndia ""7
Fe* Succe%% actor or <enture apital $ndu%tr* $n $ndia "20
$ndu%trial Attracti+ene%% "2#
ome%tic Economic actor% "24
Iuideline% or 6+er%ea% <enture apital $n+e%tment $n $ndia "#0
hallenge% Ahead or <enture apital inancing $n $ndia "#2
roblem% 6& <enture apital inancing $n $ndia "##
6pportunitie% And 1hreat% "#4
.% Recomme&datio&4 >*/
% Co&c'u4io& >.,
+% "ib'io6ra587 < ;eb'io6ra587 >./
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INTRODUCTION
TO PRO!ECT
1SYNOPSIS2
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O"!ECTIVES OF T$E STUDY
U&der4ta&d t8e co&ce5t of 9e&ture ca5ita'% <enture apital &unding i%
di&&erent &rom traditional %ource% o& &inancing. <enture capitali%t% &inance
inno+ation and idea% hich ha+e potential &or high groth but ith
inherent uncertaintie%. 1hi% make% it a highri%k, high return in+e%tment. Stud7 9e&ture ca5ita' i&du4tr7 i& I&dia% Scienti&ic, technolog* and
knoledge ba%ed idea% properl* %upported b* +enture capital can be
propelled into a poer&ul engine o& economic groth and ealth creation
in a %u%tainable manner. $n +ariou% de+eloped and de+eloping economie%
+enture capital ha% pla*ed a %igni&icant de+elopmental role. Stud7 9e&ture ca5ita' i&du4tr7 i& 6'oba' 4ce&ario% <enture capital ha%
pla*ed a +er* important role in D.F., Au%tralia and @ong Fong al%o in
de+elopment o& technolog* groth o& eport% and emplo*ment. Stud7 t8e e9a'uatio& < &eed of 9e&ture ca5ita' i&du4tr7 i& I&dia% $ndia
i% %till at the le+el o& Jknoledge=. Ii+en the limited in&ra%tructure, lo
&oreign in+e%tment and other tran%itional problem%, it certainl* need%
polic* %upport to mo+e to the net %tage. 1hi% i% +er* crucial &or
%u%tainable groth and &or maintaining $ndia=% competiti+e edge U&der4ta&d t8e 'e6a' frame?or@ formu'ated b7 SE"I to e&coura6e
9e&ture ca5ita' acti9it7 i& I&dia& eco&om7. romoting %ound public
polic* on i%%ue% related to ta, regulation and %ecuritie% through
repre%entation to the Securitie% and Echange Hoard o& $ndia (SEH$),
Mini%tr* o& inance (Mo), Ge%er+e Hank o& $ndia (GH$) and other
Io+ernment department% Fi&d out o55ortu&itie4 t8at e&coura6e < t8reat4 t8o4e 8i&der 9e&ture
ca5ita' i&du4tr7 i& I&dia%
To @&o? t8e im5act of 5o'itica' < eco&omica' factor4 o& 9e&ture
ca5ita' i&9e4tme&t%
STATE#ENT OF PRO"LE#S
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<enture capital i% in it% na%cent %tage% in $ndia. 1he emerging %cenario o& global
competiti+ene%% ha% put an immen%e pre%%ure on the indu%trial %ector to impro+e
the ualit* le+el ith minimi>ation o& co%t o& product% b* making u%e o& late%t
technological %kill%. 1he &inancing &irm% epect a %ound, eperienced, mature and
capable management team o& the compan* being &inanced. Since the inno+ati+e
pro-ect in+ol+e% a higher ri%k, there i% an epectation o& higher return% &rom the
pro-ect. 1he pa*back period i% al%o generall* high (5 7 *ear%).
1he +ariou% problem%; uerie% can be outlined a% &ollo%
roblem% regarding the in&ra%tructure detail% o& production like plant
location, acce%%ibilit*, relation%hip ith the %upplier% and creditor%,
tran%portation &acilitie%, labor a+ailabilit* etc.
1he limited in&ra%tructure, lo &oreign in+e%tment and other tran%itional
problem%, becau%e o& abo+e three rea%on% a+ailabilit* o& &und i% +er* lo
in market.
Dncertaint* regarding the %ucce%% o& the product in the market.
A% there i% reuirement o& an eperienced management team, ue to
una+ailabilit* o& eperienced and %killed people it i% di&&icult to anal*>e the
&uture groth o& the product in the market.
Io+ernment ha% taken all the $nitiati+e% in &ormulating policie% to
encourage in+e%tor% and entrepreneur%. A go+ernment polic* ha% man*
rule% and regulation that can create problem% in allocating the &und to the
6rgani>ation%.
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$nitiati+e% o& the SEH$ to de+elop a %trong and +ibrant capital market
gi+ing the adeuate liuidit* and &leibilit* &or in+e%tor% &or entr* and eit.
ue to man* rule% and regulation% &rom SEH$ organi>ation &ace lot% o&
di&&icultie% at the time o& entering in the market.
roblem regarding reuirement o& an abo+e a+erage rate o& return on
in+e%tment, al%o longer pa*back period. 1he return% on in+e%tment are high
but the probabilit* o& &und return i% depending on the product %ucce%% in
&uture.
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LI#ITATION OF PRO!ECT
A %tud* o& thi% t*pe cannot be ithout limitation%. $t ha% been ob%er+ed tho%e
+enture capital% are +er* %ecreti+e about their in+e%tment%. 1hi% attitude i% a
ma-or hindrance &or data collection. @oe+er +enture capital &und%;companie%
that are member% o& $ndian +enture capital a%%ociation are to be included in the
%tud*.
SCOPE OF T$E PRO!ECT
1he %cope o& the re%earch include% all t*pe% o& +enture capital &irm% %et up a% a
compan* 9 &und% irre%pecti+e o& the &act that the* are regi%tered ith SEH$ o&
$ndia or not part o& thi% %tud*
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RESEARC$ DESI0N AND INSTRU#ENTS
$n $ndia neither +enture capital theor* ha% been de+eloped nor are there man*
comprehen%i+e book% on the %ub-ect. E+en the number o& re%earch paper%
a+ailable i% +er* limited. 1he re%earch de%ign u%ed i% de%cripti+e in nature. (1he
attempt ha% been made to collect maimum &act% and &igure% a+ailable on the
a+ailabilit* o& +enture capital in $ndia, nature o& a%%i%tance granted, &uture
pro-ected demand &or thi% &inancing, anal*%i% o& the problem% &aced b* the
entrepreneur% in getting +enture capital, anal*%i% o& the +enture capitali%t% and
%ocial and en+ironmental impact on the ei%ting &rameork.)
1he re%earch i% ba%ed on %econdar* data collected &rom the publi%hed material.
1he data a% al%o collected &rom the publication% and pre%% relea%e% o& +enture
capital a%%ociation% in $ndia.
Scanning the bu%ine%% paper% &illed the gap% in in&ormation. 1he Economic time%,
inancial Epre%% and Hu%ine%% Standard% ere %canned &or an* article or ne%
item related to +enture capital. Su&&icient amount o& data about the +enture capital
ha% been deri+ed &rom thi% pro-ect.
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CONCEPTUAL
FRA#E;OR:
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CONCEPT OF VENTURE CAPITAL
1he term +enture capital compri%e% o& to ord% that i%, <enture/ and capital/.
<enture/ i% a cour%e o& proce%%ing the outcome o& hich i% uncertain but to
hich i% attended the ri%k or danger o& Bo%%/. apital/ mean% recour%e% to %tart
an enterpri%e. 1o connote the ri%k and ad+enture o& %uch a &und, the generic name
<enture apital a% coined.
<enture capital i% con%idered a% &inancing o& high and ne technolog* ba%ed
enterpri%e%. $t i% %aid that <enture capital in+ol+e% in+e%tment in ne or relati+el*
untried technolog*, initiated b* relati+el* ne and pro&e%%ionall* or technicall*
uali&ied entrepreneur% ith inadeuate &und%. 1he con+entional &inancier%,
unlike <enture capital% mainl* &inance pro+en technologie% and e%tabli%hed
market%. @oe+er, high technolog* need not be prereui%ite &or +enture capital.
<enture capital ha% al%o been de%cribed a% Jun%ecured ri%k &inancing=. 1he
relati+el* high ri%k o& +enture capital i% compen%ated b* the po%%ibilit* o& high
return u%uall* through %ub%tantial capital gain% in term. <enture capital in broader
%en%e i% not %olel* an in-ection o& &und% into a ne &irm, it i% al%o an input o&
%kill% needed to %et up the &irm, de%ign it% marketing %trateg*, organi>e and
manage it. 1hu% it i% a long term a%%ociation ith %ucce%%i+e %tage% o& compan*=%
de+elopment under highl* ri%k* in+e%tment condition ith di%tincti+e t*pe o&
&inancing appropriate to each %tage o& de+elopment. $n+e%tor% -oin theentrepreneur% a% copartner% and %upport the pro-ect ith &inance and bu%ine%%
%kill to eploit the market opportunitie%.
<enture capital i% not a pa%%i+e &inance. $t ma* be at an* %tage o& bu%ine%%;
production c*cle, that i% %tartup, epan%ion or to impro+e a product or proce%%,
hich are a%%ociated ith both ri%k and reard. 1he <enture capital gain%
through appreciation in the +alue o& %uch in+e%tment hen the ne technolog*
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%ucceed%. 1hu% the primar* return %ought b* the in+e%tor i% e%%entiall* capital
gain rather than %tead* intere%t income or di+idend *ield.
1he mo%t &leible Defi&itio& of Ve&ture Ca5ita' i4
1he %upport b* in+e%tor% o& entrepreneurial talent ith &inance and
bu%ine%% %kill% to eploit market opportunitie% and thu% obtain capital gain%./
<enture capital commonl* de%cribe% not onl* the pro+i%ion o& %tart up &inance or
J%eed corn= capital but al%o de+elopment capital &or later %tage% o& bu%ine%%. A
long term commitment o& &und% i% in+ol+ed in the &orm o& euit* in+e%tment%,
ith the aim o& e+entual capital gain% rather than income and acti+e in+ol+ement
in the management o& cu%tomer=% bu%ine%%.
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FEATURES OF VENTURE CAPITAL
$i68 Ri4@
$i68 Tec8
Euit7 Partici5atio& < Ca5ita' 0ai&4
Partici5atio& I& #a&a6eme&t
Le&6t8 Of I&9e4tme&t
I''iuid I&9e4tme&t
$i68 Ri4@
H* de&inition the <enture capital &inancing i% highl* ri%k* and chance% o& &ailure
are high a% it pro+ide% long term %tart up capital to high ri%k high reard
+enture%. <enture% capital a%%ume% &our t*pe o& ri%k%, the%e are
o #a&a6eme&t ri4@ )$nabilit* o& management team% to ork together.
o #ar@et ri4@ )roduct ma* &ail in the market.
o Product ri4@ roduct ma* not be commerciall* +iable.
o O5eratio& ri4@ 6peration ma* not be co%t e&&ecti+e re%ulting in
increa%ed co%t decrea%ed gro%% margin.
$i68 Tec8
A% opportunitie% in the lo technolog* area tend to be &e o& loer order, and hi
tech pro-ect% generall* o&&er higher return% than pro-ect% in more traditional area,
+enture capital in+e%tment% are made in high tech. area% u%ing ne technologie%
or producing inno+ati+e good% b* u%ing ne technolog*. 'ot -u%t high
technolog*, an* high ri%k +enture% here the entrepreneur ha% con+iction but
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little capital get% +enture &inance. <enture capital i% a+ailable &or epan%ion o&
ei%ting bu%ine%% or di+er%i&ication to a high ri%k area. 1hu% technolog* &inancing
had ne+er been the primar* ob-ecti+e but incidental to +enture capital.
Euit7 Partici5atio& < Ca5ita' 0ai&4
$n+e%tment% are generall* in euit* and ua%i euit* participation through direct
purcha%e o& %hare, option%, con+ertible debenture% here the debt holder ha% the
option to con+ert the loan in%trument% into %tock o& the borroer or a debt ith
arrant% to euit* in+e%tment. 1he &und% in the &orm o& euit* help to rai%e term
loan% that are cheaper %ource o& &und%. $n the earl* %tage o& bu%ine%%, becau%e
di+idend% can be dela*ed, euit* in+e%tment implie% that in+e%tor% bear the ri%k
o& +enture and ould earn a return commen%urate ith %ucce%% in the &orm o&
capital gain%.
Partici5atio& I& ma&a6eme&t
<enture capital pro+ide% +alue addition b* managerial %upport, monitoring and
&ollo up a%%i%tance. $t monitor% ph*%ical and &inancial progre%% a% ell a%
market de+elopment initiati+e. $t help% b* identi&*ing ke* re%ource per%on. 1he*
ant one %eat on the compan*=% board o& director% and in+ol+ement, &or better or
or%e, in the ma-or deci%ion a&&ecting the direction o& compan*. 1hi% i% a uniue
philo%oph* o& hand on management/ here <enture capitali%t act% a%
complementar* to the entrepreneur%. Ha%ed upon the eperience other companie%,
a +enture capitali%t ad+ice the promoter% on pro-ect planning, monitoring,
&inancial management, including orking capital and public i%%ue. <enture
capital in+e%tor cannot inter&ere in da* toda* management o& the enterpri%e but
keep% a clo%e contact ith the promoter% or entrepreneur% to protect hi%
in+e%tment.
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Le&6t8 of I&9e4tme&t
<enture capitali%t help companie% gro, but the* e+entuall* %eek to eit the
in+e%tment in three to %e+en *ear%. An earl* %tage in+e%tment ma* take %e+en toten *ear% to mature, hile mo%t o& the later %tage in+e%tment take% onl* a &e
*ear%. 1he proce%% o& ha+ing %igni&icant return% take% %e+eral *ear% and call% on
the capacit* and talent o& +enture capitali%t and entrepreneur% to reach &ruition.
I''iuid I&9e4tme&t
<enture capital in+e%tment% are illiuid, that i% not %ub-ect to repa*ment on
demand or &olloing a repa*ment %chedule. $n+e%tor% %eek return ultimatel* b*
mean% o& capital gain hen the in+e%tment i% %old at market place. 1he
in+e%tment i% reali>ed onl* on enli%tment o& %ecurit* or it i% lo%t i& enterpri%e i%
liuidated &or un%ucce%%&ul orking. $t ma* take %e+eral *ear% be&ore the &ir%t
in+e%tment %tart% too locked &or %e+en to ten *ear%. <enture capitali%t under%tand%
thi% illiuidit* and &actor% thi% in hi% in+e%tment deci%ion.
T$E VENTURE CAPITAL SPECTRU#STA0ES
1he groth o& an enterpri%e &ollo% a li&e c*cle a% %hon in the diagram belo.
1he reuirement% o& &und% +ar* ith the li&e c*cle %tage o& the enterpri%e. E+en
be&ore a bu%ine%% plan i% prepared the entrepreneur in+e%t% hi% time and re%ource%
in %ur+e*ing the market, &inding and under%tanding the target cu%tomer% and their
need%. At the %eed %tage the entrepreneur continue to &und the +enture ith hi%
on &und or &amil* &und%. At thi% %tage the &und are needed to %olicit the
con%ultant=% %er+ice% in &ormulation o& bu%ine%% plan%, meeting potential
cu%tomer% and technolog* partner%. 'et the &und% ould be reuired &or
de+elopment o& the product;proce%% and producing protot*pe%, hiring ke* people
and building up the managerial team. 1hi% i% &olloed b* &und% &or a%%embling
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the manu&acturing and marketing &acilitie% in that order. inall* the &und% are
needed to epand the bu%ine%% and attaint the critical ma%% &or pro&it generation.
<enture capitali%t% cater to the need% o& the entrepreneur% at di&&erent %tage% o&
their enterpri%e%. epending upon the %tage the* &inance, +enture capitali%t% are
called angel in+e%tor%, +enture capitali%t or pri+ate euit* %upplier;in+e%tor.
<enture capital a% %tarted a% earl* %tage &inancing o& relati+el* %mall but rapidl*
groing companie%. @oe+er +ariou% rea%on% &orced +enture capitali%t% to be
more and more in+ol+ed in epan%ion &inancing to %upport the de+elopment o&
ei%ting port&olio companie%. 8ith increa%ing demand o& capital &rom neer
bu%ine%%, +enture capitali%t% began to operate acro%% a broader %pectrum o&
in+e%tment intere%t. 1hi% di+er%it* o& opportunitie% enabled +enture capitali%t% to
balance their acti+itie% in term o& time in+ol+ement, ri%k acceptance and reard
potential, hile pro+iding ongoing a%%i%tance to de+eloping bu%ine%%.
<enture apital Spectrum;Stage
Study Of Venture Capital In India Page No: 24
Startup apital
Seed apital Earl Sta e
Bater Sta e
Second
$ntroduction %tage
IrothSta e
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i&&erent <enture capital &irm% ha+e di&&erent attribute% and aptitude% &or
di&&erent t*pe% o& <enture capital in+e%tment%. @ence there are di&&erent %tage% o&
entr* &or di&&erent +enture capitali%t% and the* can identi&* and di&&erentiate
beteen t*pe% o& +enture capital in+e%tment%, each appropriate &or the gi+en
%tage o& the in+e%tee compan*, the%e are
>% Ear'7 4ta6e Fi&a&ce
Seed capital
Start up apital
Earl*;ir%t Stage apital
Bater;1hird Stage capital
/% Later Sta6e Fi&a&ce
Epan%ion;e+elopment Stage apital
Geplacement inance
Management Hu* 6ut and Hu* $n%
1urnaround%
Me>>anine;Hridge inance
'ot all bu%ine%% &irm% pa%% through each o& the%e %tage% in %euential manner. or
in%tance %eed capital i% normall* not reuired b* %er+ice ba%ed +enture%. $t
applie% largel* to manu&acturing or re%earch ba%ed acti+itie%. Similarl* %econd
round &inance doe% not ala*% &ollo earl* %tage &inance. $& the bu%ine%% gro%
%ucce%%&ull* it i% likel* to de+elop %u&&icient ca%h to &und it% on groth, %o doe%
not reuire +enture capital &or groth.
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1he table belo %ho% ri%k perception and time orientation &or di&&erent %tage% o&
+enture capital &inancing.
Fi&a&ci&6 Sta6e Period 1fu&d4'oc@ed i& 7ear42
Ri4@5erce5tio&
Acti9it7 to be fi&a&ced
Earl* %tage &inance 7"0 Etreme or %upporting a concept
or idea or G 9 &or
product de+elopment
Start up 5 <er* high $nitiali>ing operation% or
de+eloping protot*pe%
ir%t %tage #7 @igh Start commercial
production and marketing
Second %tage #5 Su&&icientl*
high
Epand market 9 groing
orking capital need
Bater %tage &inance "# Medium Market epan%ion,
acui%ition 9 product
de+elopment &or pro&it
making compan*
Hu* outin "# Medium Acui%ition &inancing
1urnaround "# Medium to high 1urning around a %ick
compan*
Me>>anine "# Bo acilitating public i%%ue
<enture apital inancing Stage%
Seed Ca5ita'
$t i% an idea or concept a% oppo%ed to a bu%ine%%. European +enture capital
a%%ociation de&ine% %eed capital a% 1he &inancing o& the initial product
de+elopment or capital pro+ided to an entrepreneur to pro+e the &ea%ibilit* o& a
pro-ect and to uali&* &or %tart up capital./
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1he characteri%tic% o& the %eed capital ma* be enumerated a% &ollo%
o Ab%ence o& read* product market
o Ab%ence o& complete management team
o roduct;proce%% %till in G 9 %tage
o $nitial period;licen%ing %tage o& technolog* tran%&er
Hroadl* %peaking %eed capital in+e%tment ma* take 7 to "0 *ear to achie+e
reali>ation. $t i% the earlie%t and there&ore ri%kie%t %tage o& <enture capital
in+e%tment. 1he ne technolog* and inno+ation% being attempted ha+e eual
chance o& %ucce%% and &ailure. Such pro-ect%, particularl* hitech, pro-ect% %ink a
lot o& ca%h and need a %trong &inancial %upport &or their adaptation,
commencement and e+entual %ucce%%. @oe+er, hile the earlie%t %tage o&
&inancing i% &raught ith ri%k, it al%o pro+ide% greater potential &or reali>ing
%igni&icant gain% in long term. 1*picall* %eed enterpri%e% lack a%%et ba%e or track
record to obtain &inance &rom con+entional %ource% and are largel* dependent
upon entrepreneur=% per%onal re%ource%. Seed capital i% pro+ided a&ter being
%ati%&ied that the entrepreneur ha% u%ed up hi% on re%ource% and carried out hi%
idea to a %tage o& acceptance and ha% initiated re%earch. 1he a%%et underl*ing the
%eed capital i% o&ten technolog* or an idea a% oppo%ed to human a%%et% (a good
management taem0 %o o&ten %ought b* +enture capitali%t%.
Vo'ume of I&9e4tme&t Acti9it7
$t ha% been ob%er+ed that <enture capitali%t %eldom make %eed capital in+e%tment
and the%e are relati+el* %mall b* compari%on to other &orm% o& <enture &inance.
1he ab%ence o& intere%t in pro+iding a %igni&icant amount o& %eed capital can be
attributed to the &olloing three &actor%
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a) Seed capital pro-ect% b* their +er* nature reuire a relati+el* %mall amount
o& capital. 1he %ucce%% or &ailure o& an indi+idual %eed capital in+e%tment
ill ha+e little impact on the per&ormance o& all but the %malle%t +enture
capital in+e%tment%. 1hi% i% becau%e the %mall in+e%tment% are %een to be
co%t ine&&icient in term% o& time reuired to anal*>e %tructure manage them.
b) 1he time hori>on to reali>ation &or mo%t %eed capital in+e%tment i%
t*picall* 7"0 *ear% hich i% longer than all but mo%t longterm oriented
in+e%tor% ill de%ire.
c) 1he ri%k o& product and technolog* ob%ole%cence increa%e% a% the time to
reali>ation $ etended. 1he%e t*pe% o& ob%ole%cence are particularl* likel*
to occur ith high technolog* in+e%tment% particularl* in the &ield% related
to $n&ormation 1echnolog*.
Start U5 Ca5ita'
$t i% %tage %econd in the +enture capital c*cle and i% di%tingui%hable &rom %eed
capital in+e%tment%. An entrepreneur o&ten need% &inance hen the bu%ine%% i%
-u%t %tarting. 1he %tart up %tage in+ol+e% %tarting a ne bu%ine%%. @ere in the
entrepreneur ha% mo+ed clo%er toard% e%tabli%hment o& a going concern. @ere in
the bu%ine%% concept ha% been &ull* in+e%tigated and the bu%ine%% ri%k no
become% that o& turning the concept into product.
Start up capital i% de&ined a%? apital needed to &inance the productde+elopment, initial marketing and e%tabli%hment o& product &acilit*./
1he characteri%tic% o& %tartup capital are
a2 E4tab'i48me&t of com5a&7 or bu4i&e44( the compan* i% either being
organi>ed or i% e%tabli%hed recentl*. 'e bu%ine%% acti+it* could be ba%ed
on epert%, eperience or a %pino&& &rom G 9 .
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b2 E4tab'i48me&t of mo4t but &ot a'' t8e member4 of t8e team( the %kill%
and &itne%% to the -ob and %ituation o& the entrepreneur=% team i% an
important &actor &or %tart up &inance.
c2 De9e'o5me&t of bu4i&e44 5'a& or idea( the bu%ine%% plan %hould be &ull*
de+eloped *et the acceptabilit* o& the product b* the market i% uncertain.
1he compan* ha% not *et %tarted trading.
$n the %tart up prepo%ition <enture capitali%t%= in+e%tment criteria %hi&t% &rom idea
to people in+ol+ed in the +enture and the market opportunit*. He&ore committing
an* &inance at thi% %tage, +enture capitali%t hoe+er, a%%e%%e% the managerial
abilit* and the capacit* o& the entrepreneur, be%ide% the %kill%, %uitabilit* and
competence o& the managerial team are al%o e+aluated. $& reuired the* %uppl*
managerial %kill and %uper+i%ion &or implementation. 1he time hori>on &or %tart
up capital ill be t*picall* : or C *ear%. ailure rate &or %tart up i% 2 out o& #. Start
up need% &und% b* a* o& both &ir%t round in+e%tment and %ub%euent &olloup
in+e%tment%. 1he ri%k tend% to be loer relati+e to %eed capital %ituation. 1he ri%k
i% controlled b* initiall* in+e%ting a %maller amount o& capital in %tartup%. 1he
deci%ion on additional &inancing i% ba%ed upon the %ucce%%&ul per&ormance o& the
compan*. @oe+er, the term to reali>ation o& a %tart up in+e%tment remain%
longer than the term o& &inance normall* pro+ided b* the ma-orit* o& &inancial
in%titution%. Bonger time %cale &or u%ing eit route demand% continued atch on
%tart up pro-ect%.
Vo'ume of I&9e4tme&t Acti9it7
e%pite potential &or %ecular return% mo%t +enture &irm% a+oid in+e%ting in %tart
up%. 6ne rea%on &or the paucit* o& %tart up &inancing ma* be high di%count rate
that +enture capitali%t applie% to +enture propo%al% at thi% le+el o& ri%k and
maturit*. 1he* o&ten pre&er to %pread their ri%k b* %haring the &inancing. 1hu%
%*ndicate% o& in+e%tor=% o&ten participate in %tart up &inance.
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Ear'7 Sta6e Fi&a&ce
$t i% al%o called &ir%t %tage capital i% pro+ided to entrepreneur ho ha% a pro+en
product, to %tart commercial production and marketing, not co+ering market
epan%ion, deri%king and acui%ition co%t%.
At thi% %tage the compan* pa%%ed into earl* %ucce%% %tage o& it% li&e c*cle. A pro+en management team i% put into thi% %tage, a product i% e%tabli%hed and an
identi&iable market i% being targeted.
Hriti%h <enture capital A%%ociation ha% +i+idl* de&ined earl* %tage &inance a%
inance pro+ided to companie% that ha+e completed the product de+elopment
%tage and reuire &urther &und% to initiate commercial manu&acturing and %ale%
but ma* not be generating pro&it%./
1he characteri%tic% o& earl* %tage &inance ma* be
Bittle or no %ale% re+enue.
a%h &lo and pro&it %till negati+e.
A %mall but enthu%ia%tic management team hich con%i%t% o& people ith
technical and %peciali%t background and ith little eperience in the
management o& groing bu%ine%%.
Short term pro%pecti+e &or dramatic groth in re+enue and pro&it%.
1he earl* %tage &inance u%uall* take% 4 to : *ear% time hori>on to reali>ation.
Earl* %tage &inance i% the earlie%t in hich to o& the &undamental% o& bu%ine%%
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are in place i.e. &ull* a%%embled management team and a marketable product. A
compan* need% thi% round o& &inance becau%e o& an* o& the &olloing rea%on%
ro-ect o+errun% on product de+elopment.
$nitial lo%% a&ter %tart up pha%e.
1he &irm need% additional euit* &und%, hich are not a+ailable &rom other
%ource% thu% prompting +enture capitali%t that, ha+e &inanced the %tart up %tage to
pro+ide &urther &inancing. 1he management ri%k i% %hi&ted &rom &actor% internal to
the &irm (lack o& management, lack o& product etc.) to &actor eternal to the &irm
(competiti+e pre%%ure%, in %u&&icient ill o& &inancial in%titution% to pro+ide
adeuate capital, ri%k o& product ob%ole%cence etc.)
At thi% %tage, capital need%, both &ied and orking capital need% are greate%t.
urther, %ince &irm% do not ha+e &oundation o& a trading record, &inance ill be
di&&icult to obtain and %o +enture capital particularl* euit* in+e%tment ithout
a%%ociated debt burden i% ke* to %ur+i+al o& the bu%ine%%.
1he &olloing ri%k% are normall* a%%ociated to &irm% at thi% %tage
a) 1he earl* %tage &irm% ma* ha+e dran the attention o& and incurred the
challenge o& a larger competition.
b) 1here i% a ri%k o& product ob%ole%cence. 1hi% i% more %o hen the &irm i%
in+ol+ed in hightech bu%ine%% like computer, in&ormation technolog* etc.
Seco&d 4ta6e Fi&a&ce
$t i% the capital pro+ided &or marketing and meeting the groing orking capital
need% o& an enterpri%e that ha% commenced the production but doe% not ha+e
po%iti+e ca%h &lo% %u&&icient to take care o& it% groing need%. Second %tage
&inance, the %econd trench o& Earl* Stage inance i% al%o re&erred to a% &ollo on
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&inance and can be de&ined a% the pro+i%ion o& capital to the &irm hich ha%
pre+iou%l* been in receipt o& eternal capital but ho%e &inancial need% ha+e
%ub%euentl* eploded. 1hi% ma* be %econd or e+en third in-ection o& capital.
1he characteri%tic% o& a %econd %tage &inance are
A de+eloped product on the market
A &ull management team in place
Sale% re+enue being generated &rom one or more product%
1here are lo%%e% in the &irm or at be%t there ma* be a breake+en but the
%urplu% generated i% in%u&&icient to meet the &irm=% need%.
Second round &inancing t*picall* come% in a&ter %tart up and earl* %tage &unding
and %o ha+e %horter time to maturit*, generall* ranging &rom # to 7 *ear%. 1hi%
%tage o& &inancing ha% both po%iti+e and negati+e rea%on%.
'egati+e rea%on% include
o%t o+errun% in market de+elopment
ailure o& ne product to li+e up to %ale% &oreca%t.
'eed to repo%ition product% through a ne marketing campaign
'eed to rede&ine the product in the market place once the productde&icienc* i% re+ealed.
o%iti+e rea%on% include
Sale% appear to be eceeding &oreca%t% and the enterpri%e need% to acuire
a%%et% to gear up &or production +olume% greater than &oreca%t%.
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@igh groth enterpri%e% epand &a%ter than their orking capital permit,
thu% needing additional &inance. Aim i% to pro+ide orking capital &or
initial epan%ion o& an enterpri%e to meet need% o& increa%ing %tock% and
recei+able%.
$t i% additional in-ection o& &und% and i% an acceptable part o& +enture capital.
6&ten pro+i%ion &or %uch additional &inance can be included in the original
&inancing package% a% an option, %ub-ect to certain management per&ormance
target%.
Later Sta6e Fi&a&ce
$t i% called third %tage capital i% pro+ided to an enterpri%e that ha% e%tabli%hed
commercial production and ba%ic marketing %etup, t*picall* &or market
epan%ion, acui%ition product de+elopment etc. it i% pro+ided &or market
epan%ion o& the enterpri%e.
1he enterpri%e% eligible &or thi% round o& &inance ha+e &olloing characteri%tic%
E%tabli%hed bu%ine%%, ha+ing alread* pa%%ed the ri%k* earl* %tage.
Epanding high *ield, capital groth and good pro&itabilit*.
Geputed market po%ition and an e%tabli%hed &ormal organi>ation
%tructure.
und% are utili>ed &or &urther plant epan%ion, marketing, orking capital or
de+elopment o& impro+ed product%./ 1hird %tage &inancing i% a mi o& euit*
ith debt or %ubordinate debt. A% it i% hal& a* beteen euit* and debt in DS it
i% called me>>anine/ &inance. $t i% al%o called la%t round o& &inance in run up to
the trade %ale or public o&&er.
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<enture capitali%t% pre&er later %tage in+e%tment +i% a <i% earl* %tage in+e%tment%,
a% the rate o& &ailure in later %tage &inancing i% lo. $t i% becau%e &irm% at thi%
%tage ha+e a pa%t per&ormance data, track record o& management, e%tabli%hed
procedure% o& &inancial control. 1he time hori>on &or reali>ation i% %horter,
ranging &rom # to 5 *ear%. 1hi% help% the +enture capitali%t% to balance their on
port&olio o& in+e%tment a% it pro+ide% a running *ield to +enture capitali%t%.
urther the loan component in third %tage &inance pro+ide% ta ad+antage and
%uperior return to the in+e%tor%.
1here are &our %ub di+i%ion% o& later %tage &inance
Epan%ion;e+elopment inance
Geplacement inance
Hu*out inancing
1urnaround inance
E5a&4io& De9e'o5me&t fi&a&ce
An enterpri%e e%tabli%hed in a gi+en market increa%e% it% pro&it eponentiall* b*
achie+ing the economie% o& %cale. 1hi% epan%ion can be achie+ed either through
an organic groth, that i% b* epanding production capacit* and %etting up proper
di%tribution %*%tem or b* a* o& acui%ition%. An*ho, epan%ion need% &inance
and +enture capitali%t% %upport both organic groth a% ell a% acui%ition% &or
epan%ion.
At thi% %tage the real market &eedback i% u%ed to anal*>e competition. $t ma* be
&ound that the entrepreneur need% to de+elop hi% managerial team &or handling
groth and managing a larger bu%ine%%.
Geali>ation hori>on &or epan%ion;de+elopment in+e%tment i% one to three *ear%.
$t i% &a+ored b* +enture capitali%t a% it o&&er% higher reard% in %horter period
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ith loer ri%k. und% are needed &or ne or larger &actorie% and arehou%e%,
production capacitie%, de+eloping impro+ed or ne product%, de+eloping ne
market% or entering eport% b* enterpri%e ith e%tabli%hed bu%ine%% that ha%
alread* achie+ed break e+en and ha% %tarted making pro&it%.
Re5'aceme&t Fi&a&ce
$t mean% %ub%tituting one %hareholder &or another, rather than rai%ing ne capital
re%ulting in the change o& oner%hip pattern. <enture capitali%t purcha%e %hare
&rom the entrepreneur% and their a%%ociate% enabling them to reduce their
%hareholding in unli%ted companie%. 1he* al%o bu* di+idend coupon. Bater, on
%ale o& the compan* or it% li%ting on %tock echange, the%e are recon+erted to
ordinar* %hare%. 1hu% <enture capitali%t make% a capital gain in a period o& " to 5
*ear%
"u7)out "u7)i& Fi&a&ci&6
$t i% a re%ent de+elopment and a ne &orm o& in+e%tment b* +enture capitali%t.
1he &und% pro+ided to the current operating management to acuire or purcha%e a
%igni&icant %hare holding in the bu%ine%% the* manage are called management
bu*out.
Management Hu*in re&er% to the &und% pro+ided to enable a manager or a group
o& manager% &rom out%ide the compan* to bu* into it.
$t i% the mo%t popular &orm o& +enture capital among%t %tage &inancing. $t i% le%%
ri%k* a% +enture capitali%t in in+e%t% in %olid, ongoing and more mature bu%ine%%.
1he &und% are pro+ided &or acuiring and re+itali>ing an ei%ting product line or
di+i%ion o& a ma-or bu%ine%%. MH6 (Management bu*out) ha% lo ri%k a%
enterpri%e to be bought ha+e ei%ted &or %ome time be%ide% ha+ing po%iti+e ca%h
&lo to pro+ide regular return% to the +enture capitali%t, ho %tructure their
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in+e%tment b* -udiciou% combination o& debt and euit*. 6& late there ha% been a
gradual %hi&t aa* &rom %tart up and earl* &inance toard% MH6 opportunitie%.
1hi% %hi&t i% becau%e o& loer ri%k than %tart up in+e%tment%.
Tur&arou&d Fi&a&ce
$t i% rare &orm later %tage &inance hich mo%t o& the +enture capitali%t a+oid
becau%e o& higher degree o& ri%k. 8hen an e%tabli%hed enterpri%e become% %ick, it
need% &inance a% ell a% management a%%i%tance &or a ma-or re%tructuring to
re+itali>e groth o& pro&it%. Dnuoted compan* at an earl* %tage o& de+elopment
o&ten ha% higher debt than euit*? it% ca%h &lo% are %loing don due to lack o&
managerial %kill and inabilit* to eploit the market potential. 1he %ick companie%
at the later %tage% o& de+elopment do not normall* ha+e high debt burden but lack
competent %ta&& at +ariou% le+el%. Such enterpri%e% are compelled to relinui%h
control to ne management. 1he +enture capitali%t ha% to carr* out the reco+er*
proce%% u%ing hand% on management in 2 to 5 *ear%. 1he ri%k pro&ile and
anticipated reard% are akin to earl* %tage in+e%tment.
"rid6e Fi&a&ce
$t i% the prepublic o&&ering or premerger;acui%ition &inance to a compan*. $t i%
the la%t round o& &inancing be&ore the planned eit. <enture capitali%t help in
building a %table and eperienced management team that ill help the compan*
in it% initial public o&&er. Mo%t o& the time bridge &inance help% impro+e% the
+aluation o& the compan*. Hridge &inance o&ten ha% a reali>ation period o& :
month% to one *ear and hence the ri%k in+ol+ed i% lo. 1he bridge &inance i% paid
back &rom the proceed% o& the public i%%ue.
VENTURE CAPITAL INVEST#ENT PROCESS
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<enture capital in+e%tment proce%% i% di&&erent &rom normal pro-ect &inancing. $n
order to under%tand the in+e%tment proce%% a re+ie o& the a+ailable literature on
+enture capital &inance i% carried out. 1*eb-ee and Hruno in "C4 ga+e model o&
+enture capital in+e%tment acti+it* ith %ome +ariation% i% commonl* u%ed
pre%entl*. A% per thi% model thi% acti+it* i% a &i+e %tep proce%% a% &ollo%
". eal 6rgani>ation
2. Screening
#. E+aluation or due iligence
4. eal Structuring
5. o%t $n+e%tment Acti+it* and Eit
Study Of Venture Capital In India Page No: #7
<enture apital $n+e%tment roce%%
$n+e%tor%
Eit
ro%pecti+e$n+e%tee
< MI1 und
Screening
Selection
Structuring
Monitoring
$n+e%tment proce%%
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Dea' Ori6i&atio&(
$n generating a deal &lo, the < in+e%tor create% a pipeline o& deal% or
in+e%tment opportunitie% that he ould con%ider &or in+e%ting in. deal ma*
originate in +ariou% a*%. Ge&erral %*%tem, acti+e %earch %*%tem, and
intermediarie%. Ge&erral %*%tem i% an important %ource o& deal%. eal% ma* be
re&erred to <% b* their parent organi>ation%, trade partner%, indu%tr*
a%%ociation%, &riend% etc. Another deal &lo i% acti+e %earch through netork%,
trade &air%, con&erence%, %eminar%, &oreign +i%it% etc. intermediarie% i% u%ed b*
+enture capitali%t% in de+eloped countrie% like DSA, i% certain intermediarie% ho
match <% and the potential entrepreneur%.
Scree&i&6(
<%, be&ore going &or an indepth anal*%i%, carr* out initial %creening o& all
pro-ect% on the ba%ic o& %ome broad criteria. or eample, the %creening proce%%
ma* limit pro-ect% to area% in hich the +enture capitali%t i% &amiliar in term% o&
technolog*, or product, or market %cope. 1he %i>e o& in+e%tment, geographical
location and %tage o& &inancing could al%o be u%ed a% the broad %creening criteria.
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Due Di'i6e&ce(
ue diligence i% the indu%tr* -argon &or all the acti+itie% that are a%%ociated ith
e+aluating an in+e%tment propo%al. 1he <enture capitali%t% e+aluate the ualit* o& entrepreneur be&ore apprai%ing the characteri%tic% o& the product, market or
technolog*. Mo%t +enture capitali%t% a%k &or a bu%ine%% plan to make an
a%%e%%ment o& the po%%ible ri%k and return on the +enture. Hu%ine%% plan contain%
detailed in&ormation about the propo%ed +enture. 1he e+aluation o& +enture% b*
<% in $ndian include%? reliminar* e+aluation the applicant reuired to
pro+ide a brie& pro&ile o& the propo%ed +enture to e%tabli%h prima &acie eligibilit*.
etailed e+aluation once the preliminar* e+aluation i% o+er, the propo%al i%
e+aluated in greater detail. <% in $ndia epect the entrepreneur to ha+e
integrit*, longterm +i%ion, urge to gro, managerial %kill%, commercial
orientation.
<% in $ndia al%o make the ri%k anal*%i% o& the propo%ed pro-ect% hichinclude% product ri%k, market ri%k, technological ri%k and entrepreneurial ri%k.
1he &inal deci%ion i% taken in term% o& the epected ri%kreturn tradeo&& a% %hon
in &igure.
Dea' Structuri&6(
$n thi% proce%%, the +enture capitali%t and the +enture compan* negotiate theterm% o& the deal%, that are the amount &orm and price o& the in+e%tment. 1hi%
proce%% i% termed a% deal %tructuring. 1he agreement al%o include the +enture
capitali%t% right to control the +enture compan* and to change it% management i&
needed, bu*back arrangement %peci&* the entrepreneur% euit* %hare and the
ob-ecti+e% %hare and the ob-ecti+e% to be achie+ed.
Po4t I&9e4tme&t Acti9itie4(
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6nce the deal ha% been %tructured and agreement &inali>ed, the +enture capitali%t
generall* a%%ume% the role o& a partner and collaborator. @e al%o get% in+ol+ed in
%haping o& the direction o& the +enture. 1he degree o& the +enture capitali%t%
in+ol+ement depend% on hi% polic*. $t ma* not, hoe+er be de%irable &or a
+enture capitali%t to get in+ol+ed in the da*toda* operation o& the +enture. $& a
&inancial or managerial cri%i% occur%, the +enture capitali%t ma* inter+ene, and
e+en in%tall a ne management team.
Eit(
<enture capitali%t% generall* ant to ca%hout their gain% in &i+e to ten *ear% a&ter
the initial in+e%tment. 1he* pla* a po%iti+e role in directing the compan* toard%
particular eit route%. A +enture ma* ei%t in one o& the &olloing a*%
1here are &our a*% &or a +enture capitali%t to eit it% in+e%tment
$nitial ublic 6&&er ($6)
Acui%ition b* another compan*
Gepurcha%e o& +enture capitali%t% %hare b* the in+e%tee compan*
urcha%e o& +enture capitali%t% %hare b* a third part*
Promoter4 "u7)bac@
1he mo%t popular di%in+e%tment route in $ndia i% promoter% bu*back. 1hi% route
i% %uited to $ndian condition% becau%e it keep% the oner%hip and control o& the
promoter intact. 1he ob+iou% limitation, hoe+er, i% that in a ma-orit* o& ca%e%
the market +alue o& the %hare% o& the +enture &irm ould ha+e appreciated %o
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much a&ter %ome *ear% that the promoter ould to be in a &inancial po%ition to
bu* them back.
$n $ndia, the promoter% are in+ariabl* gi+en the &ir%t option to bu* back euit* o& their enterpri%e. or eample, G16 participate% in the a%%i%ted &irm=% euit*
ith %uitable agreement &or the promoter to repurcha%e it. Similarl*, on&ina
< o&&er% an opportunit* to the promoter% to bu* back the %hare% o& the a%%i%ted
&irm ithin an agreed period at a predetermined price. $& the promoter &ail% to bu*
back the %hare% ithin the %tipulated period, on&ine< ould ha+e the
di%cretion to di+e%t them in an* manner it deemed appropriate. SH$ capital
Market% en%ure% through eamining the per%onal a%%et% o& the promoter% and their
a%%ociate%, hich bu* back, ould be a &ea%ible option. I< ould make
di%in+e%tment, in con%ultation ith the promoter, u%uall* a&ter the pro-ect ha%
%ettled don, to a pro&itable le+el and the entrepreneur i% in a po%ition to a+ail o&
&inance under con+entional %cheme% o& a%%i%tance &rom bank% or other &inancial
in%titution%.
I&itia' Pub'ic Offer4 1IPO42
1he bene&it% o& di%in+e%tment% +ia the public i%%ue route are impro+ed
marketabilit* and liuidit*, better pro%pect% &or capital gain% and idel* knon
%tatu% o& the +enture a% ell a% market control through public %hare participation.
1hi% option ha% certain limitation% in the $ndian contet. 1he promotion o& the
public i%%ue ould be di&&icult and epen%i+e %ince the &ir%t generation
entrepreneur% are not knon in the capital market%. urther, di&&icultie% ill be
cau%ed i& the entrepreneur% bu%ine%% i% percei+ed to be an unattracti+e in+e%tment
propo%ition b* in+e%tor%. Al%o, the empha%i% b* the $ndian in+e%tor% on %hortterm
pro&it% and di+idend% ma* tend to make the market price unattracti+e. Yet another
di&&icult* in $ndia until recentl* a% that the ontroller o& apital $%%ue% ($)
guideline% &or determining the premium on %hare% took into account the book
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+alue and the cumulati+e a+erage ES till the date o& the ne i%%ue. 1hi% &ormula
&ailed to gi+e due eight age to the epected %tream o& earning o& the +enture
&irm. 1hu%, the &ormula ould undere%timate the premium. 1he go+ernment ha%
no aboli%hed the apital $%%ue% ontrol Act, "47 and con%euentl*, the o&&ice
o& the controller o& apital $%%ue%. 1he ei%ting companie% are no &ree to &i the
premium on their %hare%. 1he initial public i%%ue &or di%in+e%tment% o& <%
holding can in+ol+e high tran%action co%t% becau%e o& the ine&&icienc* o& the
%econdar* market in a countr* like $ndia. Al%o, thi% option ha% become &ar le%%
&ea%ible &or %mall +enture% on account o& the higher li%ting reuirement o& the
%tock echange%. $n ebruar* "C, the Io+ernment o& $ndia rai%ed the minimum
capital &or li%ting on the %tock echange% &rom G% "0 million to G% #0 million and
the minimum public o&&er &rom G% : million to G% "C million.
Sa'e o& t8e OTC #ar@et
An acti+e %econdar* capital market pro+ide% the nece%%ar* impetu% to the %ucce%%
o& the +enture capital. <% %hould be able to %ell their holding%, and in+e%tor%
%hould be able to trade %hare% con+enientl* and &reel*. $n the DSA, there ei%t
ellde+eloped 61 market% here dealer% trade in %hare on telephone;terminal
and not on an echange &loor. 1hi% mechani%m enable% ne, %mall companie%
hich are not otheri%e eligible to be li%ted on the %tock echange, to enli%t on
the 61 market% and pro+ide% liuidit* to in+e%tor%. 1he 'ational A%%ociation o&
Securitie% dealer% Automated Kuotation S*%tem ('ASAK) in the DSA dail*uote% o+er C000 %tock price% o& companie% backed b* +enture capital.
1he 61 Echange in $ndia a% e%tabli%hed in 3une "2. 1he Io+ernment o&
$ndia had appro+ed the creation &or the Echange under the Securitie% ontract%
(Gegulation%) Act in "C. $t ha% been promoted -ointl* b* D1$, $$$, SH$
apital Market%, an Hank inancial Ser+ice%, I$, B$ and $H$. Since thi% li%t
o& marketmaker% (ho ill decide dail* price% and appoint dealer% &or trading)
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include% mo%t o& the public %ector +enture &inancier%, it %hould pick up &a%t, and it
%hould be po%%ible &or in+e%tor% to trade in the %ecuritie% o& ne %mall and
medium %i>e enterpri%e.
1he other di%in+e%tment mechani%m% %uch a% the management bu* out% or %ale to
other +enture &und% are not con%idered to be appropriate b* <% in $ndia.
1he groth o& an enterpri%e &ollo% a li&e c*cle a% %hon in the diagram belo.
1he reuirement% o& &und% +ar* ith the li&e c*cle %tage o& the enterpri%e. E+en
be&ore a bu%ine%% plan i% prepared the entrepreneur in+e%t% hi% time and re%ource%
in %ur+e*ing the market, &inding and under%tanding the target cu%tomer% and their
need%. At the %eed %tage the entrepreneur continue to &und the +enture ith hi%
on &und or &amil* &und%. At thi% %tage the &und% are needed to %olicit the
con%ultant=% %er+ice% in &ormulation o& bu%ine%% plan%, meeting potential
cu%tomer% and technolog* partner%. 'et the &und% ould be reuired &or
de+elopment o& the product;proce%% and producing protot*pe%, hiring ke* people
and building up the managerial team. 1hi% i% &olloed b* &und% &or a%%embling
the manu&acturing and marketing &acilitie% in that order. inall* the &und% are
needed to epand the bu%ine%% and attaint the critical ma%% &or pro&it generation.
<enture capitali%t% cater to the need% o& the entrepreneur% at di&&erent %tage% o&
their enterpri%e%. epending upon the %tage the* &inance, +enture capitali%t% are
called angel in+e%tor%, <enture capitali%t or pri+ate euit* %upplier;in+e%tor.
#ET$ODS OF VENTURE FINANCIN0
<enture apital i% t*picall* a+ailable in three &orm% in $ndia, the* are
Euit7( All <% in $ndia pro+ide euit* but generall* their contribution
doe% not eceed 4L o& the total euit* capital. 1hu%, the e&&ecti+e control
and ma-orit* oner%hip o& the &irm remain% ith the entrepreneur. 1he*
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bu* %hare% o& an enterpri%e ith an intention to ultimatel* %ell them o&& to
make capital gain%.
Co&ditio&a' Loa&( it i% repa*able in the &orm o& a ro*alt* a&ter the +enture
i% able to generate %ale%. 'o intere%t i% paid on %uch loan%. $n $ndia, <%
change ro*alt* ranging beteen 2L to "5L? actual rate depend% on other
&actor% o& the +enture %uch a% ge%tation period, co%t &lo pattern%, ri%kine%%
and other &actor% o& the enterpri%e.
I&come Note( it i% a h*brid %ecurit* hich combine% the &eature% o& both
con+entional loan and conditional loan. 1he entrepreneur ha% to pa* bothintere%t and ro*alt* on %ale%, but at %ub%tantiall* lo rate%.
Partici5ati&6 Debe&ture( %uch %ecurit* carrie% charge% in # pha%e%. $n the
%tart up pha%e, be&ore the +enture attain% operation% to a minimum le+el, no
intere%t i% charged, a&ter thi%, lo rate o& intere%t i% charged, up to a
particular le+el o& operation. 6nce the +enture i% commercial, a high rate o&
intere%t i% reuired to be paid.
Gua4i Euit7( ua%i euit* in%trument% are con+erted into euit* at a later
date. on+ertible in%trument% are normall* con+erted into euit* at the
book +alue or at certain multiple o& ES, i.e. at a premium to par +alue at a
later date. 1he premium automaticall* reard% the promoter &or their
initiati+e and hand ork. Since it i% per&ormance related, it moti+ate% the promoter to ork harder %o a% to minimi>e dilution o& their control on the
compan*. 1he di&&erent ua%i euit* in%trument% are &ollo%
o umulati+e con+ertible pre&erence %hare%.
o artiall* con+ertible debenture%.
o ull* con+ertible debenture%.
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Ot8er Fi&a&ci&6 met8od4( a &e +enture capitali%t%, particularl* in the
pri+ate %ector, ha+e %tarted introducing inno+ati+e &inancial %ecuritie% like
participating debenture%, introduced b* 1 i% an eample.
DIFFERENCE "ET;EEN VENTURE CAPITAL
AND OT$ER FUNDS 1PRIVATE EGUITY2
Ve&ture Ca5ita' V4 De9e'o5me&t Fu&d4
<enture capital di&&er% &rom de+elopment &und% a% latter mean% putting up o&
indu%trie% ithout much con%ideration o& u%e o& ne technolog* or ne
entrepreneurial +enture but ha+ing a &ocu% on underde+eloped area% (location%).
$n ma-orit* ca%e% it i% in the &orm o& loan capital and proportion o& euit* i% +er*
thin. e+elopment &inance i% %ecurit* oriented and liuidit* prone. 1he criteria
&or in+e%tment are pro+en track record o& compan* and it% promoter%, and
%u&&icient ca%h generation to pro+ide &or return% (principal and intere%t). 1he
de+elopment bank %a&eguard% it% intere%t through collateral.
1he* ha+e no %a* in orking o& the enterpri%e ecept %a&eguarding their intere%t
b* ha+ing a nominee director. 1he* do not pla* an* acti+e role in the enterpri%e
ecept en%uring &lo o& in&ormation and proper management in&ormation %*%tem,
regular board meeting%, adherence to %tatutor* reuirement% &or e&&ecti+e
management in&ormation %*%tem, regular board meeting%, adherence to %tatutor*reuirement% &or e&&ecti+e management control here a% <enture capitali%t
remain intere%ted i& the o+erall management o& the pro-ect account o& high ri%k
in+ol+ed $ the pro-ect till it% completion, entering into production and making
a+ailable proper eit route &or liuidation o& the in+e%tment. A% again%t thi% &ied
pa*ment% in the &orm o& in%tallment o& principal and intere%t are to be made to
de+elopment.
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Ve&ture Ca5ita' V4 Seed Ca5ita' < Ri4@ Ca5ita'
$t i% di&&icult to make a di%tinction beteen +enture capital, %eed capital, and ri%k
capital a% the latter to &orm part o& broader meaning o& <enture capital.i&&erence beteen them ari%e% on account o& application o& &und% and term% and
condition% applicable. 1he %eed capital and ri%k &und% in $ndia are being pro+ided
ba%icall* to arrange promoter=% contribution to the pro-ect. 1he ob-ecti+e i% to
pro+ide &inance and encourage pro&e%%ional% to become promoter% o& indu%trial
pro-ect%. 1he %eed capital i% pro+ided to con+entional pro-ect% on the
con%ideration o& lo ri%k and %ecurit* and u%e con+entional techniue% &or apprai%al. Seed capital i% normall* in the &orm lo intere%t de&erred loan a%
again%t euit* in+e%tment b* <enture capital. Dnlike <enture capital, Seed capital
pro+ider% neither pro+ide an* +alue addition nor participate in the management o&
the pro-ect. Dnlike <enture capital Seed capital pro+ider i% %ati%&ied ith lo
normal return% and lack% an* &leibilit* in it% approach.
Gi%k capital i% al%o pro+ided to e%tabli%hed companie% &or adapting &or ne
technologie%. @erein the approach i% not bu%ine%% oriented but de+elopmental. A%
a re%ult on one hand the %ucce%% rate o& unit% a%%i%ted b* %eed capital;ri%k.
inance ha% been loer than tho%e pro+ided ith +enture capital. 6n the other
hand the return to the %eed;ri%k capital &inancier had been +er* lo a% compared
to +enture capitali%t.
Seed apital Scheme <enture apital Scheme
Ha%ic $ncome or aid ommercial +iabilit*
Hene&iciarie% <er* %mall entrepreneur% Medium and large
entrepreneur% are al%o co+ered
Si>e o& a%%i%tance G%. "5 lac(Ma) Dp to 40 percent o& promoter%=
euit*
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Apprai%al proce%% 'ormal Skilled and Speciali>ed
E%timate% return% 20 percent #0 percent plu%
leibilit* 'il @ighl* &leible
<alue addition 'il Multiple a*%
Eit option Sell back to promoter% Se+eral, including public o&&er
unding %ource% 6ner &und% 6ut%ide contribution alloed
S*ndication 'ot done o%%ible
1a conce%%ion 'il Eempted
Succe%% rate 'ot good <er* %ati%&actor*
i&&erence beteen Seed apital Scheme and <enture apital Scheme
Ve&ture Ca5ita' V4 "ou68t Out Dea'4
1he important di&&erence beteen the +enture capital and bought out deal% i% that
bought out% are not ba%ed upon high ri%k high reard principal. urther unlike
+enture capital the* do not pro+ide euit* &inance at di&&erent %tage% o& the
enterpri%e. @oe+er both ha+e a common epectation o& capital gain% *et their
ob-ecti+e% and intent% are totall* di&&erent.
VENTURE CAPITAL < ALTERNATIVE
FINANCIN0 CO#PARISON
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<enture capital 9 alternati+e &inancing compari%on
$& e are %truggling to &ind %ucce%% in our ue%t &or +enture capital, ma*be e are
looking in the rong place. <enture capital i% not &or e+er*bod*. or %tarter%,
+enture capitali%t% tend to be +er* pick* about here the* in+e%t. 1he* are
looking &or %omething to dump a lot o& mone* into u%uall* no le%% than "
million) that ill pour e+en more mone* right back at them in a %hort amount o&
time (t*picall* #7 *ear%). 8e ma* be planning &or a %tead* groth rate a%
oppo%ed to the booming, o+ernight %ucce%% that +enture capitali%t% tend to
gra+itate toard. 8e ma* not be able to turn around a% large o& a pro&it a% the*
are looking &or in uick enough time. 8e ma* not need the amount o& mone* that
the* o&&er or our bu%ine%% ma* %impl* not be big enough.
Simpl* put, +enture capital i% not the right &it &or our bu%ine%% and there are
plent* o& other option% a+ailable hen it come% to &inding capital.
Sub4titute i& Ear'7 4ta6e
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o A&6e'4
Mo%t +enture capital &und% ill not con%ider in+e%ting in an*thing under "
million to 2 million. Angel%, hoe+er, are ealth* indi+idual% ho ill pro+idecapital &or a %tartup bu%ine%%. 1he%e in+e%tor% ha+e u%uall* earned their mone* a%
entrepreneur% and bu%ine%% manager% and can %er+e a% a prime re%ource &or
ad+ice on top o& capital. 6n the other hand, due to t*picall* limited re%ource%,
angel% u%uall* ha+e a %horter in+e%tment hori>on than +enture capitali%t% and tend
to ha+e le%% tolerance &or lo%%e%.
o Pri9ate P'aceme&t
An in+e%tment bank or agent ma* be able to rai%e euit* &or our compan* b*
placing our unregi%tered %ecuritie% ith accredited in+e%tor%. @oe+er, *ou
%hould be aare that the &ee% and epen%e% a%%ociated ith thi% practice are
generall* higher than tho%e that come ith +enture and angel in+e%tor%. 8e ill
likel* recei+e little or no bu%ine%% coun%el &rom pri+ate in+e%tor% ho al%o tend toha+e little tolerance &or lo%%e% and underper&ormance.
o I&itia' Pub'ic Offeri&6
$& e are %omeho able to gain acce%% to public euit* market% than an initial
public o&&ering ($6) can be an e&&ecti+e a* to rai%e capital. Feep in mind that,
hile the public market=% high +aluation%, abundant capital and liuidit*
characteri%tic% make it attracti+e, the tran%action co%t% are high and there are
ongoing legal epen%e% a%%ociated ith public di%clo%ure reuirement%.
Later Sta6e Fi&a&ci&6
o "oot4tra5 Fi&a&ci&6
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1hi% method i% intended to de+elop a &oundation &or *our bu%ine%% &rom %cratch.
inancial management i% e%%ential to make thi% ork. 8ith boot%trap &inancing
*ou=re building a bu%ine%% &rom nothing, hich mean% there i% little to no margin
&or error in the &inance department. Feep a rigid account o& all tran%action% and
don=t %tra* &rom *our budget.
A &e di&&erent method% o& boot%trapping include
Factori&6, thi% generate% ca%h &lo through the %ale o& *our account% recei+able
to a &actor/ at di%counted price &or=% ca%h.
Trade Credit i% an option i& *ou are able to &ind a +endor or %upplier that ill
allo *ou to order good% on net #0, :0 or 0 da* term%. $& *ou can %ell the good%
be&ore the bill come% due then *ou ha+e generated ca%h &lo ithout %pending
an* mone*. u%tomer% can pa* *ou up &ront our %er+ice%.
Lea4i&63 *our euipment in%tead o& purcha%ing it outright.
o Fu&d from O5eratio&4
Book &or a*% to teak *our bu%ine%% in order to reduce the ca%h &loing out and
increa%e the ca%h &loing in. unding &ound in bu%ine%% operation% come &ree o&
&inance charge%, can reduce &uture &inancing charge% and can increa%e the +alue
o& *our bu%ine%%. Monthb*month operating and ca%h pro-ection% ill %ho ho
ell e ha+e planned, ho *ou can optimi>e the element% o& *our bu%ine%% that
generate ca%h and allo *ou to plan &or ne in+e%tment% and contingencie%.
o Lice&4i&6
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Sell licen%e% to technolog* that i% none%%ential to our compan* or grant limited
licen%ing to e%%ential technolog* that can be %hared. 1hroughout licen%ing e can
generate re+enue &rom up&ront &ee%, acce%% &ee%, ro*altie% or mile%tone
pa*ment%.
o Ve&dor Fi&a&ci&6
Similar to the trade credit related to boot%trap &inancing, +endor% can pla* a big
role in &inancing *our ne bu%ine%%. E%tabli%h +endor relation%hip% through our
trade a%%ociation and %trike deal% to o&&er their product and pa* &or it at a date in
the near &uture. Selling the product in time i% up to u%. $n hope% o& keeping *ou a%
a cu%tomer, +endor% ma* al%o be illing to ork out an arrangement i& e need
to &inance euipment or %upplie%. 3u%t make %ure to look &or %tabilit* hen *ou
re%earch a +endor=% credential% and reputation be&ore *ou %ign an* kind o&
agreement. And keep in mind that man* ma-or %upplier% (IE Small Hu%ine%%
Solution%, $HM Ilobal inancing) on &inancial companie% that can help *ou.
o Se'f Fu&di&6
Search beteen the couch cu%hion% and in old -acket pocket% &or hate+er etra
mone* *ou might ha+e l*ing around and in+e%t it into *our bu%ine%%. 6b+iou%l*
loo%e change ill not be enough &or etra bu%ine%% &unding, but take a look at
*our %a+ing%, in+e%tment port&olio, retirement &und% and emplo*ee bu*out
option% &rom *our pre+iou% emplo*er. You on=t ha+e to deal ith an* creditor%
or intere%t and the return on *our in+e%tment could be much higher.
@oe+er, make %ure that *ou con%ider the ri%k% in+ol+ed ith u%ing *our on
re%ource%. @o competiti+e i% the market that *ou are about to enter intoN @o
long ill it take to pa* *ou backN 8ill *ou be able to pa* *our%el& backN an *ou
a&&ord to lo%e e+er*thing that *ou are in+e%ting i& *our bu%ine%% ere to &ailN $t=%
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important that *our pro-ected return% are more than enough to co+er the ri%k that
*ou ill be taking.
o
S"IR a&d STTR Pro6ram4
oordinated b* the SHA, SH$G (Small Hu%ine%% $nno+ation Ge%earch) and S11G
(Small bu%ine%% 1echnolog* 1ran%&er) program% o&&er competiti+e &ederal &unding
aard% to %timulate technological inno+ation and pro+ide opportunitie% &or %mall
bu%ine%%e%. You can learn more about the%e program% at SH$Gorld.com.
o State Fu&di&6
$& *ou=re not ha+ing an* luck &inding &unding &rom the &ederal go+ernment take a
look at hat *our %tate ha% to o&&er. 1here i% a li%t o& link% to %tate de+elopment
agencie% that o&&er an arra* o& grant% and &inancial a%%i%tance &or %mall
bu%ine%%e%%on%About.com..
o Commu&it7 "a&@4
1he%e %maller bank% ma* ha+e &eer product% than their &inancial in%titution
counterpart% but the* o&&er a great opportunit* to build banking relation%hip% and
are generall* more &leible ith pa*ment plan% and intere%t rate%.
o #icro'oa&4
1he%e t*pe% o& loan% can range &rom hundred% o& dollar% to lo %i&igure
amount%. Although %ome lender% regard microloan% to be a a%te o& time becau%e
the amount i% %o lo, the%e can be a real boon &or a %tartup bu%ine%% or one that
-u%t need% to add %ome etra ca%h &lo.
o Fi&a&ce Debt
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$t ma* be more epen%i+e in the long run than purcha%ing, but &inancing *our
euipment, &acilitie% and recei+able% can &ree up ca%h in the %hort term or reduce
the amount o& mone* that *ou need to rai%e.
o Frie&d4
A%k *our &riend% i& the* ha+e an* etra mone* that the* ould like to in+e%t.
A%%ure them that *ou ill pa* them back ith intere%t or o&&er tho%e %tock
option% or a %hare o& the pro&it% in return.
o Fami'7
Ma*be *ou ha+e a rich uncle or a ealth* cou%in that ould be illing to lend
*ou %ome mone* get *our bu%ine%% running or %end it to the net le+el. Again,
make it orth their hile b* o&&ering intere%t, %tock% or a %hare o& the pro&it%.
o Form a Strate6ic A''ia&ce
Aligning *our bu%ine%% ith a corporation can produce &unding &rom up&ront or
acce%% &ee% to *our %er+ice, mile%tone pa*ment% and ro*altie%. $n addition,
corporate partner% ma* be able to pro+ide re%earch &unding, loan% and euit*
in+e%tment%.
o Se'' Some A44et4
ind an intere%ted part* to bu* %ome o& *our a%%et% (computer%, euipment, real
e%tate, etcO) and then lea%e them back to *ou. 1hi% pro+ide% an in%tant %ource o&
ca%h and *ou ill %till be able to u%e hate+er a%%et% *ou need.
o "u4i&e44 Li&e4 of Credit
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$& *our bu%ine%% ha% po%iti+e ca%h &lo and ha% pro+en that it ill co+er it% debt%
then *ou ma* be eligible &or a bu%ine%% line o& credit. 1hi% t*pe o& &inancing i% a
common %er+ice o&&ered b* mo%t bu%ine%% bank% and %er+e% a% bu%ine%% capital,
up to an agreed upon amount, that *ou can acce%% at an* time.
o Per4o&a' Credit Card4
D%ing per%onal credit card% to &inance a bu%ine%% can be ri%k* but, i& *ou take the
right approach, the* can al%o gi+e *our bu%ine%% a li&t. You %hould onl* con%ider
u%ing thi% t*pe o& &inancing &or acuiring a%%et% and orking capital. 'e+er
con%ider thi% to be a longterm option. 6nce *our compan* break% e+en or mo+e%
into the black, ditch the credit card% and mo+e toard traditional bank &inancing
or lea%e agreement%.
o "u4i&e44 Credit Card4
Hu%ine%% credit card% carr* %imilar ri%k% a% per%onal credit card% but tend to be a
%a&er alternati+e. 8hile the acti+it* on thi% card goe% toard *our credit report, a
bu%ine%% credit card can help *ou to build bu%ine%% credit, keep *our bu%ine%%
epen%e% %eparate &rom *our per%onal epen%e% and can make ta %ea%on ea%ier to
manage.
PLAYERS IN VENTURE CAPITAL INDUSTRY
Study Of Venture Capital In India Page No: 54Small<enture
und
$dea E%tabli%hed thecompan*
$6
Epan%ion
1urnaroundHu%ine%%concept
1rouble%hooting
$n+e%ting $ntechnolog*
HreakE+enpoint
"i6 Ve&ture Fu&d4 H Fi&a&cia' Fu&d4Angleorporatein+e%tor%
Medium+enture&und%
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la*er% in <enture apital $ndu%tr*
1here are &olloing group o& pla*er%
Angel% and angel club%
<enture capital &und%
o
Smallo Medium
o Barge
orporate <enture &und%
inancial %er+ice +enture group%
A&6e'4 a&d a&6e' c'ub4
Angel% are ealth* indi+idual% ho in+e%t directl* into companie%. 1he* can
&orm angel club% to coordinate and bundle their acti+itie%. He%ide the mone*,
angel% o&ten pro+ide their per%onal knoledge, eperience and contact% to
%upport their in+e%tee%. 8ith a+erage deal% %i>e% &rom DS"00, 000 to DS
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500,000 the* &inance companie% in their earl* %tage%. Eample% &or angel club%
are !Media lub, inner lub, and Angel=% &orum
Sma'' a&d U54tart Ca5ita' Fu&d4
1he%e are %maller <enture apital ompanie% that mo%tl* pro+ide %eed and
%tartup capital. 1he %o called Houtiue &irm%/ are o&ten %peciali>ed in certain
indu%trie% or market %egment%. 1heir capitali>ation i% about DS 20 to DS 50
million (i% thi% deal% %i>e or total mone* under management or mone* under
management per &undN). A% &or %mall and medium <enture capital &und% %trong
competition ill clear the market place. 1here ill be merger% and acui%ition%
leading to a concentration o& capital. und% %peciali>ed in di&&erent bu%ine%% area%
ill &orm %trategic partner%hip%. 6nl* the more %ucce%%&ul &und% ill be able to
attract ne mone*. Eample% are
o Artemi% oma&ord
o
Abbell <enture undo Acacia <enture artner%
#edium Ve&ture Fu&d4
1he medium +enture &und% &inance all %tage% a&ter %eed and operate in all
bu%ine%% %egment%. 1he* pro+ide mone* &or deal% up to DS 250 million. Single
&und% ha+e up to DS 5 billion under management. An eample i% Accel artner%
Lar6e Ve&ture Fu&d4
A% the medium &und%, large &und% operate in all bu%ine%% %ector% and pro+ide all
t*pe% o& capital &or companie% a&ter %eed %tage. 1he* o&ten operate internationall*
and &inance deal% up to DS 500 million the large &und% ill tr* to impro+e their
po%ition b* merger% and acui%ition% ith other &und% to impro+e %i>e, reputation
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and their &inancial mu%cle. $n addition the* ill to di+er%i&*. o%%ible area% to
enter are other &inancial %er+ice% b* mean% o& M9A% ith &inancial %er+ice%
corporation% and the con%ulting bu%ine%%. or the latter one the &und% ha+e a rich
re%ource o& eperti%e and contact% in hou%e. $n a declining market &or their core
acti+it* and ith lot% o& tumbling companie% out there i% no rea%on h* <enture
apital &und% %hould o&&er ad+ice and con%ulting onl* to their in+e%tee%.
Eample% are
o A$I American $nternational Iroup
o ap <e%t man
o #i
Cor5orate Ve&ture Fu&d4
1he%e <enture apital &und% are %et up and oned b* technolog* companie%.
1heir aim i% to iden the parent compan*=% technolog* ba%e in an inin
%ituation &or both, the in+e%tor and the in+e%tee. $n general, corporate &und% in+e%t
in groing or maturing companie%, o&ten hen the in+e%tee i%he% to make
additional in+e%tment% in technolog* or product de+elopment. 1he a+erage deal%
%i>e i% beteen DS 2 million and DS 5 million. 1he large &und% ill tr* to
impro+e their po%ition b* merger% and acui%ition% ith other &und% to impro+e
%i>e, reputation and their &inancial mu%cle. $n addition the* ill to di+er%i&*.
o%%ible area% to enter are other &inancial %er+ice% b* mean% o& M9A% ith
&inancial %er+ice% corporation% and the con%ulting bu%ine%%. or the latter one the
&und% ha+e a rich re%ource o& eperti%e and content% in hou%e. $n a declining
market &or their core acti+it* and ith lot% o& tumbling companie% out there i% no
rea%on h* <enture apital &und% %hould o&&er ad+ice and con%ulting onl* to their
in+e%tee%. Eample% are
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o 6racle
o Adobe
o ell
o F*ocera
A% an eample, Adobe %*%tem% launched a 40m +enture &und in "4 to in+e%t
in companie% %trategic to it% core bu%ine%%, %uch a% a%cade S*%tem% $nc and
lantana re%earch orporationha% been %ucce%%&ull* boo%ting demand &or it% core
product%, %o that Adobe recentl* launched a %econd 40m &und.
Fi&a&cia' Fu&d4(
A %olution &or &inancial &und% could be a %hi&t to a higher %ecuri%ation o& <enture
apital acti+itie%. 1hat mean% that the parent companie% %hi&t the ri%k to their
cu%tomer% b* creating ne product% %uch a% %take% in a <enture apital &und.
@oe+er, the %ucce%% o& %uch product% ill depend on the o+erall climate and
epectation% in the econom*. A% long a% the %on turn continue% ithout an* %ign
o& reco+er* cu%tomer% might pre&er le%% ri%k* alternati+e%.
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0LO"AL SCENARIO
OF VENTURE
CAPITAL INDUSTRY
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OVERVIE;
1he global economic donturn ha% man* +enture capitali%t% altering %trategie%,
including reducing in+e%tment le+el% in the %hort term, according to the 200
Ilobal <enture apital Sur+e* b* eloitte 1ouche 1ohmat%u and the 'ational
<enture apital A%%ociation. i&t*one percent o& the %ur+e* re%pondent% are
decrea%ing the number o& companie% in hich the* plan to in+e%t and -u%t "#
percent are increa%ing thi% acti+it*.
1he 200 Ilobal <enture apital %ur+e*, hich mea%ured the opinion% o& more
than 750 +enture capitali%t% orldide, al%o %hine% headlight% into the po%t
rece%%ion land%cape. 1he cleantech %ector i% poi%ed to become the leading
in+e%tment categor* and the globali>ation o& the +enture capital indu%tr* ill
inten%i&* the latter po%ing %igni&icant competiti+e ue%tion% &or the Dnited State%
and opportunitie% &or emerging market% %uch a% hina.
8hile the rece%%ion ha% %loed the pace o& +enture in+e%ting in the %hort term, it
ma* +er* ell ha+e epedited the global e+olution o& the indu%tr* in the long
run,/ %aid Mark 3en%en, national managing partner o& eloitte BB=% <enture
apital Ser+ice%. $n recent *ear%, man* entrepreneur% ho ha+e been educated
in the Dnited State% ha+e returned home to %tart companie% in their home
countrie%. 1he pla*ing &ield continue% to le+el out in term% o& ne inno+ation hot
%pot%, broader acce%% to capital and groing regional eco%*%tem% that &o%ter ri%k taking and capital &ormation./
$ISTORY < EVOLUTION
rior to 8orld 8ar 1o, the %ource o& capital &or entrepreneur% e+er*here a%
either the go+ernment, go+ernment%pon%ored in%titution% meant to in+e%t in %uch
+enture%, or in&ormal in+e%tor% (toda*, termed angel%=) that u%uall* had %ome
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prior relation%hip to the entrepreneur. $n general, throughout hi%tor* pri+ate
bank%, uite rea%onabl*, ha+e been unilling to lend mone* to a nel*
e%tabli%hed &irm becau%e o& the high ri%k and lack o& collateral. A&ter 8orld 8ar
to, in the D.S. a %et o& intermediarie% emerged ho %peciali>ed in in+e%ting in
&ledgling &irm% ha+ing the potential &or etremel* rapid groth.
orm it% earlie%t beginning% on the D.S. Ea%t oa%t, +enture capital graduall*
epanded and became an increa%ingl* pro&e%%ionali>ed in%titution. uring thi%
period, the locu% o& the +enture capital indu%tr* %hi&ted &rom 'e York and
Ho%ton on the ea%t oa%t to Silicon <alle* on the e%t coa%t. H* the mid "C0%,
the idealt*pical +enture capital &irm a% ba%ed in Silicon <alle* and in+e%ted
largel* in electronic% ith le%%er %um% de+oted to biomedical technologie%. Dntil
the pre%ent, in addition to Silicon <alle*, the to other ma-or concentration% ha+e
been Ho%ton and 'e York it*.
$n both Europe and A%ia, there are %igni&icant concentration% o& +enture capital in
Bondon, $%rael, @ong Fong, 1aian, and 1ok*o. $n the D.S., the go+ernment ha%
pla*ed a role in the de+elopment o& +enture capital, though, &or the mo%t part, it
a% indirect. 1he indirect role, i.e., the general policie% that al%o bene&ited the
de+elopment o& the +enture capital indu%tr*, a% probabl* the mo%t %igni&icant.
Some o& the mo%t important o& the%e ere?
1he D.S. go+ernment generall* practiced %ound monetar* and &i%cal
policie% en%uring relati+el* lo in&lation ith a %table &inancial
en+ironment and currenc*.
D.S. ta polic*, though it e+ol+ed, ha% been &a+orable to capital gain%,
and a number o& decrea%e% in capital gain% tae% ma* ha+e had %ome
po%iti+e e&&ect on the a+ailabilit* o& +enture capital.
8ith the eception o& a %hort period in the "70%, D.S. pen%ion &und%
ha+e been alloed to in+e%t prudent amount% in +enture capital &und%.
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1he 'ASAK %tock market, hich ha% been the eit %trateg* o& choice
&or +enture capitali%t%, a% %trictl* regulated and characteri>ed b*
increa%ing openne%% thu% limiting in+e%tor=% &ear% o& &raud and
deception.
1hi% created a general macroeconomic en+ironment o& tran%parenc* and
predictabilit*, reducing ri%k &or in+e%tor%. ut di&&erentl*, en+ironmental ri%k%
%temming &rom go+ernment action ere minimi>ed a %hop contra%t to mo%t
de+eloping nation%.
Another important polic* ha% been a illingne%% to in+e%t hea+il* and
continuou%l* in uni+er%it* re%earch. 1hi% in+e%tment &unded generation% o&
graduate %tudent% in the %cience% and engineering. rom thi% re%earch ha% come
trained per%onal and inno+ation%? D.S. uni+er%itie% particularl*, M$1, Stan&ord,
and D Herkele* pla*ed a particular %alient role.
1he mo%t important direct D.S. go+ernment in+ol+ement in encouraging the
groth o& +enture capital a% the pa%%age o& the %mall Hu%ine%% $n+e%tment Act
o& "5C authori>ing the &ormation o& Small Hu%ine%% $n+e%tment orporation%
(SH$%). 1hi% legi%lation created a +ehicle &or &unding %mall &irm% o& all t*pe%.
1he legi%lation a% complicated, but &or the de+elopment o& +enture capital the
&olloing &eature% ere mo%t %igni&icant
$t permitted indi+idual% to &rom SH$% ith pri+ate &und% a% paidin
capital and then the* could borro mone* on a 2" ratio initiall* up to
#00,000, i.e., the* could u%e up to #00,000 o& SHAguaranteed mone*
&or their in+e%tment o& "50,000 in pri+ate capital.
1here ere al%o ta and other bene&it%, %uch a% income and a capital gain%
pa%% through and the alloance o& a carried intere%t a% compen%ation.
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1he SH$ program become% one that man* other nation% either learned &rom or
emulated. 1he SH$ program al%o pro+ided a +ehicle &or bank% to circum+ent the
epre%%ionera la% prohibiting commercial alloed them to acuire euit* in
%mall &irm%. 1hi% made e+en more capital a+ailable to &ledgling &irm%, and a% a
%igni&icant %ource o& capital in the ":0% and "70%. 1he &inal in+e%tment &ormat
permitted SH$% to rai%e mone* in the public market. or the mo%t part, the%e
public SH$% &ailed and;or ere liuidate b* the mid "70%. A&ter the mid "70%,
ith the eception o& the bank SH$%, the SH$ program a% no longer
%igni&icant &or the +enture capital indu%tr*.
1he SH$ program eperienced %eriou% problem% &rom it% inception. 6ne
problem a% that a% a go+ernment agenc* it a% +er* bureaucratic ha+ing man*
rule% and regulation% that ere con%tantl* changing. e%pite the corruption,
%omething +aluable al%o occurred. 'amel*, and e%peciall*, in Silicon <alle*, a
number o& indi+idual% u%ed their SH$% to le+erage their per%onal capital, and
%ome ere %o %ucce%%&ul that ere able to reimbur%e the program and rai%e
in%titutional mone* to become &ormal +enture capitali%t%. 1he SH$ program
accelerated their capital accumulation, and a% important, go+ernment regulation%
made the%e ne +enture capitali%t% pro&e%%ionali>e their in+e%tment acti+it*,
hich had been in&ormal prior to entering the program. 'oillu%triou% &irm%
%uch a% Sutter hill +enture%, $n%titutional <enture artner%, Hank o& America
<enture%, and Menlo <enture% began a% SH$%.
1he hi%torical record al%o indicate% that go+ernment action can harm +enture
capital. 1he mo%t %alient eample came in "7# hen the D.S. ongre%%, in
re%pon%e to ide%pread corruption in pen%ion &und%, changed ederal pen%ion
&und regulation%. $n their ha%te to prohibit pen%ion &und abu%e%, ongre%% pa%%ed
the emplo*ment Getirement $ncome Securit* Act (EG$SA) making pen%ion &und
manager% criminall* liable &or lo%%e% incurred in @ighri%k in+e%tment%. 1hi% a%
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interpreted to include +enture capital &und%? a% a re%ult pen%ion manager% %hunned
+enture capital nearl* de%tro*ing the entire indu%tr*.
1hi% a% onl* re+er%ed a&ter acti+e lobb*ing b* nel* created 'ational <entureapital A%%ociation ('<A). $n "77, it %ucceeded in %tarting a gradual
loo%ening proce%% that a% completed in "C2. 1he ne interpretation o& the%e
pen%ion &und guideline% contributed to &ir%t a trickle then a &lood o& ne mone*
into +enture capital &und%. 1he mo%t %ucce%%&ul ca%e o& the eport o& Silicon
<alle* %t*le +enture capital practice i% $%rael here the go+ernment pla*ed an
impotent role in encouraging the groth o& +enture capital.
1he go+ernment ha% a relati+el* good economic record? there i% a minimum o&
corruption, ma%%i+e in+e%tment in militar*, particularl* electronic% re%earch and
the ecellent higher educational %*%tem. 1he importance o& the relation%hip%
beteen $%raeli% and 3ei%h indi+idual% in D.S. hightechnolog* indu%tr* and the
creation o& the $%raeli +enture capital %*%tem %hould not be undere%timated.
or eample, the ellknon D.S. +enture capitali%t, red Adler, began in+e%ting
in $%raeli %tartup% in the earl* "70%, a% in+ol+ed in &orming the &ir%t $%raeli
+enture capital &und. Still the creation o& $%raeli +enture capital indu%tr* ould
ait until the "0%, hen the go+ernment &unded an organi>ation Yo>ma, to
encourage +enture capital in $%rael.
Yo>ma recei+ed "00 million &rom the $%raeli go+ernment. $ in+e%ted C million
in ten &und% that ere reuired to rai%e another "2 million each &rom a
%igni&icant &oreign partner/, pre%umabl* an o+er%ea% +enture capital &irm. Yo>ma
al%o retained 20 million to in+e%t it%el&. 1he%e %ibling/ &und% ere the
backbone o& a no +ibrant communit* that in+e%t% in ece%% o& " billion in
$%rael in " (riceaterhou%e 2000). $n the D.S., +enture capital emerged
through an organic trialanderror proce%%, and the role o& the go+ernment a%
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limited and contradictor*. $n $%rael the go+ernment pla*ed a +ital role in a
%upporti+e en+ironment in hich pri+ate%ector +enture capital had alread*
emerged.
1he role o& go+ernment di&&er%. $n the D.S. the mo%t important role o& the
go+ernment in a% indirect, in $%rael it a% largel* po%iti+e in a%%i%ting the
groth o& +enture capital, in $ndia the role o& the go+ernment ha% had to be
proacti+e in remo+ing barrier% (o%%ani and Fenne* 200").
$n e+er* nation, the %tate ha% pla*ed %ome role in the de+elopment o& +enture
capital. <enture capital i% a +er* %en%iti+e in%titutional &rom due to the highri%k
nature o& it% in+e%tment%, %o the %tate mu%t be care&ul to en%ure it% policie% do not
ad+er%el* a&&ect it% +enture capitali%t%. ut di&&erentl*, capriciou% go+ernmental
action in-ect% etra ri%k into the in+e%tment euation. @oe+er, -udiciou%, ell
planned go+ernment policie% to create incenti+e% &or pri+ate %ector in+ol+ement
ha+e in the appropriate lead to the e%tabli%hment o& hat become% an independent
%el&%u%taining +enture capital indu%tr*.
CURRENT INDUSTRY TRENDS
Rou&d C'a44 Di4tributio&
1he di%tribution o& &inancing round% b* round cla%% in mature market% i% t*picall*
#040L in the earl* %tage round%, 2025L in %econd round, and #540L in later
round%. $n emerging market like hina, the round di%tribution i% +er* di&&erent a%
:CL in earl* %tage and 25L in %econd round. $n mature countrie%, the
in+e%tment% are made at earl* %tart up or product de+elopment pha%e.
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I&du4tr7 S8ift4
$t i% perhap% no %urpri%e that contraction i% mo%tl* concentrated in in&ormation
technolog* and the bu%ine%%, con%umer and retail indu%trie%, gi+e the hugenumber o& companie% &inanced in the technolog* and $nternet boom o& "
2000, and the %ub%euent don turn. 1he healthcare pool, dri+en b* in+e%tment
in biopharmaceutical% and medical de+ice%, ha% actuall* gron to %ome degree in
the di&&erent geographie%. $n Dnited State%, the healthcare pool ha% gron
con%i%tentl* o+er the la%t %e+eral *ear%, both in term% o& number o& companie%
and cumulati+e dollar% in+e%ted.
Fe* ob%er+ation% on the pool o& pri+ate companie% b* indu%tr*
o 1he in&ormation and technolog* pool ha% declined b* -u%t :L %ince 2002?
particularl* due to increa%ing $ntere%t in 8EH 2.0 inno+ation%.
o Since 200#, the cumulati+e in+e%tment ha% declined in %imilar amount%.
o 1he bu%ine%%, con%umer and retail categor* ha% &aced the %teepe%t decline%
acro%% the board. $n DS the number had &allen 54L %ince 2002 and 54L in
Europe %ince 200#. $n $%rael? it dropped :7L %ince 2004.
o 1he number o& healthcare companie% ha% gron in D.S. %ince 2002 b*
27L and the capital ri%en #0L in la%t &i+e *ear%. apital in+e%tment to the
pool o& healthcare o& companie% dropped b* 5 in Europe %ince 200# and
L in $%rael %ince 2004.
o lean technolog* i% a %mall but increa%ing element o& the pool. 1here ere
2:2 clean technolog* companie% ith a cumulati+e in+e%ted +enture
capital o& D.S. #C billion in 2007.
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#e6a Tre&d4
Se+eral global mega trend% ill likel* ha+e an impact on +enture capital in the
net decade
o He*ond the HG$% A ne a+e o& &a%t groing economie% i% -oining
the global groth leader% like Hra>il, hina, $ndia And Gu%%ia. 1he
beginning o& +enture capital acti+it* ha% been %een in other% countrie%
%uch a% $ndone%ia, Forea, 1urke* and <ietnam.
o 1he ne multinational% A ne breed o& global compan* i% emerging
&rom de+eloping countrie% and rede&ining indu%trie% through loco%t
ad+antage, modern in&ra%tructure, and +a%t cu%tomer databa%e% in their
home countrie%. 1he%e companie% are potential acuirer% o& de+eloped
market companie% at all %tage% o& groth.
o Ilobali>ation o& capital hange% in economic and &inancial land%cape
are creating %igni&icant regional %hi&t% in $6 acti+it*. 1he%e change%
ha+e al%o %parked global con%olidation alliance% among %tock
echange%.
o 1ran%&ormation o& the 6=% role and &unction 8ith the globali>ation
and increa%ingl* comple regulator* en+ironment, 6% ha+e a ider
range o& re%pon%ibilitie% and &inance &unction ha% been tran%&ormed to
&ace broader mandate%.
o lean 1echnolog* lean technolog* i% poi%ed to become the &ir%t
break through %ector o& 2"%t centur*. Encompa%%ing energ*, air and
ater treatment, indu%trial e&&icienc* impro+ement%, ne material and
a%te management etc. are pla*ing +er* +ital role globall* becau%e o&
hich < in+e%tor% are en-o*ing reard%.
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0RO;T$ OF VENTURE CAPITAL IN 0LO"AL
Iroth o& +enture capital in global
lean technolog* +enture in+e%tment% in 'orth America, Europe, hina and
$ndia totaled DS5.: billion in 557 deal%. @oe+er, a% the%e &igure% are
preliminar*, the &irm% epect the &inal &igure% could be up b* a% much a% "0L.
PDtilitie% continue to bring their capital and acce%% to credit to the cleantech
%ector and are pla*ing a ke* role in getting more pro-ect% o&& the ground. $n 200
e %a a %urge in utilit* oer urcha%e Agreement (A) announcement% ith
Solar 1hermal and Solar < accounting &or C0L o& the total A%, hile 8ind
%a increa%ed capacit* announcement% in the %econd hal& o& the *ear aided b* the
eten%ion o& the production ta credit,P %aid Scott Smith, D.S. lean 1ech leader
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&or eloitte. PAdditional pro-ect &inancing came &rom large corporation% ho%e
direct in+e%tment% in cleantech increa%ed b* "4L in the %econd hal& o& 200
compared to the %ame period in 200C. Beading global utilitie% and nonutilitie%
are likel* to continue to %ee cleantech pro-ect% a% an attracti+e in+e%tment &rom an
economical and regulator* per%pecti+e.P
<enture in+e%tment a% don ##L in 200, compared to DSC.5 billion in 200C,
*et in+e%tment in cleantech declined le%% than other %ector%, de%pite the economic
rece%%ion.
1he large%t deal in all %ector% a% Sol*ndra=% DS"C million to epand it% $IS
thin &ilm production. 1he compan* ha% %ince &iled &or an $6.
/,,B 0LO"AL VENTURE CAPITAL INDUSTRY
SURVEY
1he 200 Ilobal <enture apital Sur+e* a% %pon%ored b* the Ilobal eloitte1elecom, Media 9 1echnolog* (11 1M1) indu%tr* group, in con-unction ith
the &olloing +enture capital a%%ociation% throughout the orld
• Hra>ilian A%%ociation o& ri+ate Euit* 9 <enture apital (AH<A)
• Hriti%h ri+ate Euit* 9 <enture apital A%%ociation (H<A)
• anada=% <enture apital 9 ri+ate Euit* A%%ociation (<A)
• European ri+ate Euit* 9 <enture apital A%%ociation (E<A)
• Emerging Market% ri+ate Euit* A%%ociation (EMEA)
• $ndian <enture apital A%%ociation ($<A)
• $%rael <enture A%%ociation ($<A)
• Batin American <enture apital A%%ociation (BA<A)
• Mala*%ian <enture apital and ri+ate Euit* A%%ociation (M<A)
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• 'ational <enture apital A%%ociation ('<A)
• Singapore <enture apital 9 ri+ate Euit* A%%ociation (S<A)
• 1aian ri+ate Euit* 9 <enture apital A%%ociation (1<A)
• Qero2$6
1he %ur+e* conducted ith +enture capitali%t% (<%) in the America%, A%ia
paci&ic (A), Europe and $%rael. 1here ere 725 re%pon%e% &rom general partner%
o& +enture capital &irm ith a%%et% under management ranging &rom le%% than
"00 million to greater than " billion.
Multiple re%pon%e% &rom the %ame &irm ere alloed, a% the %ur+e* a% a general
mea%urement o& the %tate o& global in+e%ting &rom all general partner%, not
attitude% o& %peci&ic &irm. $& re%pondent% did not an%er a ue%tion, the count &or
the ue%tion a% ad-u%ted accordingl*.
1he highe%t number o& re%pondent%R#5 percentRclaimed a%%et% under
management totaling beteen "00 million and 4 million. Another #4 percent
had managed a%%et% that ere le%% than "00 million, "7 percent had managed
a%%et% greater than " billion, and "4 percent had beteen 500 million and "
billion in a%%et% under management.
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Ieographicall*, the breakdon o& re%pon%e% continue% to be &airl* repre%entati+e o&
both the %i>e and location o& &irm% in the +enture capital indu%tr* around the orld.
ort*&our percent o& the re%pondent% ere &rom the Dnited State%, 2" percent &rom
European countrie% (ecluding the DF), ": percent &rom A%ia aci&ic countrie%, "0
percent &rom the America% (ecluding the D.S.), 7 percent &rom the DF, and 2 percent&rom $%rael.
Study Of Venture Capital In India Page No: 7"
Locatio& of re45o&de&t4
A%%et% under Management
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Se+ent*to percent o& the re%pondent% had a primar* in+e%tment &ocu% on +enture
capital hile 2C percent ere primaril* &ocu%ed on pri+ate euit* and +enture capital.
And, thi% *ear, 52 percent o& +enture capitali%t% noted that the* are in+e%ting out%ide o&
their home countr*.
Ii+en the %e+erit* o& the current global rece%%ion, thi% *ear% %ur+e* &ocu%ed on i%%ue%
%urrounding it% impact on +enture capitali%t%. 1he %ur+e* ue%tion% a%ked ho the
global rece%%ion i% a&&ecting %trateg*? ho &uture in+e%tment% are being planned, both
b* %ector and region? hat the anticipated %i>e o& the net &und ill be and ho <%
think their limited partner% ill be. 8e al%o anted to kno hat countrie% the*
belie+e ha+e the mo%t to gain and lo%e in thi% ne econom*, a% ell a% hat the* &eel
the role o& go+ernment %hould be in &o%tering inno+ation.
1hi% *ear% report look% broadl* at the re%ult% in a global contet, but an appendi i%
included that break% out %ur+e* re%pon%e% b* geographic region%Rthe D.S., the
America% (ecluding the D.S.) Europe (ecluding the DF), DF, A and $%rael. $& *ou
are intere%ted in re%pon%e% o& in+e%tor% in a %peci&ic region, e encourage *ou to check
the appendi &or tho%e chart%.
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CURRENT STRATE0IES FOR NE; 0LO"AL
ECONO#IC
P1he per&ect %tormP ha% become the clichT o& choice to %um up the global economic
rece%%ion o& 200C200. ertainl*, toda*% economic en+ironment i% dramaticall*
di&&erent than the +enture capitali%t% ere operating in &i+e *ear% ago hen the &ir%t
Ilobal <enture apital Sur+e* a% launched. i+e *ear% ago, the +enture capital
communit* a% reco+ering &rom the tech bubble bur%ting and a% -u%t beginning to
%ee %igni&icant mo+e toard% the globali>ation o& the +enture capital indu%tr*.
1oda*, the econom* i% in a &ar di&&erent place. Hut, there are %till %ign% o& optimi%m.
<% are more attuned to the global econom* and ere %eeing the maturation o& %ome
%ector%R%peci&icall* %emiconductor% and telecomRhile other %ector%Rclean
technologie% and li&e %cience%Rare emerging a% area% ith great groth potential.
8ith thi% %hake up in the econom*, e are %eeing +enture capitali%t% make ad-u%tment%
to their in+e%tment %trateg* in order to eather thi% %torm and e%tabli%h the &oundation
to thri+e in the &uture.
P$t% been a di&&icult rece%%ion, but the indu%tr* i% coping and making ad-u%tment%,P %aid
Mark 3en%en, D.S. national managing partner o& eloitte and 1ouche BB% <enture
apital Ser+ice%. P1he*re mo+ing &orard and not %itting on their hand% aiting &or
%omething to happen.P
$n general, <% are decrea%ing their o+erall in+e%ting dollar%, &ocu%ing on their be%t
companie% and increa%ing their alloca tion to later%tage in+e%tment%. P8e ha+e not
altered our &undamental %trategic &ocu% on earl*%tage health care in+e%ting in re%pon%e
to the rece%%ion,P eplained Fe+in Balande, managing director o& Sante <enture%. P1hat
%aid, ne market realitie% and lingering uncertaint* ha+e &actored prominentl* in our
deci%ion% about hich %peci&ic opportunitie% to pur%ue o& tho%e con%i%tent ith our
%trateg*. $n the current en+ironment, e are opting &or &eer, more capital e&&icient
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deal% in hich the ei%ting +enture %*ndicate ha% enough re%er+e capacit* to &und a
compan*, i& nece%%ar*, all the a* to ca%h &lo independence.P
Adju4ti&6 to a Ne? Rea'it7
$n %hort, the touri%t% ha+e le&t, eplained Mark @ee%en, pre%ident o& the '<A. PYoung
entrepreneur% ho thought the* could get rich uickl* ith -u%t a good idea are no
gone and tho%e no le&t %tanding recogni>e the challenge% and tenacit* needed to
e%tabli%h and build a %u%tainable bu%ine%%,P he %aid. P1ho%e out on the du%ting% tr*ing to
get &unded are much more a%tute about the globali>ation o& the econom* and
orldide competition. 1he* under%tand that the +alue o& their compan* toda* i% not
hat it ill be %i month% &rom no and that i& the* ant to be &unded, it ill likel*
be at a loer +aluation than in the pa%t.P
Boer +aluation% could pre%ent opportunitie% &or <% looking &or a good deal. Hut are
the* %pendingN $n &act, e %ee the larger &irm% e*ing a bigger %lodon than the
%maller &irm%. 3u%t more than hal& o& re%pondent% &rom &irm% managing 500 million or
more are decrea%ing their le+el o& in+e%tment, compared to about one in three o& tho%e
managing million or le%%.
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$mpact o& the global rece%%ion on in+e%tment %trategie%le+el o& in+e%tment interm% o& capital (b* a%%et under management)
@oe+er, the +a%t ma-orit* o& &irm% are maintaining the %ame %trateg* hen it come% to
indu%tr* %ector. At lea%t %e+en out o& "0 <%Rand the percentage increa%e% ith the
%i>e o& the &irmRplan to maintain the %ame %trateg* in term% o& indu%tr* %ector.
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$mpact o& the global rece%%ion on in+e%tment %trategie%indu%tr* %ector (b* a%%et%
under management)
P6ur &irm i% intere%ted primaril* in potentiall* great companie% that alread* ha+e %ome
re+enue traction,P %aid atrick Sheehan, a partner ith En+ironmental 1echnologie%
und. P8ere tr*ing to &ind %ituation% here e under%tand cu%tomer need, and it% ea%ier
to do hen there are ei%ting cu%tomer%. 6ur in+e%ting %t*le ha%nt changed ith the
rece%%ion? it% become more appropriate.P
8hat <% are ree+aluating i% the %tage in hich the*re in+e%ting. <er* &e are
%hi&ting to earl*%tage in+e%ting. $n%tead, about hal& are maintaining their current
%trateg* and a %igni&icant percentage are %hi&ting their &ocu% to later%tage and ei%ting
port&olio companie%. 'o doubt thi% i% due to both the %train on the capital market% and
the &act that it% no taking longer &or companie% to be acuired and rare &or them to go
public. $n+e%ting in later%tage companie% %horten% the <% ge%tation period and allo%
them to eit %ooner.
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P$n thi% en+ironment, it pa*% to be either a +er* earl*%tage in+e%tor or a +er* late%tage
in+e%tor,P %aid Ste+e redrick, general partner o& Irotech <enture%. P1he cla%%ic Serie% H
round, here a bu%ine%% i% %till &inding it% leg% and remaining capital reuirement% are at
be%t an e%timate, carrie% more ri%k gi+en higher burn rate% and the climate% uncertaint*
around &uture &inancing%. So, ere %eeing reduced in+e%tment le+el% a% &irm% either
in+e%t %maller %um% in +er* earl*%tage companie%, or in+e%t traditional %um% in &eer
and much later%tage companie%. 1he middle ground ha% been largel* +acated.P
$mpact o& the global rece%%ion on in+e%tment %trategie%%tage (b* a%%et% under
management)
i+e *ear% ago, hen the &ir%t Ilobal <enture apital Sur+e* a% conducted, the re%ult%
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indicated %ome intere%t in clean technologie% and the li&e %cience%. 1hi% *ear, regardle%%
o& &und %i>e, e %ee tremendou% intere%t &rom <% in both o& the%e %ector%, e%peciall*
clean technologie%, here more than %i out o& "0 re%pondent% anticipate their
in+e%tment le+el% to increa%e and another three out o& "0 ill hold their in+e%tment% at
the %ame le+el.
$n term% o& total capital in+e%ted, anticipated le+el o& in+e%tment change in %elect %ector%, o+er the net three *ear%
Among D.S., DF and $%raeli in+e%tor%, about hal& epect to increa%e their in+e%tment%
in cleantech, hile about %e+en out o& "0 A re%pondent% and European re%pondent%
epect their cleantech in+e%tment% to increa%e. 1othird% o& re%pond dent% &rom the
America% plan to increa%e their cleantech in+e%tment%. 1hi% intere%t could be becau%e
ere %eeing an increa%e in go+ernment;political %upport &or cleantech and <% arelooking more to go+ernment participation in both in+e%tment% and incenti+e%.
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$n term o& total capital $n+e%tment, anticipated le+el o& in+e%tment in cleantechnologie%, o+er the net three *ear (b* location)
PIo+ernment% around the orld are +er* %upporti+e o& creating a cleantech indu%tr*
ith ta credit% and incenti+e%,P %aid @ee%en. P$n the D.S., it% no %een a% an energ*
independence i%%ue, a %ecurit* i%%ue and a -ob% i%%ue. And the public i% more %upporti+e
o& cleantech acti+itie% a% more people are cogni>ant o& the threat o& global arming.P
Hut hile thi% &inding i% %igni&icant, it% al%o important to note that ith a couple o&
eception% here the %ector% ha+e %igni&icantl* maturedR%emiconductor% and
telecommunication%R<% epect their le+el o& in+e%tment in other indu%trie% to
remain the %ame or increa%e.
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Ea4ter& E5o4ure
Another trend that ha%nt changed in the la%t &i+e *ear% i% +enture capitali%t% intere%t in
hina and $ndia. Gegardle%% o& the %i>e o& the &irm, in+e%tor% are intrigued b* thein+e%tment po%%ibilitie% o& the%e to countrie%.
P8e are luck* to be %itting at the hub o& hat e belie+e ill be the mo%t eciting
+enture market in the coming *ear% hina,P %aid Ia+in 'i, &ounder, pre%ident and E6
o& Qero2$6. P$& *ou take a look at the %hortterm, *ou %ee hina ill be the &ir%t to
emerge out o& the orldide donturn. hina i% pro-ecting 7 percentplu% I
groth in 200Rthe highe%t in the orld. 1hen, looking be*ond, *ou %ee a %elling
middle cla%%Rbut %till a minorit* o& the populationRith mone* in their pocket% to
%pend. 1hat doe% not e+en %cratch the %ur&ace o& the e+entual bu*ing poer o& the
large%t population in the orldR".# billion potential con%umer%.P
@al& o& all re%pondent% epect their in+e%tment le+el% to increa%e in A%ia (ecluding
$ndia), hile 4# percent epect to increa%e their in+e%tment% in $ndia o+er the net
three *ear%. $n 2007, 4" percent o& re%pondent% indicated an intere%t in epanding their
in+e%tment &ocu% in A%ia aci&ic. About onethird epect to increa%e their in+e%tment
le+el% in South America. 6nl* "7 percent epect to increa%e their in+e%tment% in 'orth
America, the %ame a% 2007.
ompared to 'orth America, the number% ere onl* %lightl* better &or Europe and the
DF (25 percent) and $%rael (" percent). More than hal& o& the re%pondent% do intend to
maintain their in+e%tment le+el% in Europe, hile 2" percent epect tho%e le+el% to
decrea%e. 1hi% in+e%tment %trateg* i% a change &rom 2007, hen onethird o&
re%pondent% indicated that the* ere intere%ted in epanding their in+e%tment &ocu% in
Europe.
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$n term% o& total capital in+e%ted, anticipated le+el o& in+e%tment change in %electregion%, o+er the net three *ear
8hen it come% to intere%t in A%ia and $ndia, DF re%pondent% are the mo%t enthu%ia%tic,
planning either to increa%e in+e%tment le+el% (:7 percent and 5C percent, re%pecti+el*)
or keep them at the %ame le+el% (## percent and 42 percent, re%pecti+el*). Hut, about
nine out o& "0 D.S. <% are al%o increa%ing or maintaining their in+e%tment% in A%ia
and $ndia and about the %ame number o& re%pondent% &rom A%ia aci&ic ha+e %imilar
plan%.
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$n term% o& total capital in+e%ted anticipated le+el o& in+e%tment change in A%iaaci&ic (ecl. $ndia). 6+er the net three *ear% (b* location)
$n term% o& total capital in+e%ted, anticipated le+el o& in+e%tment change in $ndia,o+er the net three *ear (b* location)
$n other ord%, noted 3en%en, Pirm% are no looking at the hole orld in term% o&
their in+e%ting prioritie%. 1he orld ha% gone global in +enture capital and the &irm% are
adapting their %trategie% accordingl*.P
a+id hao, co&ounder and general partner o& M, agree%. P1he line% beteen
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hether a compan* i% American, A%ian or European are blurring becau%e b* nece%%it*
man* %tartup% toda* ha+e multiple o&&ice%. Entrepreneur% can %tart companie%
an*here the* ant in the orld and pick location% here condition% are &a+orable
and talent pool% are a+ailable at rea%onable price%.P
1hat per%pecti+e i% rein&orced hen *ou %ee that in+e%tment intere%t in 'orth America
%eem% to be decrea%ing. 6nl* 2 percent o& <% in the America% (ecluding the D.S.)
plan to increa%e their in+e%tment% in 'orth American countrie% hile #7 percent epect
them to remain the %ame. 1ent*to percent o& $%raeli in+e%tor% plan to increa%e their
'orth American in+e%tment% hile ## percent epect in+e%tment le+el% to remain the
%ame. European in+e%tor% (ecluding the DF) are looking at a ": percent increa%e and
hal& epect their in+e%tment% to remain the %ame. 6nl* "5 percent o& A%ia aci&ic <%
epect to increa%e their in+e%tment in 'orth American countrie% hile 40 percent
epect it to remain the %ame. $n the DF, a mere "4 percent plan on increa%ing their
in+e%tment% but 4C percent plan on keeping their le+el% the %ame. E+en among D.S.
<%, onl* ": percent plan to increa%e their 'orth American in+e%ting le+el% hile 7"
percent epect their in+e%tment le+el% to %ta* a% the* are.
$n term o& total capital $n+e%ted, anticipated le+el o& in+e%tment change in 'orth
America, o+er the three *ear (b* location)
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8h* i% there %o much intere%t in hina and $ndiaN hina and $ndia are emerging
market% compared to 'orth America, and the D.S. %peci&icall*, ith great groth
potential. Al%o, the %trained eit market% in the D.S. and the impact o& recent
go+ernment policie% appear to be di%couraging in+e%tor% &rom increa%ing their ri%k
epo%ure in 'orth America.
<enture capitali%t% anticipated le+el o& in+e%tment in Europe and the DF, o+er thenet three *ear% (b* location)
At lea%t a uarter o& global <% intend to increa%e their in+e%tment% le+el% in Europe
and the DF. 1hi% i% mainl* dri+en b* <% in the America% (ecluding the D.S.), among
hich 4# percent plan to in+e%t more into Europe and the DF. @oe+er, another 4#
percent o& the <% in that %ame area intend to reduce their in+e%tment% in Europe andthe DF. 1he mo%t po%iti+e &oreca%t come% &rom D.S. pla*er%, among hich 2CL epect
to increa%e in+e%tment%, hile onl* 20L &ore%ee a decrea%e. $%raeli and A%iaaci&ic
<% %ho the lea%t intere%t in Europe and the DF...
Fu&d Rai4i&6
e%pite the &act that the orld i% %truggling ith a rece%%ion, <% are remarkabl*optimi%tic about their &uture &und%. Mo%t <% belie+e that their net &und ill be either
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larger than their ei%ting &und or ill be approimatel* the %ame %i>e. And, that%
acro%% the board, regardle%% o& the %i>e o& the +enture &irm or here the*re located.
Among tho%e managing more than " billion, 24 percent pro-ect that their net &und%i>e ill increa%e hile almo%t hal& epect it to remain the %ame. Be%% than a third
anticipate% a decrea%e. 1ho%e number% are +er* clo%e hen it come% to tho%e &irm%
managing 500 million to " billion. A% the %i>e o& the &irm gro% %maller, the &irm%
gro more optimi%tic about the %i>e o& their net &und le+el%, ith :0 percent o& the
%malle%tRtho%e managing " million to 4 millionR anticipating their &und le+el%
ill gro and another 2C percent %tating that the*ll remain the %ame.
ro-ected &und %i>e compared to current &und (b* a%%et% under management)
1he number% are &ar more con%i%tent hen *ou look at thi% ue%tion regionall*. <er*
little decrea%e in &und %i>e i% pro-ected acro%% the board. And, tho%e pro-ecting increa%e%
or %ta%i% range &rom the America% (ecluding the D.S.) at 7# percent to the DF at C7
percent. 1he region anticipating the greate%t increa%e in their net &und i% Europe
(ecluding the DF) at 55 percent. Europe (ecluding the DF) ("5 percent) and the DF
("# percent) are the region% ith the loe%t epectation% o& decrea%ed &und %i>e in the
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&uture.
ro-ected &und %i>e compared to current &und (b* location)
8here around the orld i% thi% mone* coming &romN 6+er the net &i+e *ear%, the +a%t
number o& re%pondent% epect% that the number o& their limited partner in+e%tor%
located out%ide their home countr* or region ill remain the %ame or increa%e, again
regardle%% o& the %i>e o& the &irm or their home countr*. DF in+e%tor%, at 7 percent,
appear to be the mo%t eager to engage in+e%tor% out%ide o& their home countr*, but
e+en 2 percent o& tho%e <% re%ponding &rom Europe (ecluding the DF) pro-ect
that the number o& their limited partner% located out%ide o& their region ill remain the
%ame or increa%e.
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Anticipated number o& in+e%tor% (limited partner%) located out%ide the +enturecapitali%t% home countr* ;region, o+er the net &i+e *ear% (b* location)
1here i%, hoe+er, a di%connection beteen the optimi%m the%e re%pondent% epre%%ed
and here the in+e%tment &und% ill actuall* come &rom. 8e a%ked +enture capitali%t%
ho the current economic cri%i% ill a&&ect the +ariou% t*pe% o& limited partner%
illingne%% to in+e%t o+er the net three *ear%, and hile the* plan to increa%e the %i>e
o& their &und% and le+el o& in+e%ting, the* ne+erthele%% %ee their traditional in+e%tor ba%e
Rcommercial bank%, in+e%tment bank%, corporate operating &und%, in%urance
companie% and public pen%ion &und%Rto be dr*ing up.
PBimited partner% ere cutting their +enture allocation% and number o& manager% be&ore
thi% economic period began. Bike all good in+e%tor%, the* are tracking re%ult% and
culling their herd. 8hile the* ma* ha+e taken more ri%k% in *ear% pa%t to increa%e their
dollar% or number o& in+e%tment%, no doubt the -ur* i% %tarting to come in,P eplained
Ga* Gothrock, managing general partner at <enrock. P@oe+er, +enture i% %till popular
&or B%, i& the* can &ind the right group%. $ ould think the*, like <% %eeking great
entrepreneur% e+er*here, are %eeking great <% e+er*here. $t make% per&ect %en%e.P
Among all re%pondent%, CC percent %ee commercial bank in+e%tor% illingne%% to in+e%t
in +enture capital o+er the net three *ear% decrea%ing. Another C7 percent ere -u%t a%
pe%%imi%tic o+er in+e%tment bank%. About %i out o& "0 ere not %anguine about
corporate operating &und%, in%urance companie%, corporate +enture capital, and
endoment% decrea%ing a% limited partner%.
$ntriguingl*, +enture capitali%t% are looking to go+ernment% a% their &inancial partner%.
More than hal& o& <% %ee an increa%e in go+ernment% a% illing in+e%tment partner%
ith another &ourth looking at an increa%e b* &amil* o&&ice%.
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1he current economic cri%i% ill a&&ect the &olloing t*pe% o& limited partner% illingne%% to in+e%t in the +enture capital a%%et cla%%, o+er the net
three *ear%
22L b* corporate +enture capital, &olloed b* &und o& &und%. 1hi% i% %igni&icant, gi+en
a tradition o& reliance on pri+ate capital in the Dnited State%. Si out o& ten A%ia aci&ic
re%pondent% al%o belie+e there ill be an increa%e in acti+it* on the part o&
go+ernment. Among $%raeli re%pondent%, that number i% almo%t hal& o& re%pondent%,
hile tothird% o& tho%e in the America% (ecluding the D.S.), Europe (ecluding the
DF) and the DF %ee go+ernment in+e%tment increa%ing.
6& cour%e, the%e ue%tion% ere being an%ered at a +er* negati+e point in time
(ebruar*March 200), and ith the &inancial challenge% traditional in+e%tor% are
&acing, it% clear that the < communit* i% increa%ingl* looking to the go+ernment &or
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a%%i%tance. Hut e+en %o, it% unclear ho the* can a%%ert that their &und% ill increa%e or
remain the %ame hen there are &eer limited partner% and there% le%% capital a+ailable.
;i&&er i4
Apparentl*, among +enture capitali%t%, there% hina and there% e+er*one el%e. 1hat a%
clearl* demon%trated in re%pon%e to earlier ue%tion% about here <% plan to increa%e
their in+e%tment%.
$t a% &urther +alidated hen <% ere a%ked directl* hich countr* ha% the mo%t to
gain in o+erall %tature o+er the net three *ear%. Mo%t re%pondent% &rom around theglobe cho%e hina either &ir%t or %econd on their li%t%.
PA ue%tion $ &reuentl* get i% hether hina% recent groth in +enture in+e%ting i%
%u%tainable. $ ould %a*, o& cour%e,P %aid Qero2$6 pre%ident and E6, Ia+in 'i, P$
interact ith hina% entrepreneur% e+er* da*. 1here i% a real dri+e to in, and there% no
%topping until the game i% on. 6ther% %ee the +ictor* and ant to in, too. And, the
rule% o& the game &rom hina% go+ernment continue to dri+e %trong bu%ine%% groth.P
hina a% a clear &a+orite among D.S. in+e%tor% ith 42 percent o& re%pondent%
belie+ing that the countr* ha% the mo%t to gain. 6nl* 24 percent held that con+iction
&or the D.S., &olloed b* "2 percent &or $ndia, 5 percent &or Hra>il and 2 percent &or
Gu%%ia. Among < re%pondent% &rom the America% (ecluding the D.S.), #5 percent
look to Hra>il hile "C percent %ee hina being a clear inner, &olloed b* anada at": percent, $ndia at "4 percent and the D.S. trailing at "2 percent. $%raeli re%pondent%
%elected the D.S. ith #: percent, &olloed b* hina (2 percent), Hra>il and $%rael ("4
percent) and $ndia (7 percent). More than hal& o& A%ia aci&ic re%pondent% ere
enthu%ia%tic about hina, hile 20 percent looked at $ndia a% ha+ing the mo%t gain,
&olloed b* 3apan (: percent), the D.S. (5 percent) and A&ghani%tan (4 percent).
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Almo%t three out o& "0 re%pondent% &rom Europe (ecluding the DF) %ee hina a%
ha+ing the mo%t to gain. Siteen percent %a that potential &rom $ndia and the D.S.,
&olloed b* Hra>il (7 percent) and rance (: percent). inall*, #5 percent o& DF
re%pondent% e*ed hina a% the clear inner, ith $ndia &olloing at 24 percent, the
D.S. at percent and the Dnited Arab Emirate% at : percent.
1op &i+e location% +ieed a% ha+ing the mo%t to gain in term% o& o+eralleconomic %tature, o+er the net three *ear% (D.S. re%pondent%)
1op &i+e location% +ieed a% ha+ing the mo%t to gain in term% o& o+eralleconomic %tature, o+er the net three *ear% (the America% (ecl. D.S)
re%pondent%)
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6n the oppo%ite end o& the %pectrum, acro%% the board the D.S. con%i%tentl* a%
percei+ed a% ha+ing the mo%t to lo%e in economic %tatureRe+en b* more than hal& o&
D.S. re%pondent%. 1hi% %houldnt be %urpri%ing, gi+en that ha+ing created +enture
capital? the D.S. ha% long had preeminent %tatu%. 8ith the re%t o& the orld looking at
the &uture o& the indu%tr* and here people ill be in+e%ting, there% no ue%tion among
an* re%pondent% that the D.S.% ele+ated %tatu% cannot continue to be taken &or granted,
particularl* gi+en thi% ne economic en+ironment and the entrepreneurial eco%*%tem%
that are emerging around the orld.
C$INA3 INDIA AND ISRAEL ;ILL "E #OSTATTRACTIVE 0RO;T$ OF VENTURE CAPITAL
8hile o+erall in+e%tment le+el% are epected to be loer, the FMI %ur+e*
&ound that 200 &unding ill be targeted toard ke* geographic region% and
indu%tr* %egment%. $n addition, the FMI %ur+e* &ound that +enture in+e%tor% do
not %ee the $6 market impro+ing &or at lea%t a *ear, and onl* a %mall portion o&
port&olio% are poi%ed &or eit in 200.
8hile o+erall in+e%tment le+el% are epected to be loer, the FMI %ur+e*
&ound that 200 &unding ill be targeted toard ke* geographic region% and
indu%tr* %egment%. Ge%pondent% indicated that hina, $ndia and $%rael ill be the
mo%t attracti+e region% &or +enture capital, hile cleantech, li&e %cience%, mobile
and digital entertainment ill remain the hot indu%trie%.
J8hile o+erall &unding ill decrea%e, +enture capitali%t% ill continue to in+e%t in
tho%e area% the* &eel ill pro+ide the be%t return on in+e%tment,= %aid Hrian
@ughe%, FMI partner ba%ed in hiladelphia and coleader o& it% +enture capital
practice. J'ot %urpri%ingl*, the* continue to be bulli%h on emerging market% and
indu%tr* %ector%, %uch a% cleantech, that pro-ect near term groth.=
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$n polling 270 +enture capitali%t%, corporate bu*er% and entrepreneur%, FMI
&ound that 7# per cent o& re%pondent% epect their &irm=% re+enue to %ta* the %ame
or increa%e in 200. $n &act, 52 per cent epect re+enue groth to increa%e,
including #7 percent ho predict re+enue groth in ece%% o& "0 percent. 6nl*
2: per cent %ee declining re+enue% in the *ear ahead.
1he outlook on %u%tained re+enue groth i% the %il+er lining to a tough *ear that
ha% %een the &ee%t +enture capital port&olio companie% go public %ince "77. $n
&act, the FMI %ur+e* &ound that +enture capitali%t% epect the negati+e $6
trend to continue in 200, ith CC per cent o& re%pondent% epecting $6 acti+it*
to %ta* the %ame or to decline &urther. Additionall*, C2 per cent o& +enture
capitali%t% %ur+e*ed indicated that the* do not anticipate reco+er* in the $6
market &or at lea%t "2 month%. 1he outlook on $6 acti+it* ha% clearl* impacted
+enture capital eit opportunitie%, and C0 per cent o& re%pondent% %aid le%% than
20 per cent o& their port&olio i% poi%ed &or eit in 200.
1he decline in $6 opportunitie% coupled ith the epected, continued regre%%ion
in +aluation% o& +enturebacked companie%, ma* in&luence the +enture capital
communit* to %ee acui%ition% a% liuidit* and eit opportunitie%. 8hen a%ked
about +aluation o& +enture backed companie%, C4 per cent o& re%pondent%
predicted decrea%ing +aluation%, hile onl* %i percent %ee an increa%e. 8ith
+aluation% declining, 5C percent o& re%pondent% %ee M9A increa%ing net *ear.
J1here i% no ue%tion that economic and market condition% ha+e made the current
en+ironment di&&icult &or +enture capitali%t%,= %aid ack* Fell*, FMI partner
ba%ed in Silicon <alle* and coleader o& it% +enture capital practice. J1he%e
condition% ma* lead in+e%tment &irm% to &ocu% on the health o& ei%ting port&olio
companie% and %lo the pace o& in+e%tment. Hut the commerciali>ation o&
product% in the clean tech %ector probabl* contribute% to a large degree to the
epected groth in re+enue o& emerging companie%.
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According to the FMI %ur+e*, the outlook on in+e%tment le+el% and deal
+olume &or 200 mirror% the +ie% on $6 acti+it*. $n &act, 74 per cent o&
re%pondent% epect o+erall +enture in+e%tment to decrea%e and C2 per cent %ee a
decline in deal +olume. 8hile it i% uncertain hen +enture in+e%tment ill trend
back up, 50 per cent o& +enture capitali%t% %ur+e*ed do not epect that uptick to
occur until the %econd hal& o& 200, hile #2 per cent predict it ill not happen
until 20"0 or be*ond. 6nl* "C per cent predict the turnaround in +enture &unding
ill %tart in the &ir%t to uarter% o& 200.
8hile o+erall in+e%tment le+el% are epected to be loer, the FMI %ur+e*
&ound that 200 &unding ill be targeted toard ke* geographic region% and
indu%tr* %egment%. Ge%pondent% indicated that hina, $ndia and $%rael ill be the
mo%t attracti+e region% &or +enture capital, hile clean tech, li&e %cience%, mobile
and digital entertainment ill remain the hot indu%trie%. J8hile o+erall &unding
ill decrea%e, +enture capitali%t% ill continue to in+e%t in tho%e area% the* &eel
ill pro+ide the be%t return on in+e%tment,= %aid Hrian @ughe%, FMI partner
ba%ed in hiladelphia and coleader o& it% +enture capital practice. J'ot
%urpri%ingl*, the* continue to be bulli%h on emerging market% and indu%tr*
%ector%, %uch a% cleantech, that pro-ect near term groth./
Another indication o& the current market condition%= negati+e impact on the
+enture communit* can be %een in attitude% toard %tartup in+e%ting. 'inet*
%e+en per cent o& +enture capitali%t% %ur+e*ed %aid the credit cri%i% ill ha+e anad+er%e e&&ect on the a+ailabilit* o& +enture &inancing to %tartup companie%, and
7# per cent %aid it ill be harder to get debt or lea%e &inancing.
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PRI#ARY REASONS FOR VENTURE CAPITAL
INVESTORS E=PANDIN0 0LO"ALLY
Among the primar* rea%on% <% around the orld are intere%ted in in+e%ting
globall* i% to take ad+antage o& higher ualit* deal &lo particularl* in the
Dnited State%, hina, part% o& Europe, and $%rael. 1hi% i% e%peciall* true &or non
D.S. &irm%. A %econd rea%on i% the emergence o& an entrepreneurial en+ironment,
again and notabl* in hina, but al%o $ndia. Among D.S. &irm%, thi% latter rationale
i% the mo%t %igni&icant moti+ation &or in+e%ting globall*. 6ther moti+ator% include
acce%% to ualit* entrepreneur%, di+er%i&ication o& indu%tr* and geographic ri%k
and acce%% to &oreign market%.
rimar* rea%on% h* in+e%tor% epanding globall* +enture
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Abo+e chart re+eal% that "L D.S. re%pondent% are epand globall* &or
generating high ualit* deal &lo. And #"L belie+e that epand globall* &or
getting bene&it o& emergence o& entrepreneurial en+ironment. 8hit "7L
re%pondent% o& non D.S are epanding globall* &or di+er%i&ication o& indu%tr* and
geographic ri%k. All re%pondent% are lea%t concerned about lo co%t o& location%.
INVESTIN0 0LO"ALLY "Y INVESTIN0 LOCALLY
6ne a* to build a com&ort >one &or global in+e%ting and to take ad+antage o&
opportunitie% abroad i% to in+e%t locall* in companie% ith operation% out%ide their
home countr*, a% oppo%ed to in+e%ting directl* in &oreign countrie%. 1hi% *ear, there
a% a %igni&icant increa%e in the number o& re%pondent% ho indicated that a %i>eable
number o& their port&olio companie% ha+e a con%iderable amount o& operation% out%ide
the countr* in hich the* are headuartered.
A %igni&icant number, CC percent o& D.S. re%pondent% and C2 percent o& nonD.S.
re%pondent%, indicated that at lea%t %ome portion o& their port&olio ha% %igni&icant
operation% out%ide o& the countr* o& headuarter%. Again, moderation i% e+ident a%
more than hal& o& tho%e indicated that le%% than 25 percent o& their port&olio had
%igni&icant &oreign operation%. 'onethele%%, the%e number% ha+e increa%ed %igni&icantl*
&rom prior *ear% and re&lect an increa%ed trend in thi% method o& in+e%tment.
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ercentage o& +enture capital &irm% port&olio companie% that gi+e %igni&icantoperation out%ide the countr*
Iloball* and among D.S. re%pondent%, hina ha% become the primar* choice &or
relocating manu&acturing operation%, hile $ndia i% the primar* choice or G9
operation%. Engineering operation% tend to land in $ndia a% ell, but hina i% al%o a
popular location. or back o&&ice acti+itie%, again the choice i% $ndia. @oe+er, &or
nonD.S. re%pondent%, the Dnited State% i% the primar* choice &or G9 and
engineering hile European re%pondent% pre&erred entral and Ea%tern Europe &or
manu&acturing G9 and Engineering.
6ne rea%on h* thi% approach i% taking o&& i% that in+e%tor% are concerned about
intellectual propert* and liuidit* e+ent% and in general the* &eel a need to be clo%er to
top management. 1hi% al%o re&lect% a ne realit* &rom da* one companie% that re&lect a
larger global entrepreneurial %ector. 1hi% %trateg* allo% the port&olio companie% (and
in+e%tor%) to take ad+antage o& co%t %a+ing and acce%% o talent in &oreign market% hile
protecting intellectual propert*. 1here are hoe+er concern% that %uch a trend could
re%ult in the D.S. lo%ing it% G9 edge.
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I#PEDI#ENTS TO 0LO"AL INVESTIN0
or all the bene&it% o& o+er%ea% in+e%ting, < &irm% encounter a +ariet* o& ri%k% and
challenge% abroad. Hoth D.S. &irm% and nonD.S. &irm% percei+e the D.S a% the countr*
here the co%t o& compl*ing ith regulation i% too high. $n &act, the percentage o& non
D.S. re%pondent% ho indicated thi% a% a concern leaped &rom 2CL la%t *ear to 4"L
thi% *ear. Iloball*, 4L more, 44L %a thi% i%%ue a% a concern. 4:L o& D.S.
re%pondent% belie+e the co%t o& compl*ing ith corporate go+ernance i% too high.
1op market% here the co%t o& compl*ing ith corporate go+ernance regulationtoo high
rom the abo+e chart e can %ee that mo%t o& the re%pondent% belie+e that D.S. ha%
high co%t o& compl*ing ith orporate Io+ernance regulation and hina, $ndia, $%rael
and anada co%t o& compl*ing ith corporate go+ernance regulation too high.
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VENTURE
CAPITAL IN
INDIA
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EVOLUTION OF VENTURE CAPITAL INDUSTRY
IN INDIA
1he &ir%t ma-or anal*%i% on ri%k capital &or $ndia a% reported in "C#. $t
indicated that ne companie% o&ten con&ront %eriou% barrier% to entr* into capital
market &or rai%ing euit* &inance hich undermine% their &uture pro%pect% o&
epan%ion and di+er%i&ication. $t al%o indicated that on the hole there i% a need
to re+ie the euit* cult among the ma%%e% b* en%uring competiti+e return on
euit* in+e%tment. 1hi% brought out the in%titutional inadeuacie% ith re%pect to
the e+olution o& +enture capital.
$n $ndia, the $ndu%trial inance orporation o& $ndia ($6) initiated the idea o&
<enture apital hen it e%tabli%hed the Gi%k apital oundation in "75 to pro+ide %eed capital to %mall and ri%k* pro-ect%. @oe+er the concept o& +enture
capital &inancing got %tatutor* recognition &or the &ir%t time in the &i%cal budget
&or the *ear "C:C7.
1he +enture apital companie% operating at pre%ent can be di+ided into &our
group%
romoted b* All$ndia e+elopment inancial $n%titution%
romoted b* State Be+el inancial $n%titution%
romoted b* ommercial Hank%
ri+ate <enture apitali%t%.
Promoted b7 a'' I&dia De9e'o5me&t Fi&a&cia' I&4titutio&4
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1he $H$ %tarted a <enture apital in "7: a% per the long term &i%cal polic* o&
go+ernment o& $ndia, ith an initial o& G%. "0 r. hich rai%ed b* impo%ing a
che%% o& 5L on all pa*ment made &or the import o& technolog* knoho
pro-ect% reuiring &und% &rom G%.5 Back% to G%.2.5r. 8ere con%idered &or
&inancing. romoter=% contribution ranged &rom thi% &und a% a+ailable at a
conce%%ional intere%t rate o& L (during ge%tation period) hich could be
increa%ed at later %tage%.
1he $$$ pro+ided the reuired impetu% to <enture apital acti+itie% in $ndia,
"C: it %tarted pro+iding +enture apital &inance in "C it promoted, along ith
the Dnit tru%t o& $ndia (D1$) 1echnolog* e+elopment and in&ormation ompan*
o& $ndia (1$$) a% &ir%t +enture apital compan* regi%tered under the companie%
act, "5:. 1he 1$$ ma* pro+ide &inancial a%%i%tance to +enture capital
undertaking hich are %et up b* technocrat entrepreneur%, or technolog*
in&ormation and guidance %er+ice%.
1he ri%k capital &oundation e%tabli%hed b* the indu%trial &inance corporation o&
$ndia ($$) in "75, a% con+erted in "CC into the Gi%k apital and
1echnolog* inance ompan* (G1) a% a %ub%idiar* compan* o& the $$ the
rate pro+ide% a%%i%tance in the &orm o& con+entional loan%, intere%t &ree
conditional loan% on pro&it and ri%k %haring ba%i% or euit* participation in
etend% &inancial %upport to high technolog* pro-ect% &or technological up
gradation%. 1he G1 ha% been renamed a% $$ <enture apital und% Btd.($<)
Promoted b7 State Le9e' Fi&a&cia' I&4titutio&4
$n $ndia, the State Be+el inancial $n%titution% in %ome %tate% %uch a% Madh*a
rade%h, Iu-arat, Dttar prade%, etc., ha+e done an ecellent -ob and ha+e
pro+ided +enture capital to a %mall %cale enterpri%e. Se+eral %ucce%%&ul
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entrepreneur% ha+e been the bene&iciarie% o& the liberal &unding en+ironment. $n
"0, the Iu-arat $ndu%trial $n+e%tment orporation, promoted the Iu-arat
<enture inancial Btd (I<B) along ith other promoter% %uch a% the $H$, the
8orld Hank, etc., the I<B pro+ide% &inancial a%%i%tance to bu%ine%% in the &orm
o& euit*, conditional loan% or income note% &or technologie% de+elopment and
inno+ati+e product%. $t al%o pro+ide% &inance a%%i%tance to entrepreneur%.
1he go+ernment o& Andhra rade%h ha% al%o promoted the Andhra rade%h
$ndu%trial e+elopment orporation (A$) +enture capital ltd. to pro+ide
+enture capital &inancing in Andhra rade%h.
Promoted b7 Commercia' "a&@4
anbank <enture apital und, State bank <enture apital und and Irindla*%
bank <enture apital und ha+e been %et up the re%pecti+e commercial bank% to
undertake +enture capital acti+itie%.
1he State bank <enture apital &und% pro+ide% &inancial a%%i%tance &or bought out
deal a% ell a% ne companie% in the &orm o& euit* hich it di%in+e%t% a&ter the
commerciali>ation o& the pro-ect.
anbank <enture apital und% pro+ide% &inancial a%%i%tance &or pro+en but *et
to be commerciall* eploited technologie%. $t pro+ide% a%%i%tance both in the
&orm o& euit* and conditional loan%.
Pri9ate 9e&ture Ca5ita' Fu&d4
Se+eral pri+ate %ector +enture capital &und% ha+e been e%tabli%hed in $ndia %uch
a% the 20th enture <enture apital ompan*, $ndu% +enture capital und%,
$n&ra%tructure Bea%ing and &inancial Ser+ice% Btd.
Some o& the companie% that ha+e recei+ed &unding through thi% route include
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o Ma%tek, one o& the olde%t %o&tare hou%e in $ndia
o Gu%kan %o&tare, une ba%ed %o&tare con%ultanc*
o SKB Star, @*derabad ba%ed training and %o&tare de+elopment
con%ultanc*
o Sat*am $n&oa*, the &ir%t pri+ate $S in $ndia
o @inditrom, maker% o& embedded %o&tare
o Selectia, pro+ider o& interaction %o&tare %electior
o Yantra, $1B $n&o%*=% DS %ub%idiar*, %olution &or %uppl* chain management
o Gedi&& on the 'et, $ndia eb%ite &eaturing electronic %hopping, ne%, chat
etc.
O"!ECTIVE AND VISION FOR VENTURE
CAPITAL IN INDIA
<enture capitali%t% &inance inno+ation and idea% hich ha+e potential &or high
groth but ith inherent uncertaintie%. 1hi% make% it a highri%k, high return
in+e%tment. Apart &rom &inance, +enture capitali%t% pro+ide netorking,
management and marketing %upport a% ell. $n the broade%t %en%e, there&ore,
+enture capital connote% &inancial a% ell a% human capital. $n the global +enture
capital indu%tr*, in+e%tor% and in+e%tee &irm% ork together clo%el* in an enabling
en+ironment that allo% entrepreneur% to &ocu% on +alue creating idea% and
allo% +enture capitali%t% to dri+e the indu%tr* through oner%hip o& the le+er% o&
control, in return &or the pro+i%ion o& capital, %kill%, in&ormation and
complementar* re%ource%. 1hi% +er* blend o& ri%k &inancing and hand holding o&
entrepreneur% b* +enture capitali%t% create% an en+ironment particularl* %uitable
&or knoledge and technolog* ba%ed enterpri%e%.
Scienti&ic, technolog* and knoledge ba%ed idea% properl* %upported b* +enture
capital can be propelled into a poer&ul engine o& economic groth and ealth
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creation in a %u%tainable manner. $n +ariou% de+eloped and de+eloping economie%
+enture capital ha% pla*ed a %igni&icant de+elopmental role. $ndia, along ith
$%rael, 1aian and the Dnited State%, i% recogni>ed &or it% globall* competiti+e
high technolog* and human capital. $ndia ha% the %econd large%t Engli%h %peaking
%cienti&ic and technical manpoer in the orld.
1he $ndian %o&tare %ector cro%%ed the G% "00 billion mark turno+er during "C.
1he %ector gre 5CL on a *ear to *ear ba%i% and eport% accounted &or G% :5.#
billion hile the dome%tic market accounted &or G% #5." billion. Eport% gre b*
:7L in rupee term% and 55L in DS dollar term%. 1he %trength o& %o&tare
pro&e%%ional% gre b* "4L in "7 and ha% cro%%ed ", :0000. 1he global
%o&tare %ector i% epected to gro at "2L to "5L per annum &or the net 5 to 7
*ear%.Gecentl*, there ha% al%o been greater +i%ibilit* o& $ndian companie% in the DS.
Ii+en %uch +a%t potential not onl* in $1 and %o&tare but al%o in the &ield o&
%er+ice indu%trie%, biotechnolog*, telecommunication%, media and entertainment,
medical and health %er+ice% and other technolog* ba%ed manu&acturing and
product de+elopment, +enture capital indu%tr* can pla* a catal*tic role to put
$ndia on the orld map a% a %ucce%% %tor*.
VENTURE CAPITAL INDUSTRY LIFE CYCLE IN
INDIA
rom the indu%tr* li&e c*cle e can kno in hich %tage +enture capital are
%tanding. 6n the ba%i% o& thi% management can make &uture %trategie% o& their
bu%ine%%.
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1he groth o& +enture capital in $ndia ha% &our %eparate pha%e%
P8a4e I &ormation o& 1$$ in C0=% and regional &und% a% I<B 9
A$ in earl* 0%.
1he &ir%t origin o& modern +enture capital in $ndia can be traced to the %etting up
o& a technolog* e+elopment und% in the *ear "C7CC, though the le+* o& acce%% on all technolog* import pa*ment. 1echnolog* de+elopment &und a%
%tated to pro+ide &inancial %upport to inno+ati+e and high ri%k technological
programmer% through the $ndu%trial de+elopment bank o& $ndia.
1he &ir%t pha%e a% the initial pha%e in hich the concept o& +enture capital got
ider acceptance. 1he &ir%t period did not reall* eperience an* %ub%tantial
groth o& +enture capital%. 1he "C0=% ere marked b* an increa%ing
di%illu%ionment ith the tra-ector* o& the economic %*%tem and a belie& that
liberali>ation a% needed. 1he liberali>ation proce%% %tarted in "C5 in a limited
a*. 1he concept o& +enture capital recei+ed o&&icial recognition in "CC ith the
announcement o& the +enture capital guideline%.
uring "CC to "2 about +enture capital in%titution% came up in $ndia.1hough the +enture capital &und% %hould operate a% open entitie%, Io+ernment o&
Study Of Venture Capital In India Page No: "04
2000 200" 2002 200# 2004 2005 200: 2007 200C 200
$ntroduction Iroth
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$ndia controlled them rigidl*. 6ne o& the ma-or &orce% that induced Io+ernment
o& $ndia to %tart +enture &unding a% the 8orld Hank. 1he initial &unding ha%
been pro+ided b* 8orld Hank. 1he mo%t important &eature o& the "CC rule% a%
that +enture capital &und% recei+ed the bene&it o& a relati+el* lo capital gain% ta
rate hich a% loer than the corporate rate. 1he "CC guideline% %tipulated
+enture capital &unding &irm% %hould meet the &olloing criteria
o 1echnolog* in+ol+ed %hould be ne, relati+el* untried, +er* clo%el* held,
in the proce%% o& being taken &rom pilot to commercial %tage or
incorporate %ome %igni&icant impro+ement o+er the ei%ting one% in $ndia.
o romoter%;entrepreneur% u%ing the technolog* %hould be relati+el* ne,
pro&e%%ionall* or technicall* uali&ied, ith inadeuate re%ource% to
&inance the pro-ect.
Heteen "CC and "4 about ""+enture capital &und% became operational either
through reorgani>ing the bu%ine%% or through ne entitie%.
All the%e &olloed the Io+ernment o& $ndia guideline% &or +enture capital
acti+itie% and ha+e primaril* %upported technolog* oriented inno+ati+e bu%ine%%
%tarted b* &ir%t generation entrepreneur%. Mo%t o& the%e ere operated more like a
&inancing operation. 1he main &eature o& thi% pha%e a% that the concept got
accepted. <enture capital% become operational in $ndia be&ore the liberali>ation
proce%% %tarted. 1he contet a% not &ull* ripe &or groth o& +enture capital%. 1ill
"5 the +enture capital operated like an* bank but pro+ided &und% ithout
collateral. 1he &ir%t %tage o& the +enture capital indu%tr* in $ndia a% plagued b*
in eperienced management, mandate% to in+e%t in certain %tate% and %ector% and
general regulator* problem%. Man* public i%%ue b* %mall and medium companie%
ha+e %hon that the $ndian in+e%tor i% becoming increa%ingl* ar* o& in+e%ting
in the pro-ect% o& ne and unknon promoter%.
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1he liberation o& the econom* and toning up o& the capital market changed the
economic land%cape. 1he deci%ion% relating to i%%ue o& %tock% and %hare% a%
handled b* an o&&ice namel* ontroller o& capital i%%ue% ($). According to
"CC +enture capital guideline, an* organi>ation reuiring %tarting +enture &und%
ha+e to &orard an application to $. Sub%euent to the liberali>ation o& the
econom* in "", the o&&ice o& $ a% aboli%hed in Ma* "2 and the poer%
ere +e%ted in Securitie% and Echange Hoard o& $ndia (SEH$). 1he Securitie%
and Echange Hoard o& $ndia Act, "2 empoer SEH$ under %ection ""(2)
thereo& to regi%ter and regulate the orking o& +enture capital &und%. 1hi% a%
done in ":, through a go+ernment noti&ication. 1he poer to control +enture
&und% ha% been gi+en to SEH$ onl* in "5 and the noti&ication came out in ":.
1ill thi% time +enture &und% ere dominated b* $ndian &irm%. 1he ne regulation%
became the harbinger o& the %econd pha%e o& the +enture capital groth.
P8a4e II Entr* o& oreign <enture apital und% (<) beteen "5
"
1he %econd pha%e o& +enture capital groth attracted man* &oreign in%titutional
in+e%tor%. uring thi% period o+er%ea% and pri+ate dome%tic +enture capitali%t%
began in+e%ting in <. 1he ne regulation% in ": helped in thi%. 1hough the
change% propo%ed in ": had a %alutar* e&&ect, the de+elopment o& +enture
capital continued to be inhibited becau%e o& the regulator* regime and re%tricted
the $ en+ironment. 1o &acilitate the groth o& +enture &und%, SEH$ appointed a
committee to recommend the change% needed in the +enture capital &unding
contet. 1hi% coincided ith the $1 boom a% ell a% the %ucce%% o& Silicon <alle*
%tartup%. $n other ord%, +enture capital groth and $1 groth coe+ol+ed in
$ndia.
P8a4e III(2000 onard%) <enture capital become% ri%k a+er%e and
acti+it* decline%
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'ot %urpri%ingl*, the in+e%ting in $ndia came cra%hing don/ hen 'ASAK
lo%t :0L o& it% +alue during the %econd uarter o& 2000 and public market%
(including tho%e in $ndia) al%o declined %ub%tantiall*. on%euentl*, during 200"
200#, the +enture capital% %tarted in+e%ting le%% mone* and in mone* and in more
mature companie% in an e&&ort to minimi>e the ri%k%. 1hi% decline broadl*
continued until 200#.
P8a4e IV (2004 onard) Ilobal +enture capital% &irm% acti+el* in+e%ting
in $ndia
Since $ndia=% econom* ha% been groing at 7LCL a *ear, and %ince %ome
%ector%, including the %er+ice% %ector and the high end manu&acturing %ector, ha+e
been groing at "2L"4L a *ear in+e%tor% reneed their intere%t and %tarted
in+e%ting again in 2004 the number o& deal% and the total dollar% in+e%ted in $ndia
ha% been increa%ing %ub%tantiall*.
0RO;T$ OF VENTURE CAPITAL IN INDIA
Iroth o& <enture apital in $ndia
1he +enture capital i% groing 4#L AIG. @oe+er, in %pite o& the +enturecapital %cenario impro+ing, %e+eral %peci&ic <enture apital &und% are %etting up
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%hop in $ndia, ith the *ear 2007 ha+ing been a landmark *ear &or +enture capital
in $ndia. 1he no o& deal% are increa%ing *ear b* *ear. 1he no o& deal in 200# onl*
5: and no in 2007 it touch the #C7 deal%. 1he introduction %tage o& +enture
capital indu%tr* in $ndia i% completed in 200# a&ter that groing %tage o& $ndia
+enture capital indu%tr* i% %tarrted.
1ere are ":0 +enture capital &irm%;&und% in $ndia. $n 200: it i% onl* but in 2007
the number o& +enture capital &irm% are "4:. 1he rea%on i% good po%ition o&
capital market. Hut in 200C no o& +enture capital &irm% increa%e b* onl* "4 the
rea%on i% cra%hdon o& capital market b* 5"L. 1he no o& +enture capital &und%
are increa%ing *ear b* *ear
2000 200" 2002 200# 2004 2005 200: 2007 200C
C" 77 7C C" C: C "05 "4: ":0
<enture capital groth and indu%trial clu%tering ha+e a %trong po%iti+e
correlation. oreign diect in+e%tment, %tarting o& G9 centre%, a+ailabilit* o&
+enture capital and groth o& entreneurial &irm% are getting concentrated into &i+e
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clu%ter%. 1he co%t o& mnitoring and the co%t o& %kill acui%ition are loer in
clu%ter%, e%peciall* &or inno+ation. Entr* co%t% are al%o loer in clu%ter%. erating
enetrepreneur%%hip and %timulating inno+ation in clu%ter% ha+e to become a ma-or
concern o& public polic* maker%. 1hi% i% e%%ential becou%e onl* hen the cultural
contet i% conducti+e &or ri%k management +enture capital ill takeo&. lu%ter%
%upport inno+ation and &acilitate% ri%k bearing. <enture capital pre&er clu%ter%
becau%e the in&ormation co%t% are loer. olicie% &or promoting di%per%ion o&
indu%trie% are becoming redundant a&ter the economic liberali>ation.
1he +enture capital &irm in+e%t their mone* in mo%t de+elopning %ector% like
health care, $1$1e%, 1elecom, Hiotechnolog*, Media 9 Entretainment, %hipping
9 ligi%tic% etc.
1otal %ector i%e +enture capital in+e%tment
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'o +enture capital i% na%cent %tage in $ndia. 'o due to groth o& %ector, the
+enture capital indu%tr* i% al%o groing. 1he top mo%t pla*er% in the indu%trie%
are $$$ +enture capital &und, $19S +enture capital &und, anbank.
/,,B VENTURE CAPITAL INVEST#ENT IN INDIA
<enture apital &irm% in+e%ted 475 million in 2 deal% during 200, don &rom
the C#: million in+e%ted acro%% "5# deal% in the pre+iou% *ear, according to a
%tud* b* <enture $ntelligence and Ilobal$ndia <enture apital A%%ociation.
<enture capital &irm%, hoe+er, began to increa%e the pace o& their in+e%tment% in
$ndian companie% in the 6ctoberecember uarter, making 42 in+e%tment%
orth 2:5 million, compared to 2# in+e%tment% orth "02 million in the
comparati+e period a *ear earlier, the %tud* %aid.
P1he %trong reco+er* in in+e%tment acti+it* in the la%t uarter o& 200, a% ell the
ri%ing intere%t among global in+e%tor% toard% emerging market% like $ndia, i%
uite encouraging &or the groth o& the %ector,P Sudhir Sethi, director o& the
Ilobal$ndia <enture apital A%%ociation, %aid in a %tatement.
Puring 20"0, e epect %igni&icant &olloon in+e%tment% into companie% that
rai%ed Serie% a round (&ir%t round) in the pa%t to to three *ear% a% ell a% a ri%e
in eit acti+it* a% the global economic reco+er* gather% pace,P he added.
1he in&ormation technolog* and $1enabled %er+ice% indu%tr* retained it% %tatu% a%
the &a+orite among +enture capital in+e%tor% during 200, but the indu%tr*% %hare
declined to about 4#L o& total in+e%tment% &rom about 55L in 200C. 6ther
indu%trie% that attracted %igni&icant in+e%tor attention during the period included
&inancial %er+ice%, healthcare and li&e %cience%, and alternati+e energ*. 8ithin $1
and $1enabled %er+ice%, online %er+ice% companie% retained their %tatu% a% the
&a+orite %ector, accounting &or about #L o& the in+e%tment% during 200.
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ompanie% ba%ed in %outh $ndia accounted &or 50L o& all +enture capital
in+e%tment% (47L b* +alue) during 200. 1heir peer% in e%tern $ndia accounted
&or 25L o& the pie (2L b* +alue) hile companie% in north $ndia accounted &or
"5L o& the in+e%tment% ("2L b* +alue).
Among citie%, companie% headuartered in Hangalore and Mumbai ere the
&a+orite% among +enture capital in+e%tor% during 200, ith the &ormer attracting
2 in+e%tment% and the latter "5. 1he elhi 'ational apital Gegion accounted
&or "" in+e%tment%, &olloed b* @*derabad ith in+e%tment%.
NEED FOR 0RO;T$ OF VENTURE CAPITAL IN
INDIA
eople in de+eloping countrie% are poor in part becau%e the* ha+e &ar le%% capital
than people in indu%trial countrie%. Hecau%e o& thi% %hortage, orker% ha+e little
in the a* o& %peciali>ed machiner* and euipment, and &irm% lack mone* to
obtain more euipment. A% a re%ult, producti+it* o& orker% in de+eloping
countrie% i% lo compared ith that o& orker% in indu%trial countrie%. inancial
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re%ource &lo% &rom indu%trial to de+eloping countrie% are an ob+iou% mean% to
o+ercome thi% ineualit*. Hut &inancial re%ource% are not enough. Some
de+eloping countrie% ha+e natural re%ource% %uch a% oil or mineral% that, hen
%old on orld market%, ha+e pro+ided large amount% o& mone*. $n man* ca%e% the
mone* ha% &ailed to %timulate %u%tained economic groth or increa%ed
producti+it* and income &or the a+erage per%on. $n part, &ailure to u%e capital
producti+el* re%ult% &rom the a* the%e re%ource% &lo. $n %ome countrie% the
go+ernment get% the mone*, hich it u%e% to perpetuate it%el& through militar*
%pending or through increa%ed con%umption %pending. $n other ca%e%, re%ource%
&lo to ealth* indi+idual% ho u%e them to maintain high le+el% o& con%picuou%
con%umption.
$ndia i% %till de+eloping countr*. $n $ndia, a re+olution i% u%hering in a ne
econom*, herein entrepreneur% mind %et i% taking a %hi&t &rom ri%k ad+er%e
bu%ine%% to in+e%tment in ne idea% hich in+ol+e high ri%k. 1he con+entional
indu%trial &inance in $ndia i% not o& much help to the%e ne emerging enterpri%e%.
1here&ore there i% a need o& &inancing mechani%m that ill &it ith the
reuirement o& entrepreneur% and thu% it need% +enture capital indu%tr* to gro in
$ndia.
e rea%on% &or hich acti+e <enture apital $ndu%tr* i% important &or $ndia
include
I&&o9atio&( 'eed% ri%k capital in a largel* regulated, con%er+ation, legac*
&inancial %*%tem
!ob Creatio& large pool o& %killed graduate% in the &ir%t and %econd tier citie%
Patie&t ca5ita'( 'ot &light*, unlike $$%
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Creati&6 &e? I&du4tr7 C'u4ter4( Media, Getail, all enter% and back o&&ice
proce%%ing, trickling don to organi>ed e&&ort o& %upport %er+ice% like 6&&ice
%er+ice%, atering, 1ran%portation.
RE0ULATORY AND LE0AL FRA#E;OR:
At pre%ent, the <enture apital acti+it* in $ndia come% under the pur+ie o&
di&&erent %et% o& regulation% namel*
1he SEH$ (<enture apital und%) Gegulation, ":UGegulation%V la*%
don the o+erall regulator* &rameork &or regi%tration and operation%
o& +enture capital &und% in $ndia.
1he $ndian 1ru%t Act, "CC2 or the compan* Act, "5: depending on
hether the &und i% %et up a% a tru%t or a compan*.
1he &oreign in+e%tment romotion Hoard ($H) and the GH$ in ca%e o&
an o&&%hore &und. 1he%e &und% ha+e to %ecure the permi%%ion o& the
$H hile %etting up in $ndia and need a clearance &rom the GH$ &or
an* repatriation o& income.
1he entral Hoard o& irect 1aation (H1) go+ern% the i%%ue%
pertaining to income ta on the proceed &rom < &unding acti+it*. 1he
long term capital gain ta i% at around "0L in $ndia and the rele+ant
clau%e% to < ma* be &ound in Section "0(%ub %ection 2#)
6+er%ea% +enture capital in+e%tment% are %ub-ect to the Io+ernment o&
$ndia Iuideline% &or 6+er%ea% <enture apital $n+e%tment in $ndia
dated September 20, "5. or ta eemption% purpo%e% +enture capital &und% al%o need% to compl*
ith the $ncome 1a Gule% made under Section "0(2#A) o& the $ncome
1a Act.
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< 9 <$
SEH$ GH$ $H 1AW
#A!OR RE0ULATORY FRA#E;OR:S FOR
VENTURE CAPITAL INDUSTRY
• SEH$ (<) Geg. ":
• SEH$(<$) Geg.2000
• SG Act."5:
• SEH$(SAS1) Geg."7
• SEH$($)Iuideline%,200
0
• SEH$ Act,"2
• EMA,
"
• 1ran%&er or i%%ue
o& %ecurit* b* a per%on re%identout%ide $ndiaregulation 2000
• $
polic*
• $n+e%tme
nt appro+al%
• re%%
'ote%
• $1 Act, ":"
• 1AA
Singapore
Mauritiu%
6ther%
Ma-or Gegulator* &rameork% &or +enture capital indu%tr*
$n addition to the abo+e, o&&%hore &und% al%o reuire $H;GH$ appro+al &or
in+e%tment in dome%tic &und% a% ell a% in <enture apital Dndertaking% (<D).
ome%tic &und% ith o&&%hore contribution% al%o reuire GH$ appro+al &or the
pricing o& %ecuritie% to be purcha%ed in <D likei%e, at the time o&
di%in+e%tment, GH$ appro+al i% reuired &or the pricing o& the %ecuritie%.
Defi&itio& of 9e&ture ca5ita' fu&d( 1he <enture apital und i% no de&ined % a
&und e%tabli%hed in the &orm o& a 1ru%t, a compan* including a bod* corporate
and regi%tered ith SEH$ hich
@a% a dedicated pool o& capital?
Gai%ed in the manner %peci&ied under the regulation%? and
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1o in+e%t in +enture capital undertaking in accordance ith the regulation.
Defi&itio& of Ve&ture Ca5ita' U&derta@i&6( <enture apital Dndertaking
mean% a dome%tic compan*
8ho%e %hare are not li%ted on a recogni>ed %tock echange in $ndia
8hich i% engaged in bu%ine%% including %uch acti+itie% or %ector% hich are
%peci&ied in the negati+e li%t b* the Hoard ith the appro+al o& the entral
Io+ernment b* noti&ication in the 6&&icial Ia>ette in thi% behal&N 1he
negati+e li%t include% real e%tate, nonbanking &inancial %er+ice%, gold
&inancing, acti+itie% not permitted under the $ndu%trial olic* o& the
Io+ernment o& $ndia.
#i&imum co&tributio& a&d fu&d 4ie( the minimum in+e%tment in a <enture
apital und &rom an* in+e%tor ill not be le%% than G%.5 lack% and the minimum
corpu% o& the &und be&ore the &und can %tart acti+itie% %hall be at lea%t G%.5 corer%.
I&9e4tme&t Criteria 1he earlier in+e%tment criterion ha% been %ub%tituted b*
ne in+e%tment criteria hich ha% the &olloing reuirement%
i%clo%ure o& in+e%tment %trateg*?
Maimum in+e%tment in %ingle +enture capital undertaking not to eceed
25L o& the corpu% o& the &und?
$n+e%tment in the a%%ociated companie% not permitted?
At lea%t 75L o& the in+e%tible &und% to be in+e%ted in unli%ted euit* %hare%
or euit* linked in%trument%?
'ot more than 25L o& the in+e%tible &und% ma* be in+e%ted b* a* o&?
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o Sub%cription to initial public o&&er o& a +enture capital undertaking
ho%e %hare% are propo%ed to be li%ted %ub-ect to lack in period o&
one *ear?
o ebt or debt in%trument o& a +enture capital undertaking in hich
the +enture capital &und% ha% alread* made an in+e%tment b* a* o&
euit*.
$t ha% al%o been pro+ided that <enture apital und %eeking to a+ail bene&it under
the rele+ant pro+i%ion% o& the $ncome 1a Act ill be reuired to di+e%t &rom the
in+e%tment ithin a period o& one *ear &rom the li%ting o& the <enture apital
Dndertaking.
Di4c'o4ure a&d I&formatio& to I&9e4tor4( in order to %impli&* and epedite the
proce%% o& &und rai%ing, the reuirement o& &iling the lacement memorandum
ith SEH$ i% di%pen%ed ith and in%tead the &und ill be reuired to %ubmit a
cop* o& lacement Memorandum; cop* o& contribution agreement entered to iththe in+e%tor% along ith the detail% o& the &und rai%er &or in&ormation to SEH$.
urther, the content% o& the lacement Memorandum are %trengthened to pro+ide
adeuate di%clo%ure and in&ormation to in+e%tor%. SEH$ ill al%o pre%cribe
%uitable reporting reuirement &rom the &und on their in+e%tment acti+it*.
GI" 4tatu4 for Ve&ture Ca5ita' fu&d4( the +enture capital &und% ill be eligible
to participate in the $6 through book building route a% uali&ied $n%titutional
Hu*er %ub-ect to compliance ith the SEH$ (<enture apital und) Gegulation%.
Re'aatio& i& Ta@eo9er Code( the acui%ition o& %hare b* the compan* or an* o&
the promoter% &rom the <enture apital und% under the term% o& agreement %hall
be treated on the %ame &ooting a% that o& acui%ition o& %hare% b*
promoter%;companie% &rom the %tate le+el &inancial in%titution% and %hall be
eempt &rom making an open o&&er to other %hareholder%.
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I&9e4tme&t b7 #utua' Fu&d4 i& Ve&ture ca5ita' Fu&d4( in order to increa%e
the re%ource% &or dome%tic +enture capital &und%, Mutual und% are permitted to
in+e%t up to 5L o& it% corpu% in the ca%e o& open ended %cheme% and up to "0L o&
it% corpu% in the ca%e o& clo%e ended %cheme%. A part &rom rai%ing the re%ource%
&or <enture apital und% thi% ould pro+ide an opportunit* to %mall in+e%tor% to
participate in +enture capital acti+itie% through Mutual &und%.
0o9er&me&t of I&dia 0uide'i&e4( the Io+ernment o& $ndia (M6) Iuideline%
&or 6+er%ea% <enture apital $n+e%tment in $ndia dated September20, "5 ill
be repealed b* the M6 on noti&ication o& SEH$ <enture apital und
Gegulation%.
1he &olloing ill be the %alient &eature% o& SEH$ (&oreign <enture apital
$n+e%tor%) Gegulation%, 2000
Defi&itio& of Forei6& Ve&ture ca5ita' I&9e4tor( an* entit* incorporated and
e%tabli%hed out%ide $ndia and propo%e% to make in+e%tment in <enture apital
und or <enture apital Dndertaking and regi%tered ith SEH$.
E'i6ibi'it7 Criteria( entit* incorporated and e%tabli%hed out%ide $ndia in the &orm
o& $n+e%tment ompan*, 1ru%t, artner%hip, en%ion und, Mutual und,
Dni+er%it* und, Endoment und, A%%et Management ompan*, $n+e%tment
Manager, $n+e%tment Management ompan* or other $n+e%tment <ehicle
$ncorporated out%ide $ndia ould be eligible &or %eeking regi%tration &rom SEH$.
SEH$ &or the purpo%e o& regi%tration %hall con%ider hether the applicant i%
regulated b* an appropriate &oreign regulator* authorit*? or i% income ta pa*er?
or %ubmit% a certi&icate &rom it% banker o& it% or it% promoter%, track record here
the applicant i% neither a regulated entit* nor an income ta pa*er.
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I&9e4tme&t Criteria(
i%clo%ure o& in+e%tment %trateg*?
Maimum in+e%tment in %ingle +enture capital undertaking not to eceed
25L o& the &und% committed &or in+e%tment to $ndia hoe+er it can
in+e%t it% total &und committed in one +enture capital &und?
Atlea%t 75L o& the in+e%tible &und% to be in+e%ted in unli%ted euit*
%hare% or euit* linked in%trument%.
'ot more than 25Lo& the in+e%tible &und% ma* be in+e%ted b* a* o&
o Sub%cription to initial o&&er o& a +enture capital undertaking ho%e
%hare% are propo%ed to be li%ted %ub-ect to lock in period o& one*ear?
o ebt or debt in%trument o& a +enture capital undertaking in hich
the +enture capital &und% ha% alread* made an in+e%tment b* a*
o& euit*.
$a44'e Free E&tr7 a&d Eit( the oreign <enture apital $n+e%tor% propo%ing tomake +enture capital in+e%tment under the Gegulation% ould be granted
regi%tration b* SEH$. SEH$ Gegi%tered oreign <enture apital $n+e%tor% %hall be
permitted to make in+e%tment on an automatic route ithin the o+erall %ectoral
ceiling o& &oreign in+e%tment under Anneure $$$ o& %tatement o& $ndu%trial olic*
ithout an* appro+al &rom $H. urther, SEH$ regi%tered <$% %hall be
granted a general permi%%ion &rom the echange control angle &or in&lo and
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out&lo o& &und% and no prior appro+al o& GH$ ould be reuired &or pricing,
hoe+er, there ould be eport reporting reuirement &or the amount tran%acted.
Tradi&6 i& U&'i4ted Euit7( the board al%o appro+ed the propo%al to permit61E$ to de+elop a trading indo &or unli%ted %ecuritie% here Kuali&ied
$n%titutional Hu*er% (K$H) ould be permitted to participate.
RE0ULATION OF T$E "USINESS OF VENTURE
CAPITAL FUND IN INDIA E'i6ibi'it7 co&ditio&4 for 6ra&t of 'ice&4e to a 9e&ture ca5ita' fu&d%)
(") A +enture capital &und %hall not be granted licen%e unle%% it &ul&ill% the
&olloing condition%, namel*
a) $t i% incorporated a% a compan* under the ompanie% 6rdinance, "C4
(WB<$$ o& "C4)? b) $t i% not engaged in an* bu%ine%% other than that o& in+e%tment in +enture
pro-ect%?c) $t ha% a minimum paidup capital o& &i&t* million rupee% rai%ed through
pri+ate placement? andd) or the purpo%e o& managing it% entire bu%ine%%, it ha% entered into a
contract, in riting, ith a +enture capital compan* and a cop* o& hich
ha% been &iled ith the ommi%%ion.
(2) 1he board o& +enture capital &und %hall not ha+e a director, ho i% on the board o& an* +enture pro-ect being &inanced b* the &und.
Co&ditio& for 6ra&t of 'ice&4e%)
(") 'o +enture capital &und %hall commence bu%ine%% unle%% a licen%e i% granted
under the%e rule%.
(2) or obtaining a licen%e a +enture capital &und %hall
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a. Make an application to the ommi%%ion on orm < pro+iding
in&ormation a% %ought in Anne therein, along ith all the rele+ant
document%?
b. Submit a bank dra&t pa*able to the ommi%%ion e+idencing the pa*ment o& nonre&undable application proce%%ing &ee amounting to
&i&t* thou%and rupee%? andc. Submit an undertaking that no change in the memorandum and
article% o& a%%ociation and in the director% %hall be made ithout
prior ritten authori>ation o& the ommi%%ion and that all condition%
&or grant o& licen%e %hall be complied ith.
(#) 6n being %ati%&ied that a +enture capital &und i% eligible &or the grant o& a
licen%e and that it ould be in the public intere%t %o to do, the ommi%%ion ma*
grant a licen%e in &orm <$.
(4) 8ithout pre-udice to an* other condition% under the%e rule%, the ommi%%ion
ma* hile granting licen%e impo%e% an* condition%, a% it ma* deem nece%%ar*.
Term4 a&d co&ditio&4 of o5eratio&% Dnle%% granted a general or
%peci&ic ai+er b* the ommi%%ion, a +enture capital &und %halla. 'ot epo%e more than &ort* per cent o& it% euit* to an* %ingle group
o& companie%? Eplanation. or the purpo%e% o& thi% rule group o&
companie% %hall mean companie% managed b* the member% o& one
&amil* including %pou%e, dependent lineal a%cendant% and
de%cendant% and dependent brother% and %i%ter%. b. i%clo%e in it% account% all in+e%tment% in companie% and group o&
companie% eceeding ten per cent o& paidup capital o& +enture
capital &und?c. en%ure that the maimum epo%ure o& the +enture capital &und to it%
director%, a&&iliated companie% and companie% in hich an* o& the
director% and their &amil* member% including %pou%e, dependentlineal a%cendant% and de%cendant% and dependent brother% and %i%ter%
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hold controlling intere%t %hall not eceed ten per cent o& the o+erall
port&olio o& +enture capital? andd. 'ot accept an* in+e%tment &rom an* in+e%tor, hich i% le%% than one
million rupee%. Re&e?a' of 'ice&4e% J
(") 1he licen%e granted to the &und under rule "0 %hall be +alid &or one *ear and
%hall be reneable annuall* on pa*ment o& a &ee o& tent* thou%and rupee% on an
application being made on orm <$$.
(2) 1he ommi%%ion ma*, a&ter making %uch inuir* and a&ter obtaining %uch
&urther in&ormation a% it ma* con%ider nece%%ar*, rene the licen%e o& %uch &und,
one *ear on orm <$$$ on %uch condition% a% it ma* deem nece%%ar*.
Pri9ate 5'aceme&t%)
A +enture capital &und %hall rai%e and recei+e monie% &or in+e%tment in +enture
pro-ect% through pri+ate placement o& %uch %ecuritie% a% ma* be noti&ied b* theommi%%ion, &rom time to time.
P'aceme&t memora&dum%)
A +enture capital &und %hall, be&ore %oliciting placement o& it% %ecuritie%, &ile ith
the ommi%%ion a placement memorandum hich %hall inter alia gi+e detail% o&
the term% %ub-ect to hich monie% are propo%ed to be rai%ed &rom %uch placement%.
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:EY SUCCESS FACTOR FOR VENTURE CAPITAL
INDUSTRY IN INDIA
Fnoledge become% the ke* &actor &or a competiti+e ad+antage &or compan*.
<enture apital &irm% need more epert knoledge in +ariou% &ield%. 1he +ariou%
ke* %ucce%% &actor% &or +enture capital indu%tr* are a% &ollo
:&o?'ed6e about 0o9t% c8a&6i&6 5o'icie4(
$n+e%tment, management and eit %hould pro+ide &leibilit* to %uit the bu%ine%%
reuirement% and %hould al%o be dri+en b* global trend%. <enture capital
in+e%tment% ha+e t*picall* come &rom high net orth indi+idual% ho ha+e ri%k
taking capacit*. Since high ri%k i% in+ol+ed in +enture &inancing, +enture
in+e%tor% globall* %eek in+e%tment and eit on +er* &leible term% hich pro+ide%
them ith certain le+el% o& protection. Such eit %hould be po%%ible through $6%
and merger%;acui%ition% on a global ba%i% and not -u%t ithin $ndia. $n thi%
contet the -udgment o& the -udiciar* rai%ing doubt% on treatment o& ta on capital
gain% made b* &irm% regi%tered in Mauritiu% gain% %igni&icance changing
policie% ith a retro%pecti+e e&&ect i% undoubtedl* acting a% a dampener to &re%h
&und rai%ing b* <enture capital &irm%.
Guic@ Re45o&4e time (
1he companie% ha+e &lat organi>ation %tructure re%ult% in uicker deci%ion
making. 1he entrepreneur i% relie+ed o& the trauma that one normall* goe%
through in an inter&ace ith a &unding in%titution or a de+elopment agenc*. 1he*
&ollo a clearl* de&ined deci%ion making proce%% that ork% ith clock like
preci%ion, hich mean% that i& the* agree on a &unding %chedule entrepreneur can
count on them to %tick it.
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:&o?'ed6e about 0'oba' E&9iro&me&t
8ith increa%ing global integration and mobilit* o& capital it i% important that
$ndian +enture capital &irm% a% ell a% +enture &inanced enterpri%e% be able to
ha+e opportunitie% &or in+e%tment abroad. 1hi% ould not onl* enhance their
abilit* to generate better return% but al%o add to their eperience and eperti%e to
&unction %ucce%%&ull* in a global en+ironment.
0ood $uma& Re4ource (
<enture capital %hould become an in%titutionali>ed indu%tr* &inanced and
managed b* %ucce%%&ul entrepreneur%, pro&e%%ional and %ophi%ticated in+e%tor%.
Iloball*, +enture capitali%t are not merel* &inance pro+ider% but are al%o clo%el*
in+ol+ed ith the in+e%tee enterpri%e% and pro+ide eperti%e b* a* o&
management and marketing %upport. 1hi% indu%tr* ha% de+eloped it% on etho%
and culture. <enture capital ha% onl* one common a%pect that cut% acro%%
geograph* i.e. it i% ri%k capital in+e%ted b* epert% in the &ield. $t i% important that
+enture capital in $ndia be alloed to de+elop +ia pro&e%%ional and in%titutional
management.
"a'a&ce bet?ee& t8ree factor4
<enture apital backed companie% can pro+ide high return%. @oe+er, de%pite o&
%ucce%% %torie% like Apple, edE o& Micro%o&t, a lot o& the%e deal% &ail. $t i% %aid
that onl* one out o& ten companie% %ucceed. 1hat% h* e+er* deal ha% an element
o& potential pro&it and an element o& ri%k, depending on the deal% %i>e. 1o be
%ucce%%&ul, a <enture apital ompan* mu%t manage the balance beteen the%e
three &actor%.
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rame ork &or ke* %ucce%% &actor
Fnoledge i% ke*, to get the balance in thi% PMagic 1riangleP. 8ith knoledge
e mean knoledge about the &inancial market% and the indu%trie% to in+e%t in,
ri%k management %kill% and contact% to in+e%tor%, po%%ible in+e%tee% and eternal
eperti%e. @igh pro&it%, achie+able b* larger deal%, are not onl* important &or the
&inancial per&ormance o& the <enture apital ompan*. A% a good track record
the* are al%o a +ital argument to attract &und% hich are the ba%i% &or larger deal%.
@oe+er, larger deal% impl* higher ri%k% o& lo%%e%. Man* <enture apital
companie% tr* to %hare and limit their ri%k%. Solution% could be alliance% and
care&ul port&olio management. 1here are <enture apital &irm% that re&u%e to
in+e%t in e%tartup becau%e the* percei+e it a% too ri%k* to &ollo toda*% t*pe.
Study Of Venture Capital In India Page No: "24
Knowledge
Ri4@ ma&a6eme&t 4@i''4
a&d co&tact4 to i&9e4tor4
Po44ib'e i&9e4tee4 a&d
eter&a' e5erti4e
Fi&a&cia' mar@et4 a&d
t8e i&du4trie4 to i&9e4t i&
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INDUSTRIAL ATTRACTIVENESS #ar@et 6ro?t8 rate
AIG o& +enture capital indu%tr*
rom the abo+e graph e can %a* that <enture capital indu%tr* i% groing at the
AIG o& 4#L. And the +alue o& deal% in 2000 a% "":0 hich increa%ed to
"42#4 in the *ear o& 2007. 1hi% %ho% %ub%tantial increa%e in the number o&
deal%. 1hi% attract% the ne entrepreneur to enter in the indu%tr*.
I&te&4it7 of com5etitio&(
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'umber o& +enture capital &irm% in $ndia
@ere the number o& +enture capital &irm% i% increa%ing *ear b* *ear. $n 200" it i%
onl* 77 no it ha% been increa%ed to ":0 in the *ear o& 200C. 1he rea%on behind
that i% there i% o+er all groth in the I and al%o %ub%tantial groth po%ition in
%ector% like biotechnolog*, $1ES, retailing, telecom etc. due to thi% more pla*er%
are eager to e%tabli%h their &oothold in the indu%tr*.
Re6u'ator7 5o'ic7
Minimum contribution and &und %i>e the minimum in+e%tment in a <enture
apital und &rom an* in+e%tor ill not be le%% than G%. 5 lac% and the minimum
corpu% o& the &und be&ore the &und can %tart acti+itie% %hall be at lea%t G%. 5
crore%. And the &oreign pla*er% can ea%il* enter in the +enture capital indu%tr* o&
$ndia. An o&&%hore +enture capital compan* ma* contribute "00L o& the capital
o& dome%tic +enture capital &und. 1here are other hurdle% to enter in the indu%tr*
%o there i% &a+orable condition &or them to enter in to +enture capital indu%tr* in
$ndia.
DO#ESTIC ECONO#IC FACTORS(
0DP 6ro?t8 rate
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I <;S < Iroth rate
$n abo+e chart there a% a po%iti+e relation%hip there a% beteen I grothrate%. Hut in 2007 the groth o& <enture apital a% decline to C.7L &rom
240."L in 200: but here the +alue o& deal a% increa%ing. $n 200C the groth
rate i% L and pro-ect the net *ear I CL to L. So here e can conclude that
there i% good groth pro%pect &or the +enture capital pla*er% to enter in the
hori>on o& $ndia.
$n&lation <;S <enture capital groth rate
$n abo+e chart the in&lation rate i% decrea%ed to 4.5 in 2005 &rom 7.4 in 2004. At
%ame time the groth o& <enture apital i% al%o declining to ##.##L in 2005
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&rom 25".0:L in 2004. rom the abo+e chart e can conclude that in&lation and
<enture apital ha% po%iti+e relation%hip. 'o in 3une 200C the in&lation rate a%
"". and the '6. 6& deal in &ir%t to uarter in 200C a% "70 and +alue o& deal
a% :#0 DSmn and in third uarter o& 200C there a% onl* &our deal%. And in
6ctober the in&lation touch the "#.0"L. ue to increa%e in in&lation rate the
people ill go to %pend more. 1hu%, their %a+ing% ill decrea%e. So more mone*
ill come into the market and demand o& the product% ill increa%e continuou%l*.
'o due to groth o& an* %ector ill attract ne entrepreneur to enter in the
indu%tr*. or that the* mu%t need &und%. So there i% a great opportunit* &or
+enture capital indu%tr* to attract thi% ne entrepreneur.
S#ALL SCALE INDUSTRIES
Iroth o& %mall and medium %cale indu%trie%
<enture apital, to be able to contribute to de+eloping entrepreneur%hip in $ndia,
need% to concentrate it% in+e%tment in %mall and medium enterpri%e%. A ackage
&or romotion o& Micro and Small Enterpri%e%/ a% announced in ebruar* 2007.
1hi% include% mea%ure% addre%%ing concern% o& credit, &i%cal %upport, clu%ter
ba%ed de+elopment, in&ra%tructure, technolog*, and marketing. apacit* building
o& MSME A%%ociation% and %upport to omen entrepreneur% are the other
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important &eature% o& thi% package. SME% ha+e been alloed to manage their
direct;indirect epo%ure to &oreign echange ri%k b* booking;canceling;rollo+er
o& &orard contract% ithout prior permi%%ion o& GH$.
1o boo%t the micro and %mall enterpri%e %ector, the bank ha% decided to re&inance
an amount o& 7000 crore to the Small $ndu%trie% e+elopment Hank o& $ndia,
hich ill be a+ailable up to March #", 20"0. 1he entral Hank %aid that it i%
al%o orking on a %imilar re&inance &acilit* &or the 'ational @ou%ing Hank
('@H) o& an amount o& G% 4, 000 crore.
E=PORT AND I#PORT
<alue o& eport import
1he +alue o& $mport and eport are increa%ing *ear b* *ear. $n 20020# the +alue
o& import and eport are 52.7 and :".4 DS bn re%pecti+el* and in 20070C the
+alue o& import and eport are "55.7 and "C5.7 DS bn. $t mean% indu%tr* need%
more mone* &or import and eport. So it i% an opportunit* &or +enture capital. 6n
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the other %ide hen compan* going to eport the compan* mu%t ha+e good
contact ith other countr*=% compan*. So &or that +enture capital indu%tr* i%
u%e&ul becau%e the* ha+e good contact and a&&iliation netork ith other
countr*=% compan*.
I&du4tr7 Profitabi'it7(
1he +enture capital &irm% in+e%t their mone* in mo%t emerging %ector% like
biotechnolog*, $1ES, retailing, in&ra%tructure hich gi+e% higher return but al%o
the* all in+ol+ed ri%k in %ub%tantial amount.
o%%ible re%ult o& +enture capital in+e%tment%
'o. o& companie% out o& "0
in+e%tment%
Annual rate o&
return
ailure 4 0L
<iable # "5L
Solid 2 50L
Super%tar% " "00LHlended a+erage 24.5
Succe%% ratio o& +enture capital deal%
rom the abo+e table e can %ee the %ucce%% ratio o& the +enture capital
in+e%tment. 40L o& the in+e%tment% are getting &ailure and onl* "0L o& them are
able to gi+e "00L return. And the a+erage return b* the +enture capitali%t% i% onl*
24.5L hich i% not etra ordinar*. 1hi% t*pe o& return% can be &ound in man*
other in+e%tment option%. So there i%n=t an* %pecial rea%on to in+e%t in +enture
capital.
Product i&&o9atio&(
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<enture capital &irm% are coming ith ne idea% o& in+e%tment to attract the
bu*er% to their &irm%. or thi% purpo%e the* are introducing ne t*pe% o& &und%
and %cheme%.
or eample, $$ <enture apital und% Bimited ($<) ha% launched three
ne &und% in emerging %ector% o& the econom* namel*
i) $ndia Automoti+e omponent Manu&acturer% ri+ate Euit* und !"ome%tic
($AM") ith a target corpu% o& Euro :0 million eui+alent to G%.#: crore%.
1hi% und ill be dedicated &or in+e%tment mainl* in $ndian Automoti+e
omponent companie% and in other related; emerging %ector%.
ii) $ndia Enterpri%e e+elopment und ($E), a <enture apital &und %et up
ith target corpu% o& G%.250 crore% to in+e%t in knoledge ba%ed pro-ect% in ke*
%ector% o& $ndian econom* ith out%tanding groth pro%pect%.
iii) Ireen $ndia <enture und (I$<), a <enture apital &und %etup ith a target
corpu% o& Euro 50 million (appro. G%.##0 crore%) ith the ob-ecti+e to in+e%t in
commerciall* +iable lean e+elopment Mechani%m (M), energ* e&&icient
and other commerciall* +iable pro-ect% ith an aim to reduce negati+e ecological
impact, e&&icient u%age o& re%ource% %uch a% energ*, poer etc and other related
%ector%;pro-ect%. 1he %ummar* o& the und%
Baunching o& ne &und% b* $$
und% $AM !" I$< $E
6b-ecti+e 1o in+e%t in $ndian
companie% engaged
in, among%t other%, the
automoti+e part% and
component%manu&acturing %ector
1he ob-ecti+e o&
I$< ould be to
in+e%t in companie%
%etting up lean
e+elopmentMechani%m (M)
1o in+e%t in
knoledge ba%ed
pro-ect% ith
relati+el* high entr*
barrier%, criticalapplication%,
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in order to generate
high return% &or it%
in+e%tor%.
pro-ect% and other
commerciall* +iable
pro-ect%; bu%ine%%.
pro%pect% &or high
groth and global
%calabilit* in
di+er%i&ied and; or
emerging %ector%.
Si>e Euro :0 million ($'G
#: r)
Euro 50 million
($'G ##0 r) ith
green %hoe option
$'G 250 r
'ature o& und E und < und < und
1enure C *r%. 8ith to
prolongation option o&
" *ear each
"0 *ear% ith to
prolongation option%
o& " *ear each
"0 *ear% ith to
prolongation option%
o& " *ear each.
Epected return% 20L p.a. 20L p.a. 20L p.a.
Si>e o&
in+e%tment
G%. : to 40 r G%. 2 to #0 r G%. 2 to 25 r
Management &ee 2L o& the total
%ub%cription amount
2L o& the total
%ub%cription amount
2L o& the total
%ub%cription amount
Baunching o& ne &und% b* $$
1he S$6M +enture capital &irm introduce SME opportunit* &und &or %mall %cale
indu%trie%.
0UIDELINES FOR OVERSEAS VENTURE CAPITAL
INVEST#ENT IN INDIA
$n recognition o& groing importance o& <enture apital a% one o& the %ource% o&
&inance &or $ndian indu%tr*, particularl* &or the %maller unli%ted companie%, the
Io+ernment ha% announced a polic* go+erning the e%tabli%hment o& dome%tic
<enture apital und%;ompanie%. An amendment ha% al%o been carried out in
the SEH$ Act empoering the Securitie% and Echange Hoard o& $ndia (SEH$) to
regi%ter and regulate <enture apital und% (<%) and <enture apitalompanie% (<%) through %peci&ic regulation%.
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8ith a +ie to augment the a+ailabilit* o& <enture apital, the Io+ernment ha%
decided to allo o+er%ea% +enture capital in+e%tment% in $ndia %ub-ect to %uitable
guideline% a% outlined belo
6&&%hore in+e%tment ma* in+e%t in appro+ed dome%tic <enture apital
und%;ompanie% %et up under the ne polic* a&ter obtaining $H appro+al
&or the in+e%tment. 1here i% no limit to the etent o& &oreign contribution to a
dome%tic +enture capital compan*; &und. An o&&%hore +enture capital compan*
ma* contribute "00L o& the capital o& dome%tic +enture capital &und, and ma*
al%o %et up a dome%tic a%%et management compan* to manage the und.
E%tabli%hment o& an a%%et management compan* ith &oreign in+e%tment to
manage %uch &und% ould reuire $H appro+al and ould be %ub-ect to the
ei%ting norm% &or &oreign in+e%tment in nonbank &inancial %er+ice%
companie%.
6nce the initial $H appro+al ha% been obtained, the %ub%euent in+e%tment
b * the dome%tic +enture capital compan*;&und in $ndian companie% ill not
reuire $H appro+al. Such in+e%tment% ill be limited onl* b* the general
re%triction applicable to +enture capital companie% +i>.o A minimum lockin period o& three *ear% ill appl* to all %uch
in+e%tment%.o <% and <% %hall in+e%t onl* in unli%ted companie% and their
in+e%tment %hall be limited to 40L o& the paid up capital o& the
compan*. 1he ceiling ill be %ub-ect to rele+ant euit* in+e%tment
limit% that ma* be in &orce &rom time to time in relation to area%
re%er+ed &or the Small Scale Sector.o $n+e%tment in an* %ingle compan* b* a <;< %hall not eceed
20L o& the paidup corpu% o& the dome%tic <;<. 1he ta eemption a+ailable to dome%tic <% and <% under Section
"0(2#) o& the $ncome 1a Act, ":", ill al%o be etended to dome%tic <%and <% hich attract o+er%ea% +enture capital in+e%tment% pro+ided the%e
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<%;<% con&orm to the guideline% applicable &or dome%tic <%;<%.
@oe+er, i& the <;< i% illing to &orego the ta eemption% a+ailable
under Section "0(2#) o& the $ncome 1a Act, it ould be ithin it% right% to
in+e%t in an* %ector. $ncome paid to o&&%hore in+e%tor% &rom $ndian <%;<% ill be %ub-ect to
ta a% per the normal rate% applicable to &oreign in+e%tor%. 6&&%hore in+e%tor% ma* al%o in+e%t directl* in the euit* o& unli%ted $ndian
companie% ithout going through the route o& a dome%tic <;<.
@oe+er, in %uch ca%e% each in+e%tment ill be treated a% a %eparate act o&
&oreign in+e%tment and ill reuire %eparate appro+al a% reuired under the
general polic* &or &oreign in+e%tment propo%al%.
C$ALLEN0ES A$EAD FOR VENTURE CAPITAL
FINANCIN0 IN INDIA
<enture apital i% mone* pro+ided b* pro&e%%ional% ho in+e%t and manage
*oung rapidl* groing companie% that ha+e the potential to de+elop into
%igni&icant economic contributor%. According to SEH$ regulation%, +enture capital
&und mean% a &und e%tabli%hed in the &orm o& a compan* or tru%t, hich rai%e%
mone* through loan%, donation%, i%%ue o& %ecuritie% or unit% and make% or
propo%e%, to make in+e%tment% in accordance ith the%e regulation%. 1he &und% %o
collected are a+ailable &or in+e%tment in potentiall* highl* pro&itable enterpri%e%
at a high ri%k o& lo%%. A <enture apitali%t i% an indi+idual or a compan* ho
pro+ide%. $n+e%tment apital, Management Eperti%e, 'etorking 9 marketing
%upport hile &unding and running highl* inno+ati+e 9 pro%pecti+e area% o&
product% a% ell a% %er+ice%.1hu%, the in+e%tment made b* <enture apitali%t% generall* in+ol+e% !
o inancing ne and rapidl* groing companie%.
o urcha%ing euit* %ecuritie%.
o 1aking higher ri%k in epectation o& higher reard%.
o @a+ing a long &rame o& time period, generall* o& more than 5 : *ear%.
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o Acti+el* orking ith the compan*% management to de+i%e %trategie%
pertaining to the o+erall &unctioning o& the pro-ect.o 'etorking and marketing o& the product ;%er+ice being o&&ered.
$n an attempt to bring together highl* in&luential $ndian% li+ing acro%% the Dnited
State%, a netorking %ociet* named $' DS Entrepreneur% or 1iE a% %et up in
"2. 1he aim a% to get the $ndian communit* together and to &o%ter
entrepreneur% &or ealth creation. A core group o& "0 "5 indi+idual% orked
hard to e%tabli%h the organi>ation. 1he group (1iE) ha% no o+er :00 member%
ith 20 o&&ice% %pread acro%% the Dnited State%. Some o& the &amou% per%onalitie%
belonging to thi% group are <inod ham (&ather o& the entium hip), rabhu
Ioel, and F.H. handra%hekhar (@ead o& 200 mn. Eodu% ommunication%, a
&ibre optic netork carr*ing #0L o& all $nternet content tra&&ic ho%ting eb%ite%
like Yahoo, @otmail and Ama>on.)
PRO"LE#S OF VENTURE CAPITAL FINANCIN0
IN INDIA(
< i% in it% na%cent %tage% in $ndia. 1he emerging %cenario o& global
competiti+ene%% ha% put an immen%e pre%%ure on the indu%trial %ector to impro+e
the ualit* le+el ith minimi>ation o& co%t o& product% b* making u%e o& late%t
technological %kill%. 1he implication i% to obtain adeuate &inancing along ith
the nece%%ar* hitech euipment% to produce an inno+ati+e product hich can%ucceed and gro in the pre%ent market condition. Dn&ortunatel*, our countr*
lack% on both &ront%. 1he nece%%ar* capital can be obtained &rom the +enture
capital &irm% ho epect an abo+e a+erage rate o& return on the in+e%tment. 1he
&inancing &irm% epect a %ound, eperienced, mature and capable management
team o& the compan* being &inanced. Since the inno+ati+e pro-ect in+ol+e% a
higher ri%k, there i% an epectation o& higher return% &rom the pro-ect. 1he
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pa*back period i% al%o generall* high (5 7 *ear%). 1he +ariou% problem%; uerie%
can be outlined a% &ollo%
o
Geuirement o& an eperienced management team.o Geuirement o& an abo+e a+erage rate o& return on in+e%tment.
o Bonger pa*back period.
o Dncertaint* regarding the %ucce%% o& the product in the market.
o Kue%tion% regarding the in&ra%tructure detail% o& production like plant
location, acce%%ibilit*, relation%hip ith the %upplier% and creditor%,
tran%portation &acilitie%, labor a+ailabilit* etc.o 1he categor* o& potential cu%tomer% and hence the packaging and pricing
detail% o& the product.o 1he %i>e o& the market.
o Ma-or competitor% and their market %hare.
o Skill% and 1raining reuired and the co%t o& training.
o inancial con%ideration% like return on capital emplo*ed (G6E), co%t o&
the pro-ect, the $nternal Gate o& Geturn ($GG) o& the pro-ect, total amount
o& &und% reuired, ratio o& oner% in+e%tment (per%onnel &und% o& the
entrepreneur), borroed capital, mortgage loan% etc. in the capital
emplo*ed.
OPPORTUNITIES AND T$REATS
OPPORTUNITIES(
I&itiati9e4 ta@e& b7 t8e 0o9er&me&t i& formu'ati&6 5o'icie4 to e&coura6e
i&9e4tor4 a&d e&tre5re&eur4
1he emerging %cenario o& global competiti+ene%% ha% put an immen%e pre%%ure on
the indu%trial %ector to impro+e the ualit* le+el ith minimi>ation o& co%t o&
product% b* making u%e o& late%t technological %kill%. 1he implication i% to obtain
adeuate &inancing along ith the nece%%ar* hitech euipment% to produce an
inno+ati+e product hich can %ucceed and gro in the pre%ent market condition.
Dn&ortunatel*, our countr* lack% on both &ront%. 1he nece%%ar* capital can be
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obtained &rom the +enture capital &irm% ho epect an abo+e a+erage rate o&
return on the in+e%tment. Io+ernment o& $ndia under%tand% thi%.
Al%o, 1he Io+ernment o& $ndia in an attempt to bring the nation at par and abo+ethe de+eloped nation% ha% been promoting +enture capital &inancing to ne,
inno+ati+e concept% 9 idea%, liberali>ing taation norm% pro+iding ta incenti+e%
to +enture &irm%, gi+ing an opportunit* &or the creation o& local pool% o& capital
and holding training %e%%ion% &or the emerging < in+e%tor%.
$n the *ear 2000, the &inance mini%tr* announced the liberali>ation o& ta
treatment &or +enture capital &und% to promote them 9 to increa%e -ob creation.
1hi% i% epected to gi+e a %trong boo%t to the non re%ident $ndian% located in the
Silicon <alle* and el%ehere to in+e%t %ome o& their capital, knoledge and
enterpri%e in the%e +enture%.
o S#E 0RO;T$
<, to be able to contribute to de+eloping entrepreneur%hip in $ndia, need% to
concentrate it% in+e%tment in %mall and medium enterpri%e%. A “Pac@a6e for
Promotio& of #icro a&d Sma'' E&ter5ri4e4 a% announced in ebruar* 2007.
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1hi% include% mea%ure% addre%%ing concern% o& credit, &i%cal %upport, clu%ter
ba%ed de+elopment, in&ra%tructure, technolog*, and marketing. apacit* building
o& MSME A%%ociation% and %upport to omen entrepreneur% are the other
important &eature% o& thi% package. SME% ha+e been alloed to manage their
direct;indirect epo%ure to &oreign echange ri%k b* booking;canceling;rollo+er
o& &orard contract% ithout prior permi%%ion o& GH$.
1o boo%t the micro and %mall enterpri%e %ector, the bank ha% decided to re&inance
an amount o& 7000 crore to the Small $ndu%trie% e+elopment Hank o& $ndia,
hich ill be a+ailable up to March #", 20"0. 1he entral Hank %aid that it i%
al%o orking on a %imilar re&inance &acilit* &or the 'ational @ou%ing Hank
('@H) o& an amount o& G% 4, 000 crore.
1he $ndian econom* i% groing at CL %o the there i% a de+elopment o& all
%ector like manu&acturing, %er+ice% %ector. So there i% a great opportunitie% &or
<enture apital &irm%. Hecau%e mo%tl* in+e%t their mone* in thi% %ector%.
I&dia amo&64t 'eadi&6 e&tre5re&euria' $otbed4 6'oba''7
it* competencie% emerging
o Hangalore
All $led companie%? $1 and $1enabled %er+ice%
o elhi ('G)
So&tare %er+ice%, $1 enabled %er+ice%, 1elecom
o Mumbai
So&tare %er+ice%, $1 enabled %er+ice%, Media, omputer Iraphic%,
Animation, Hankingo 6ther emerging enter%
hennai, @*derabad, and une
Emer6i&6 4ector4 for i&9e4tme&t4
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A% the +enture indu%tr* continue% to accelerate, a number o& trend% that cro%%
geographie% can be %een. 1he indu%tr* i% becoming e+en more globali>ed .A% a
re%ult, inno+ation in clean tech, $1, and healthcare, pharmaceutical are ha+ing a
global impact. 1hi% changing land%cape i% dri+ing ne approache% in ho large
corporation% are interacting ith the +enture communit*.
C'ea& tec8&o'o67
Ilobal climate change%, high oil price%, accelerated groth in emerging market%,
energ* %ecurit* concern% and the &inite nature o& re%ource% are %ome o& the ke*
dri+er% o& the groing global demand &or clean technologie% in energ* and ater.
$n addition ,the increa%ed illingne%% o& con%umer% and go+ernment% to pa* &or
and u%e green technologie% ,combined ith the po%iti+e eit en+ironment o& the
la%t *ear% ,ha% pro+ided +enture capitali%t% ith the con&idence to in+e%t in
emerging companie% around the globe.
According to the re%earch &rom o 3one% <enture 6ne and Ern%t 9Young .DS
".2C billion a% in+e%ted in "40&inancing round% in 200: in hina , Europe
$%rael and Dnited State% that compare% to DS ::4." million in+e%ted in "0#
&inancing round% in 2005,%hoing the capital in+e%tment in the &ield ha% nearl*
doubled o+er the pa%t *ear. $t i% epected that in+e%tment in clean technologie%
ill continue to increa%e not onl* in de+eloped market% but al%o in the de+eloping
market%, mainl* in $ndia and hina.
"iotec8&o'o67
6+er la%t &e *ear% ,the %tor* o& the DS biotech indu%tr* ha% been one o& the
remarkable %ucce%% .1here are %ign% that thi% %ucce%% %tor* i% no repeated in
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other part% o& orld ,ith maturing pipeline%, record breaking &inancing total%,
%trong deal acti+it* and impre%%i+e &inancial re%ult%. $ndu%tr* i% gre #"L &or
%econd *ear in ra in 2007.
P8armaceutica'
1he indu%tr*% groth rate i% likel* to touch " per cent &rom the current "# per
cent, according to a pro-ection relea%ed b* the on&ederation o& $ndian $ndu%trie%
($$), on September ", 200C.
According to a McFin%e* %tud*, the $ndian pharmaceutical indu%tr* i% pro-ectedto gro to DS 25 billion b* 20"0 herea% the dome%tic market i% likel* to more
than triple to DS 20 billion b* 20"5 &rom the current DS : billion to become
one o& the leading pharmaceutical market% in the net decade.
1he $ndian pharmaceutical indu%tr* ha% %hon robu%t groth in term% o&
in&ra%tructure de+elopment, technolog* ba%e creation and a ide range o&
product% ith a determination to &louri%h in the rapidl* changing en+ironment,
thereb* e%tabli%hing it% global pre%ence. 1he $ndian pharmaceutical indu%tr* ha%
increa%ed it% competiti+e inten%it* oing to pricing pre%%ure% and %tri+ing
con%i%tentl* to inno+ate. $$$ <enturecontrolled Ganba* ine hemical%
(GB) ha% acuired the DSba%ed %pecialt* chemical% ma-or Mallinckrodt
Haker in a deal e%timated at DS #40 million.
So there i% great opportunit* &or +enture capital indu%tr* to in+e%t their mone* in
thi% %ector. 'oada*%, $ndia ill become a global pharmac* hub eporting b*
eporting dome%ticall* produced generic product%.
ITIT)ES I&du4tr7
1he epartment o& $n&ormation 1echnolog* i% %etting up 'ano Electronic enter%
at the $ndian $n%titute o& 1echnolog*, Mumbai and the $ndian $n%titute o& Science,
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Hangalore. 8ith an outla* o& about G%. "00 crore to carr* out G9 acti+itie% in
nanoelectronic% de+ice% and material%.
$n 200:07, the per&ormance o& the $n&ormation 1echnolog* Enabled Ser+ice%! Hu%ine%% roce%% 6ut%ourcing ($1ESH6) indu%tr* a% marked b* doubledigit
re+enue groth, %tead* epan%ion into neer %er+ice line% and increa%ed
geographic penetration and an unprecedented ri%e in in+e%tment% b* multinational
corporation% (M'%).
1he Special $ncenti+e ackage Scheme (S$S) to encourage in+e%tment% &or
%etting up %emiconductor &abrication and other micro and nanotechnolog*
manu&acturing indu%trie% a% announced in March2007. 1he incenti+e%
admi%%ible ould be 20 per cent o& the capital ependiture during the &ir%t "0
*ear% &or unit% located in Special Economic Qone% (SEQ%) and 25 per cent &or
unit% located out%ide SEQ%.
E'ectro&ic I&du4tr7
1here i% a high groth o& %o&tare and %olution% related to the con%umer $nternet,
%o&tare a% a %er+ice (SAAS), open %ource, %o&tarecum%er+ice% and
telecommunication% (both irele%% and ireline) product% and related %er+ice%.
1here i% a great opportunit* &or +enture capital indu%tr* to in+e%t in thi%
electronic production indu%tr*.
T8reat4(
Ve&ture Ca5ita' #ar@et i& I&dia 0etti&6 O9er8eated
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1he <enture apital market in $ndia %eem% to be getting a% hot a% the countr*=%
&amou% %ummer%. @oe+er, thi% potential o+ereuberance ma* lead to %ome
%torm* da*% ahead, ba%ed on %obering re%earch compiled b* global re%earch and
anal*tic% %er+ice% &irm, E+alue%er+e. E+alue%er+e re%earch %ho% an intere%ting
phenomenon i% beginning to emerge
6+er 44 DSba%ed <enture capital &irm% are no %eeking to in+e%t hea+il* in
%tartup% and earl*%tage companie% in $ndia. 1he%e &irm% ha+e rai%ed, or are in
the proce%% o& rai%ing, an a+erage o& DS "00 million each. $ndeed, i& the%e 40
plu% &irm% are %ucce%%&ul in rai%ing mone*, the* ould garner approimatel* 4.4
billion to be in+e%ted during the net 4 to 5 *ear%. 1aking $ndian urcha%ing
oer arit* () into con%ideration, thi% ould be eui+alent to 22 billion
orth o& in+e%tment in the DS. Since about ".75 billion (or approimatel* 40L
o& 4.4 billion) ha% been alread* rai%ed, e+en i& onl* 2.2 billion i% rai%ed b*
ecember 200:, E+alue%er+e caution% that there ill be a glut o& <enture apital
mone* &or earl* %tage in+e%tment% in $ndia. 1hi% ill be e%peciall* true i& the <%
continue to in+e%t onl* in currentl* &a+orite %ector% %uch a% $1, H6, %o&tare
and hardare product%, telecom, and con%umer $nternet. Ii+en that a t*pical
%tartup in $ndia ould reuire million during the &ir%t three *ear% (i.e., #
million per *ear) and e+en a%%uming that the %tartup %ur+i+e% &or three *ear%,
in+e%ting 2.2 billion during 200720"0 ould impl* in+e%ting in "50 to "C0
%tartup% e+er* *ear during thi% period, hich %impl* doe% not %eem practical i&
the <% continue to &ocu% onl* on their current &a+orite %ector%.
U&5roducti9e ?or@force(
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A global %ur+e* b* McFin%e* 9 ompan* re+ealed that $ndian bu%ine%% leader%
are much more optimi%tic about the &uture than their international peer%. So
$ndian emplo*ee% are tard* in their -ob %o it ill e&&ect re+er%el* on the economic
condition o& the countr*. Hecau%e the* are unproducti+e to the econom* o& the
countr*.
Eit route barrier4(
ue to cra%h don o& market b* 5"L &rom 3anuar* to 'o+ember 200C. $t create%
a problem &or +enture capital &irm%. Hecau%e nobod* i% tr*ing to come up ith
$6 and $6 i% the eit% route door <enture apital.
Tae4 o& emer6i&6 4ector
A% per Dnion Hudget 2007 and it% broad guideline%, Io+ernment propo%ed to
limit pa%%through %tatu% to +enture capital &und% (<%) making in+e%tment in
nine area%. 1he%e nine area% are biotechnolog*, in&ormation technolog*,
nanotechnolog*, %eed re%earch and de+elopment, G9 &or pharmac* %ector%,
dair* indu%tr*, poultr* indu%tr* and production o& bio&uel%. a%%through %tatu%
mean% that the income% earned b* &und% are taable no.
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RECO##ENDATIONS(
#u'ti5'icit7 of re6u'atio&4 J &eed for 8armo&iatio&
a&d &oda' Re6u'ator(
re%entl* there are three %et o& Gegulation% dealing ith +enture capital acti+it*
i.e. SEH$ (<enture apital Gegulation%) ":, Iuideline% &or 6+er%ea% <enture
apital $n+e%tment% i%%ued b* epartment o& Economic A&&air% in the M6 in
the *ear "5 and H1 Iuideline% &or <enture apital ompanie% in "5
hich a% modi&ied in ". 1he need i% to con%olidate and %ub%titute all the%e
ith one %ingle regulation o& SEH$ to pro+ide &or uni&ormit*, ha%%le &ree %ingle
indo clearance. 1here i% alread* a pattern a+ailable in thi% regard? the mutual
&und% ha+e onl* one %et o& regulation% and once a mutual &und i% regi%tered ith
SEH$, the ta eemption b* H1 and in&lo o& &und% &rom abroad i% a+ailable
automaticall*. Similarl*, in the ca%e o& $$%, ta bene&it% and &oreign
in&lo%;out&lo% are automaticall* a+ailable once the%e entitie% are regi%tered
ith SEH$. 1here&ore, SEH$ %hould be the nodal regulator &or <% to pro+ide
uni&orm, ha%%le &ree, %ingle indo regulator* &rameork. 6n the pattern o& $$%,
oreign <enture apital $n+e%tor% (<$%) al%o need to be regi%tered ith SEH$.
Ta 5a44e4 t8rou68 for Ve&ture Ca5ita' Fu&d4(
<% are a dedicated pool o& capital and there&ore operate in &i%cal neutralit* and
are treated a% pa%% through +ehicle%. $n an* ca%e, the in+e%tor% o& <% are
%ub-ected to ta. Similarl*, the in+e%tee companie% pa* tae% on their earning%.
1here i% a ell e%tabli%hed %ucce%%&ul precedent in the ca%e o& Mutual und%
hich once regi%tered ith SEH$ are automaticall* entitled to ta eemption at
pool le+el. $t i% an e%tabli%hed principle that taation %hould be onl* at one le+el
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and there&ore taation at the le+el o& <% a% ell a% in+e%tor% amount to double
taation. Since like mutual &und% < i% al%o a pool o& capital o& in+e%tor%, it
need% to be treated a% a ta pa%% through. 6nce regi%tered ith SEH$, it %hould be
entitled to automatic ta pa%% through at the pool le+el hile maintaining taation
at the in+e%tor le+el ithout an* other reuirement under $ncome 1a Act.
#obi'iatio& of 0'oba' a&d Dome4tic re4ource4( Forei6& Ve&ture Ca5ita' I&9e4tor4 1FVCI42(
re%entl*, $$% regi%tered ith SEH$ can &reel* in+e%t and di%in+e%t ithout
taking $H;GH$ appro+al%. 1hi% ha% brought po%iti+e in+e%tment% o& more than
DS "0 billion. At pre%ent, &oreign +enture capital in+e%tor% can make direct
in+e%tment in +enture capital undertaking% or through a dome%tic +enture capital
&und b* taking $H ; GH$ appro+al%. 1hi% in+e%tment being long term and in
the nature o& ri%k &inance &or %tartup enterpri%e%, need% to be encouraged.
1here&ore, at lea%t on par ith $$%, <$% %hould be regi%tered ith SEH$ and
ha+ing once regi%tered, the* %hould ha+e the %ame &acilit* o& ha%%le &ree
in+e%tment% and di%in+e%tment% ithout an* reuirement &or appro+al &rom
$H ; GH$. 1hi% i% in line ith the pre%ent polic* o& automatic appro+al%
&olloed b* the Io+ernment. urther, generall* &oreign in+e%tor% in+e%t through
the Mauritiu%route and do not pa* ta in $ndia under a ta treat*. <$%
there&ore %hould be pro+ided ta eemption. 1hi% pro+i%ion ill put all <$%,
hether in+e%ting through the Mauritiu% route or not, on the %ame &ooting. 1hi%ill help the de+elopment o& a +ibrant $ndiaba%ed +enture capital indu%tr* ith
the ad+antage o& be%t international practice%, thu% enabling a -ump%tarting o& the
proce%% o& inno+ation. 1he ha%%le &ree entr* o& %uch <$% on the pattern o& $$%
i% e+en more nece%%ar* becau%e o& the &olloing &actor%
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o <enture capital i% a high ri%k area. $n out o& "0 pro-ect%, C either &ail or
*ield negligible return%. $t i% there&ore in the intere%t o& the countr* that
<$% bear %uch a ri%k.
o or +enture capital acti+it*, high capitali>ation o& +enture capital
companie% i% e%%ential to ith%tand the lo%%e% in C0L o& the pro-ect%. $n
$ndia, e do not ha+e %uch %trong companie%.o 1he <$% are al%o more eperienced in pro+iding the needed managerial
eperti%e and other %upport%.
Au6me&ti&6 t8e Dome4tic Poo' of Re4ource4:
1he pre%ent pool o& &und% a+ailable &or +enture capital i% +er* limited and i%
predominantl* contributed b* &oreign &und% to the etent o& C0 percent. 1he pool
o& dome%tic +enture capital need% to be augmented b* increa%ing the li%t o&
%ophi%ticated in%titutional in+e%tor% permitted to in+e%t in +enture capital &und%.
1hi% %hould include bank%, mutual &und% and in%urance companie%= up to
prudential limit%. Bater, a% eperti%e gro% and the +enture capital indu%tr*
mature%, other in%titutional in+e%tor%, %uch a% pen%ion &und%, %hould al%o be
permitted. 1he +enture capital &unding i% highri%k in+e%tment and %hould be
re%tricted to %ophi%ticated in+e%tor%. @oe+er, in+e%ting in +enture capital &und%
can be a +aluable returnenhancing tool &or %uch in+e%tor% hile the increa%e in
ri%k at the port&olio le+el ould be minimal. $nternationall*, o+er 50L o&
+enture capital come% &rom pen%ion &und%, bank%, mutual &und%, in%urance &und%
and charitable in%titution%.
F'eibi'it7 i& I&9e4tme&t a&d Eit(
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A''o?i&6 mu'ti5'e f'eib'e 4tructure4
Eligibilit* &or regi%tration a% +enture capital &und% %hould be neutral to &irm
%tructure. 1he go+ernment %hould con%ider creating ne %tructure%, %uch a%limited partner%hip%, limited liabilit* partner%hip% and limited liabilit*
corporation%. At pre%ent, +enture capital &und% can be %tructured a% tru%t% or
companie% in order to be eligible &or regi%tration ith SEH$. $nternationall*,
limited partner%hip%, Bimited Biabilit* artner%hip and limited liabilit*
corporation% ha+e pro+ided the nece%%ar* &leibilit* in ri%k%haring,
compen%ation arrangement% among%t in+e%tor% and ta pa%% through. 1here&ore,the%e %tructure% are commonl* u%ed and idel* accepted globall* %peciall* in
DSA. @ence, it i% nece%%ar* to pro+ide &or alternati+e eligible %tructure%.
F'eibi'it7 i& t8e matter of i&9e4tme&t cei'i&6 a&d 4ectora' re4trictio&4(
70L o& a +enture capital &und=% in+e%tible &und% mu%t be in+e%ted in unli%ted
euit* or euit*linked in%trument%, hile the re%t ma* be in+e%ted in other in%trument%. 1hough %ectoral re%triction% &or in+e%tment b* <% are not
con%i%tent ith the +er* concept o& +enture &unding, certain re%triction% could be
put b* %peci&*ing a negati+e li%t hich could include area% %uch a% &inance
companie%, real e%tate, gold&inance, acti+itie% not legall* permitted and an* other
%ector% hich could be noti&ied b* SEH$ in con%ultation ith the Io+ernment.
$n+e%tment% b* <% in a%%ociated companie% %hould al%o not be permitted.
urther, not more than 25L o& a &und=% corpu% ma* be in+e%ted in a %ingle &irm.
1he in+e%tment ceiling ha% been recommended in order to increa%e &ocu% on
euit* or euit*linked in%trument% o& unli%ted %tartup companie%. A% the
+enture capital indu%tr* mature%, in+e%tor% in +enture capital &und% ill %et their
on prudential re%triction%.
C8a&6e4 i& bu7 bac@ reuireme&t4 for u&'i4ted 4ecuritie4
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A +enture capital &und incorporated a% a compan*; +enture capital undertaking
%hould be alloed to bu* back up to "00L o& it% paid up capital out o& the %ale
proceed% o& in+e%tment% and a%%et% and not nece%%aril* out o& it% &ree re%er+e% and
%hare premium account or proceed% o& &re%h i%%ue. Such purcha%e% ill be eempt
&rom the SEH$ takeo+er code. A +enture&inanced undertaking ill be alloed
to make an i%%ue o& capital ithin : month% o& bu*ing back it% on %hare% in%tead
o& 24 month% a% at pre%ent. urther, negotiated deal% ma* be permitted in unli%ted
%ecuritie% here one o& the partie% to the tran%action i% <.
Re'aatio& i& IPO &orm4
1he $6 norm% o& # *ear track record or the pro-ect being &unded b* the bank% or
&inancial in%titution% %hould be relaed to include the companie% &unded b* the
regi%tered <% al%o. 1he i%%uer compan* ma* &loat $6 ithout ha+ing three
*ear% track record i& the pro-ect co%t to the etent o& "0L i% &unded b* the
regi%tered <. <enture capital holding hoe+er %hall be %ub-ect to lock in
period o& one *ear. urther, hen %hare% are acuired b* < in a pre&erential
allotment a&ter li%ting or a% part o& &irm allotment in an $6, the %ame %hall be
%ub-ect to lock in &or a period o& one *ear. 1ho%e companie% hich are &unded b*
<enture capitali%t% and their %ecuritie% are li%ted on the %tock echange% out%ide
the countr*? the%e companie% %hould be permitted to li%t their %hare% on the $ndian
%tock echange%.
Re'aatio& i& Ta@eo9er Code(
1he +enture capital &und hile eerci%ing it% call or put option a% per the term% o&
agreement %hould be eempt &rom applicabilit* o& takeo+er code and ":
circular under %ection ": o& S(G) A i%%ued b* the Io+ernment o& $ndia.
I44ue of S8are4 ?it8 Differe&tia' Ri68t ?it8 re6ard to 9oti&6 a&d di9ide&d(
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$n order to &acilitate in+e%tment b* < in ne enterpri%e%, the ompanie% Act
ma* be amended %o a% to permit i%%ue o& %hare% b* unli%ted public companie%
ith a di&&erential right in regard to +oting and di+idend. Such &leibilit* alread*
ei%t% under the $ndian ompanie% Act in the ca%e o& pri+ate companie% hich are
not %ub%idiarie% o& public limited companie%.
GI" #ar@et for u&'i4ted 4ecuritie4
A market &or trading in unli%ted %ecuritie% b* K$H% i% de+eloped.
NOC Reuireme&t:
$n the ca%e o& tran%&er o& %ecuritie% b* <$ to an* other per%on, the GH$
reuirement o& obtaining '6 &rom -oint +enture partner or other %hareholder%
%hould be di%pen%ed ith.
R"I Prici&6 Norm4(
At pre%ent, in+e%tment;di%in+e%tment b* <$ i% %ub-ect to appro+al o& pricing
b* GH$ hich curtail% operational &leibilit* and need% to be di%pen%ed ith.
0'oba' i&te6ratio& a&d o55ortu&itie4( I&ce&ti9e4 for Em5'o7ee4:
1he limit% &or o+er%ea% in+e%tment b* $ndian Ge%ident Emplo*ee% under the
Emplo*ee Stock 6ption Scheme in a &oreign compan* %hould be rai%ed &rom
pre%ent ceiling% o& DS"0,000 o+er 5 *ear%, and DS50,000 o+er 5 *ear% &or
emplo*ee% o& %o&tare companie% in their AG%;IG%, to a common ceiling o&
DS"00,000 o+er 5 *ear%. oreign emplo*ee% o& an $ndian compan* ma* in+e%t
in the $ndian compan* to a ceiling o& DS"00,000 o+er 5 *ear%.
I&ce&ti9e4 for S8are8o'der4
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1he %hareholder% o& an $ndian compan* that ha% +enture capital &unding and i%
de%irou% o& %apping it% %hare% ith that o& a &oreign compan* %hould be
permitted to do %o. Similarl*, i& an $ndian compan* ha+ing +enture &unding and
i% de%irou% o& i%%uing an AG;IG, +enture capital %hareholder% (holding
%aleable %tock) o& the dome%tic compan* and de%irou% o& di%in+e%ting their %hare%
through the AG;IG %hould be permitted to do %o. $nternationall*, 70L o&
%ucce%%&ul %tartup% are acuired through a %tock%ap tran%action rather than
being purcha%ed &or ca%h or going public through an $6. Such &leibilit*
%hould be a+ailable &or $ndian %tartup% a% ell. Similarl*, %hareholder% can take
ad+antage o& the higher +aluation% in o+er%ea% market% hile di+e%ting their
holding%.
0'oba' i&9e4tme&t o55ortu&it7 for Dome4tic Ve&ture Ca5ita' Fu&d4
1DVCF2(
<% %hould be permitted to in+e%t higher o& 25L o& the &und=% corpu% or DS
"0 million or to the etent o& &oreign contribution in the &und=% corpu% in
unli%ted euit* or euit*linked in+e%tment% o& a &oreign compan*. Such
in+e%tment% ill &all ithin the o+erall ceiling o& 70L o& the &und=% corpu%. 1hi%
ill allo <% to in+e%t in %*nergi%tic %tartup% o&&%hore and al%o pro+ide them
ith global management epo%ure.
I&fra4tructure a&d R<D
$n&ra%tructure de+elopment need% to be prioriti>ed u%ing go+ernment %upport and
pri+ate management o& capital through programmer% %imilar to the Small
Hu%ine%% $n+e%tment ompanie% in the Dnited State%, promoting incubator% and
increa%ing uni+er%it* and re%earch laborator* linkage% ith +enture&inanced
%tartup &irm%. 1hi% ould %pur technological inno+ation and &a%ter con+er%ion o&
re%earch into commercial product%.
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Se'f Re6u'ator7 Or6a&iatio& 1SRO2
A %trong SG6 %hould be encouraged &or e+olution o& %tandard practice%, code o&
conduct, creating aarene%% b* di%%emination o& in&ormation about the indu%tr*.
$mplementation o& the%e recommendation% ould lead to creation o& an enabling
regulator* and in%titutional en+ironment to &acilitate &a%ter groth o& +enture
capital indu%tr* in the countr*. Apart &rom increa%ing the dome%tic pool o&
+enture capital, around DS "0 billion are epected to be brought in b* o&&%hore
in+e%tor% o+er #;5 *ear% on con%er+ati+e e%timate%. 1hi% ould in turn lead to
increa%e in the +alue o& product% and %er+ice% adding up to DS"00 billion toI b* 2005. <enture %upported enterpri%e% ould con+ert into ualit* $6%
pro+iding o+er all bene&it and protection to the in+e%tor%. Additionall*, -udging
&rom the global eperience, thi% ill re%ult into %ub%tantial and %u%tainable
emplo*ment generation o& around # million -ob% in %killed %ector alone o+er net
&i+e *ear%. Spin o&& e&&ect o& %uch acti+it* ould create other %upport %er+ice% and
&urther emplo*ment. 1hi% can put $ndia on a path o& rapid economic groth anda po%ition o& %trength in global econom*.
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CONCLUSION
1he %tud* pro+ide% that the maturit* i& the %till na%cent $ndian <enture apital
market i% imminent.
<enture apitali%t% in $ndian ha+e notice o& neer a+enue% and region% to
epand. <% ha+e mo+ed be*ond $1 %er+ice but are cautiou% in eploring the
right bu%ine%% model, &or &inding opportunitie% that generate better return% &or
their in+e%tor%.
$n term% o& impediment% to epan%ion, &e concerning &actor% to <% include?
un&a+orable political and regulator* en+ironment compared to other countrie%,
di&&icult* in achie+ing %ucce%%&ul ei%t% and admini%trati+e dela*% indocumentation and appro+al.
$n %pite o& &e non attracting &actor%, $ndian opportunitie% are no doubt promi%ing
hich i% e+ident b* the large number o& ne entrant% in pa%t *ear% a% ell in
coming da*%. 'onethele%% the market i% challenging &or %ucce%%&ul in+e%tment.
1here&ore <enture capitali%t% re%pon%e% are upbeat about the attracti+ene%% o& the$ndia a% a place to do the bu%ine%%.
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"I"LIO0RAP$Y
"OO:S(
1ane-a Sati%h, <enture apital in $ndia/.
har* 1 Sat*anara*ana, <enture apital ! oncept% 9 Application% /
#A0AKINE(
Sharma Fapil, an Anal*%i% o& <enture apital $ndu%tr* in $ndia.
REPORT(
1rend% o& <enture apital in $ndia, %ur+e* Geport b* eloitte, 200.
Ilobal 1rend% o& <enture apital, %ur+e* report b* eloitte, 200.
Economic %ur+e* 200C0,
;E"SITE(
.i+ca.org
222.india+ca.org.
222.+cindia.com
222.+entureintelligence.in
222.n+ca.org
.economictime%.indiatime%.com
."00+enture%.com
.google.com
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.deloitte.com