Venture Capital by Indian Banks

Bachelor of Commerce

Banking and Insurance

Semester V 

Submitted

In Partial Fulfillment of the requirements

For the Award of Degree of Bachelor of

Commerce- Banking & Insurance

By

Ashmita Damji Patel

S.I.E.S (Nerul) College of Arts, Science & Commerce

Plot 1-C, Sector V, Nerul, Navi Mumbai-400 706  

Certificate  

This is to certify that Miss. Ashmita Damji Patel of B.Com Banking and Insurance, Semester V (2009-2010) has successfully completed the project on Venture Capital by Indian Banks under the guidance of Mr. Prakash. 

Course co-ordinator Project Guide Principal   

Internal Examiner External Examiner 

 

Declaration 

I Ashmita Damji Patel the student of B.Com. Banking & Insurance Semester V (2009– 2010) hereby declare that I

have completed the Project on Venture Capital by Indian Banks. 

The information submitted is true and original to the best of my knowledge. 

Signature 

Ashmita Damji Patel

Acknowledgment   

    The project would not have been possible without the support of many people. I would like to thank Mr. Prakash for being my internal guide & for the support. I would also

like to thank our college librarian for providing books for reference. It is said that behind every successful deed there is a lot of effort put in and thus, this project is no exception to this saying.

    Lastly special thanks to parents for their constant support and assistance, to make this project worth presenting before you.   

 Thanking  You

Ashmita Damji Patel

SUMMARY

Technology and knowledge have been and continue to drive the global

economy. Given the inherent strength by way of its human capital, technical

skills, cost competitive work force, research and entrepreneurship, India is

positioned for rapid economic growth in a substainable manner. To realize

the potential, there is a need for risk finance and venture capital funding to

leverage innovation, promote technology and harness knowledge based

ideas.

Venture capital refers to money that is invested in companies during the

early stages of their development. Such funds may come from wealthy

individuals, government-backed small business Investment Companies

(SBICs), or professionally managed venture capital firms. venture capitalists

generally target companies that they believe offer significant potential for

growth, and therefore an opportunity to earn a high rate of return in a

relatively short period of time.

The present study on venture capital in the Indian context mainly focuses on

the venture capital process. Venture capital funding gives a hundred percent

funding to entrepreneurs. For a business owner, the process of obtaining

venture capital begins with a formal proposal. The most important element

of this proposal is a detailed business plan describing the company's goals

and strategies. The proposal should also include recent financial statements,

projections of future growth, a brief history of the company, biographies of

key managers, the amount of money requested, and a description of how the

funds will be used. Experts recommend that companies seeking equity

financing evaluate several venture capital firms before entering into a deal.

Managers should also hire professionals to help them understand the terms

of the agreement to avoid giving away too much control.

Overall, venture capital can provide a valuable source of financing for

growing businesses. Because of its associated risks, however, experts

generally suggest that it be viewed as one of a number of potential

sources of financing and be used in combination with debt financing

whenever possible.

INDEX

Ch.1

Ch.2

Ch.3

Ch.4

Ch.5

Ch.6

Ch.7

Ch.8

Ch.9

Ch.10

1.1Objective1.2Research methodology

Introduction

3.1 Concept of Venture Capital3.2 Meaning of Venture Capital3.3 Definition of Venture Capital3.4 History of Venture Capital3.5 Feature of Venture Capital

4.1 Scope of Venture Capital4.2 Disinvestment Mechanism 4.3 Importance of Venture Capital

5.1 Initiative in India5.2 Guidelines5.3 The Indian Scenario

Investment Process

Measures to be provided

Case Study

9.1 Recommendations9.2 Conclusion

Bibliography

CHAPTER 1

1.1 OBJECTIVE

The objective for the study on this topic of venture capital was to know how

the new ventures in India are financed. In India, venture capital has been

around for some time now. The performance has been mixed. So what are

these venture capital funds? How and to whom are they helpful? Do they

serve any useful purpose? What are the norms to be fulfilled before going

into financing of a project? As venture capital business is flourishing now in

India I choose this topic for a brief research which would help me in

knowing this subject better. The underlying goal was to know what venture

capital funding is all about and place them in all Indian contexts.

CHAPTER 2

INTRODUCTION TO VENTURE CAPITAL

Venture capital is money provided by professionals who invest alongside

management in young, rapidly growing companies that have the potential to

develop into significant economic contributors. Venture capital is an

important source of equity for start-up companies.

Professionally managed venture capital firms generally are private

partnerships or closely held corporations funded by private and public

pension funds, endowment funds, foundations, corporations, wealthy

individuals, foreign investors, and the venture capitalists themselves.

In India where the industry is still nascent, the Securities and exchange

board of India has laid down those activities that would constitute eligible

business activities qualifying for the concession available to a recognized

venture capital fund. Initially, SEBI defined venture capital as an equity

supported for the project launched by 1st generation entrepreneurs using

commercially untested but sophisticated technologies. However, this

definition has been subsequently relaxed and the restrictive feature

concerning “technology financing” was dispensed with. Venture capital is

now seen as encompassing all kinds of funding of a high technology

intensive undertaking at any stage of its life.

CHAPTER 3

3.1 CONCEPT OF VENTURE CAPITAL

The term ‘Venture Capital’ is understood in many ways. In a narrow sense,

it refers to, investment in new and tried enterprises that are lacking a stable

record of growth.

In a broader sense, venture capital refers to the commitment of capital as

shareholding, for the formulation and setting up of small firms specializing

in new ideas or new technologies. It is not merely an injection of funds into

a new firm, it is a simultaneous input of skill needed to set up the firm,

design its marketing strategy and organize and manage it. It is an association

with successive stages of firm’s development with distinctive types of

financing appropriate to each stage of development.

3.2 MEANING OF A VENTURE CAPITAL

Venture capital is long-term risk capital to finance high technology projects

which involve risk but at the same time has strong potential for growth.

Venture capitalist pools their resources including managerial abilities to

assist new entrepreneurs in the early years of the project. Once the project

reaches the stage of profitability, they sell their equity holdings at high

premium.

3.3 DEFINITION OF A VENTURE CAPITAL

A venture capital company is defined as “a financing institution which joins

an entrepreneur as a co-promoter in a project and shares the risks and

rewards of the enterprise”.

3.4 HISTORY OF VENTURE CAPITAL IN INDIA

Traditionally, the role of venture capital was an extension of the

developmental financial institutions like IDBI, ICICI, SIDBI and State

Finance Corporations (SFCs). The first origins of modern Venture Capital

in India can be traced to the setting up of a Technology Development Fund

(TDF) in the year 1987-88. TDF was meant to provide financial assistance–

to innovative and high-risk technological programs through the Industrial

Development Bank of India. This measure was followed up in November

1988, by the issue of guidelines by the (then) Controller of Capital Issues

(CCI). These stipulated the framework for the establishment and operation

of funds/companies that could avail of the fiscal benefits extended to them.

However, it was realized that the concept of venture capital funding needed

to be institutionalized and regulated. This funding requires different skills

in assessing the proposal and monitoring the progress of the fledging

enterprise. In 1996, the Securities and Exchange Board of India (SEBI)

came out with guidelines for venture capital funds has to adhere to, in

order to carry out activities in India. There are a number of funds,

which are currently operational in India and involved in funding start-up

ventures.

The Indian Venture Capital Association (IVCA), is the nodal center

for all venture activity in the country. The association was set up in

1992 and over the last few years, has built up an impressive database.

According to the IVCA, the pool of funds available for investment to its 20

members in 1997 was Rs25.6bn. Out of this; Rs10bn had been invested in

691 projects.

3.5 FEATURES OF VENTURE CAPITAL

1. Nature: Venture Capital is a long term investment. Since the project is

risky, it may take time to earn profits. Therefore, it takes time to get the

refund of capital as well as return on it. The investors can exist on success of

the project by off-loading their investment. But it takes long time to get the

success.

2. Form: Venture Capital is mainly in the form of equity capital. Investors

can subscribe the equity capital and provide the necessary funds to complete

the project. The amount of equity invested by the venture capitalist is

normally up to 49%of the total equity capital required for the project.

3. Borrowers: The borrowers are the new entrepreneurs who raise venture

capital because they cannot get such an amount from the general investors.

4. Type of project: Venture Capital projects are high risk, high technology

and long term projects.

5. Managenment: Venture Capital projects are managed jointly by the

entrepreneurs and venture capitalists. However, venture capitalist should not

interfere in day to day activities of the management. The venture capitalist

can take active part in the management and decision-making.

6. New venture: Venture capital investment is generally made in new

enterprises that use new technology to produce new products, in

expectations of high gains or sometimes, spectacular returns.

7. Continuous involvement: Venture capitalists continuously involve

themselves with the client’s investments, either by providing loans or

managerial skills or any other support.

8. Mode of investment: Venture capital is basically an equity financing

method, the investment being in relatively new companies when it is too

early to go to the capital market to raise funds. In addition, financing also

takes the form of loan finance/convertible debt to ensure a running yield on

the portfolio of the venture capitalists.

9. Objective: The basic objective of a venture capitalist is to make a capital

gain in equity investment at the time of exit, and regular on debt financing. It

is a long-term investment in growth-oriented small/medium firms. It is a

long-term capital that is injected to enable the business to grow at a rapid

pace, mostly from the start-up stage.

10. Hands-on approach: Venture capital institutions take active part in

providing value-added services such as providing business skills, etc to

investee firms. They do not interfere in management of the firms nor do they

acquire a majority/controlling interest in the investee firms. The rationale for

the extension of hands-on management is that venture capital investments

tend to be highly non-liquid.

11. High risk-return ventures: Venture capitalists finance high risk-return

ventures. Some of the ventures yield very hi8gh return in order to

compensate for the heavy risks related to the ventures. Venture capitalists

usually make huge capital gains at the time of exit.

12. Nature of firms: Venture capitalists usually finance small and medium-

sized firms during the early stages of their development, until they are

established and are able to raise finance from the conventional industrial

finance market. Many of these firms are new, high technology-oriented

companies.

13. Liquidity: Liquidity of venture capital investment depends on the

success or otherwise of the new venture or product. Accordingly, there will

be higher liquidity where the new ventures are highly successful.

CHAPTER 4

4.1 SCOPE OF VENTURE CAPITAL

Venture capital may take various forms at different stages of the project.

There are four successive stages of development of a project viz.

development of a project idea, implementation of the idea, commercial

production and marketing and finally large scale investment to exploit the

economics of scale and achieve stability. Financial institutions and banks

usually start financing the project only at the second or third stage but rarely

from the first stage. But venture capitalists provide finance even from the

first stage of idea formulation. The various stages in the financing of venture

capital are described below:

1. Development of an Idea- Seed Finance: In the initial stage venture

capitalists provide seed capital for translating an idea into business

proposition. At this stage investigation is made in depth which

normally takes a year or more.

2. Implementation Stage- Start up Finance: When the firm is set up to

manufacture a product or provide a service, start up finance is

provided by the venture capitalists. The first and second stage capital

is used for full scale manufacturing and further business growth.

3. Fledging Stage- Additional Finance: In the third stage, the firm has

made some headway and entered the stage of manufacturing a product

but faces teething problems. It may not be able to generate adequate

funds and so additional round of financing is provided to develop the

marketing infrastructure.

4. Establishment Stage- Establishment Finance: At this stage the firm

is established in the market and expected to expand at a rapid pace. It

needs further financing for expansion and diversification so that it can

reap economies of scale and attain stability. At the end of

establishment stage, the firm is listed on the stock exchange and at

this point the venture capitalist disinvests their shareholdings through

available exit routes.

Before investing in small, new or young hi-tech enterprises, the venture

capitalist look for percentage of key success factors of a venture capital

project. They prefer projects that address these problems. After assessing the

viability of projects, the investors decide for what stage they should provide

venture capital so that it leads to greater capital appreciation. All the above

stages of finance involve varying degrees of risks and venture capital

industry, only after analyzing such risks, invest in one or more. Hence they

specialize in one or more but rarely all.

4.2 DISINVESTMENT MECHANISM

The objective of venture capitalist is to sell of the investment made by him

at substantial capital gains. The disinvestment options available in developed

countries are:

1. Promoter’s buy back

2. Public issue

3. Sale to other venture capital funds

4. Sale in OTC market and

5. Management buy outs.

In India, the most popular investment route is promoter’s buy back. This

permits the ownership and control of the promoter in tact.

The Risk capital and Technology Finance Corporation, CAN-VCF etc., in

India allow promoters to buy back equity of their enterprise.

The public issue would be difficult and expensive since first generation

entrepreneurs are not known in the capital market. The option involves high

transaction cost and also less feasible for small ventures on account of high

listing requirements of the stock exchange.

The OTC exchange in India has been set up in 1992. It is hoped that OTCEI

would provide disinvestment opportunities to venture capital firms.

The other investment options such as management buy out or sale to other

venture capital fund are not considered appropriate in India.

4.3 IMPORTANCE OF VENTURE CAPITAL

Venture capital is of great practical value to every corporate enterprise in

modern times.

1) Advantages to investing public

The investing public will be able to reduce risk significantly

against unscrupulous management, if the public invest in

venture fund who in turn will invest in equity of new business.

With their expertise in the field and continuous involvement in

the business they would be able to stop malpractices by

management.

Investors have no means to vouch for the reasonableness of the

claims made by the promoters about profitability of the

business. The venture funds equipped with necessary skills will

be able to analyze the prospect of the business.

The investors do not have any means to ensure that the affairs

of the business are conducted prudently. The venture funds

having representatives on the board of directors of the company

would overcome it.

2) Advantages to promoters

The entrepreneur for the success of public issue is required to

convince tens of underwriters, brokers and thousand of investor

but to obtain venture capital assistance, he will be required to

sell his idea to justify the officials of the venture fund.

Public issue of equity shares has to be preceeded by lot of

efforts viz. necessary statutory sanctions, underwriting and

brokers arrangement, publicity of issue etc. The new

entrepreneur find it very difficult to make underwriting

arrangement and require a great deal of effort. Venture fund

assistance would eliminate those efforts by leaving entrepreneur

to concentrate upon bread and butter activities of business.

Cost of public issues of equity share often range between 10%

to 15% of nominal value of issue of moderate size, which are

often even high for small issues. The company is required, in

addition to above, to incur recurring cost for maintenance of

share registry cell, stock exchange listing fee, expenditure on

printing and posting of annual reports etc. These items of

expenditure can be ill afforded by the business when it is new.

Assistance from venture funds does not require such

expenditure.

3) General

A developed venture capital institutional set up reduces the time

lag between a technological innovation and its commercial

exploitation.

It helps in developing new processes/products in conducive

atmosphere, free from the dead weight of corporate

bureaucracy, which helps in exploiting full potential.

Venture capital act as cushion to support business borrowings, a

bankers and investors will not lend money with in adequate

margin of equity capital.

Once venture capital funds start earning profits, it will be very

easy for them to raise resources from primary capital market in

the form of equity and debts. Therefore, the investors would be

able to invest in new business through venture funds and, at the

same time, they can directly invest in existing business when

venture fund disposes its own holding. This mechanism will

help to channelise investment in new high tech business or the

existing sick business. These business will take off with the help

of finance from venture funds and this would help in increasing

productivity, better capacity utilization etc.

The economy with well developed venture capital network

induces the entry of large number of technocrats in industry,

help in stabilizing industries and in creating a new set of trained

technocrats to build and manage medium and large industries,

resulting in faster industrial development.

A venture capital firm serves as an intermediary between

investors looking for high returns for their money and

entrepreneurs in search of needed capital for their start ups.

It also paves the way for private sector to share the

responsibility with public sector.

CHAPTER 5

5.1 INITIATIVE IN INDIA

India tradition of venture capital for industry goes back more than 150 years

when many of the managing agency houses acted as venture capitalists

providing both finance and management skill to risky to risky projects. It

was the managing agency system through which Tata Iron and Steels and

empress Mils were able to raise equity capital from the investing public. The

Tatas also initiated a managing agency system, named Investment

corporation of India in 1937 which by acting as venture capitalist,

successfully promoted hi-tech enterprises such as CEAT tyres. Associated

Bearings, National Rayon etc. The early form of venture capital enabled the

entrepreneurs to raise large amount of funds and yet retain management

control. After the abolition of managing agency system, the public sector

term lending institutions met a part of venture capital requirements through

seed capital and risk capital for hi-tech industries which were not able to

meet promoters contribution. However, all these institutions supported only

proven and sound technology while technology development remained

largely confined to government labs and academic institutions. Many hi-tech

industries, thus, found it impossible to obtain financial assistance from banks

and other financial institutions due to unproven technology, conservative

attitude, risk awareness and rigid security parameters.

Venture capital’s growth in India passed through various stages. In 1973,

R.S. Bhatt Committee recommended formation of Rs. 100 crore venture

capital fund. The Seventh Five Year Plan emphasized the need for

developing a system of funding venture capital. The Research and

Development Cess Act was enacted in May 1986 which introduced a cess of

5 % on all payments made for purchase of technology from abroad. The levy

provides the source for the venture capital fund.

United Nations Development Programme in 1987 on behalf of government

examined the possibility of developing venture capital in private sector.

Technology Policy Implementation Committee in the same year also

recommended the same provision. Formalised venture capital took roots

when venture capital guidelines were issued by Comptroller of Capital

Issues in November 1988.

5.2 GUIDELINES

The venture capital operations in India are regulated by The Securities

Exchange Regulation Board of India (SEBI). The following legal

instruments are in operation:

SEBI Act 1992.

SEBI (venture capital funds)‘Regulations’ 1996

New sector regulations issued in September 2000

Highlight of Policy and Legal Framework

VCFs can be constituted as trust fund or Company. Separate vehicle

for constitution and operation of venture funds such as limited liability

partnership is yet to be introduced in the country

Any company or trust proposing to undertake venture capital

investments is required to obtain certificate of registration from SEBI.

VCFs before raising any funds for investment are required to file

placement memorandum with SEBI. Private placement memorandum

can be issued only after expiry of 21 days from submission to SEBI.

VCFs can raise funds for investment through private placement route.

Individual investor is required to invest minimum of Rs. 5 lakhs in

venture capital fund. Raising of funds from public is restricted.

VCFs are required to invest 80 percent of funds raised in equity or

equity related securities issued by companies whose securities are not

listed or which are financially weak.

VCFs are barred from investing in company or institutions providing

financial services venture capital funds which desire to claim exemption

from income tax are required to follow rules given hereunder:

Registration with SEBI.

Claiming Income tax exemption in respect of dividend and capital gains

income.

Not more than 40 percent of equity in a venture

80 percent of monies raised for investment are required to be invested

in equity shares of domestic companies whose shares are not listed on

recognised stock exchange

Shares of investee companies are required to be held for a period of at

least 3 years. However, these shares can be sold either if they are listed

on recognised stock exchange in India.

Under the SEBI's venture capital rules:

VCFs can be either company or trust.

There is no minimum capital adequacy requirement for venture capital

funds.

Are allowed to take loans, donations or issue securities.

VCFs cannot be public companies - they need to contain a restriction

on inviting the public to subscribe to securities.

VCFs are only allowed to carry the business of venture capital fund -

cannot engaged in any other business.

Every VCF investor has to contribute at least Rs. 5 lacs.

VCFs shall not invest in the equity capital of a financial services

company. This still allows investment in financial services companies,

other than by way of equity capital.

5.3 THE INDIAN SCENARIO

Method of venture financing

Venture capital is available in four forms in India.

1. Equity participation

2. Conventional loan

3. Conditional loan

4. Income notes.

1. Equity Participation: Venture Capital Firms participate in

equity through direct purchase of shares but their stake does not

exceed 49%. These shares are retained by them till the assisted

projects making profit. These shares are sold either to the

promoter at negotiated price under buy back agreement or to

the public in secondary market at a profit.

2. Conventional Loan: Under this form of assistance, a lower

fixed rate of interest is charged till the assisted units become

commercially operational, after which the loan carries normal

or higher rate of interest. The loan has to be repaid according to

the predetermined schedule of repayment as per terms of loan

agreement.

3. Conditional Loans: Under this form of finance, an interest free

loan is provided during the implementation period but it has to

pay royalty on sales. The loan has to be repay according to the

predetermined schedule as soon as the company is able to

generate sales and income.

4. Income Notes: it is a combination of conventional and

conditional loans. Both interest and royalty are payable at much

lower rates than in case of conditional loans.

CHAPTER 6

VENTURE CAPITAL INVESTMENT PROCESS

In generating a deal flow, the venture capital investor creates a pipeline of

‘deals’ or investment opportunities that he would consider investing in. This

is achieved primarily through plugging into an appropriate network. The

most popular network obviously is the network of venture capital

funds/investors. It is also common for venture capitals to develop working

relationships with R&D institutions, academia, etc, which could potentially

lead to business opportunities.

Understandably the composition of the network would depend on the

investment focus of the venture capital funds/company. Thus venture capital

funds focusing on early stage technology based deals would develop a

network of R&D centers working in those areas. The network is crucial to

the success of the venture capital investor. It is almost imperative for the

venture capital investor to receive a large number of investment proposals

from which he can select a few good investment candidates finally.

First, you need to work out a business plan. The business plan is a document

that outlines the management team, product, marketing plan, capital costs

and means of financing and profitability statements.

1. Initial Evaluation:

Before any in depth analysis is done on a project, an initial screening is

carried out to satisfy the venture capitalist of certain aspects of the project.

These include

Competitive aspects of the product or service

Outlook of the target market and their perception of the new product

Abilities of the management team

Availability of other sources of funding

Expected returns

Time and resources required from the venture capital firm

Through this screening the venture firm builds an initial overview about

the

Technical skills, experience, business sense, temperament and ethics

of the promoters

The stage of the technology being used, the drivers of the technology

and the direction in which it is moving.

Location and size of market and market development costs, driving

forces of the market, competitors and share, distribution channels and

other market related issues

Financial facts of the deal

Competitive edge available to the company and factors affecting it

significantly

Advantages from the deal for the venture capitalist

Exit options available

2. Due diligence

Due diligence is term used that includes all the activities that are associated

with investigating an investment proposal to assess feasibility. It includes

carrying out in-depth reference checks on the proposal related aspects such

as management team, products, technology and market. Additional studies

and collection of project-based data are done during this stage. The

important feature to note is that venture capital due diligence focuses on

the qualitative aspects of an investment opportunity.

Areas of due diligence would include

General assessment

Business plan analysis

Contract details

Collaborators

Corporate objectives

SWOT analysis

Time scale of implementation

People

Managerial abilities, past performance and credibility of promoters

Financial background and feedback about promoters from bankers and

previous lenders

Details of Board of Directors and their role in the activities

Availability of skilled labour

Recruitment process

Products/services, technology and process

In this category the type of questions asked will depend on the nature of

the industry into which the company is planning to enter. Some of the

areas generally considered are

Technical details, manufacturing process and patent rights

Competing technologies and comparisons

Raw materials to be used, their availability and major suppliers,

reliability of these suppliers

Machinery to be used and its availability

Details of various tests conducted regarding the new product

Product life-cycle

Environment and pollution related issues

Secondary data collection on the product and technology, if so

available

Market

The questions asked under this head also vary depending on the type of

product. Some of the main questions asked are

Main customers

Future demand for the product

Competitors in the market for the same product category and their

strategy

Pricing strategy

Potential entrants and barriers to entry

Supplier and buyer bargaining power

Channels of distribution

Marketing plan to be followed

Future sales forecasts

Finance

Financial forecasts for the next 3-5 years

Analysis of financial reports and balance sheets of firms already

promoted or run by the promoters of the new venture

Cost of production

Wage structure details

Accounting process to be used

Financial report of critical suppliers

Returns for the next 3-5 years and thereby the returns to the venture

fund

Budgeting methods to be adopted and budgetary control systems

External financial audit if required

Sometimes, companies may have experienced operational problems during

their early stages of growth or due to bad management. These could result in

losses or cash flow drains on the company. Sometimes financing from

venture capital may end up being used to finance these losses. They avoid

this through due diligence and scrutiny of the business plan.

3. Structuring a deal:

Structuring refers to putting together the financial aspects of the deal and

negotiating with the entrepreneurs to accept a venture capital’s proposal and

finally closing the deal. Also the structure should take into consideration the

various commercial issues (i.e. what the entrepreneur wants and what the

venture capital would require to protect the investment). The instruments to

be used in structuring deals are many and varied. The objective in selecting

the instrument would be to maximize (or optimize) venture capital’s

returns/protection and yet satisfies the entrepreneur’s requirements.

The instruments could be as follows:

Instrument Issues

Equity sharesNew or vendor shares

Par value

Partially-paid shares

Preference

shares

Redeemable (conditions under Company

Act)

Participating

Par value

Nominal shares

Loan Clean v/s Secured

Interest bearing v/s Non interest bearing

convertible v/s one with features

(warrants)

1st Charge, 2nd Charge,

Warrants Exercise price, Exercise period

Options Exercise price, Exercise period, call, put

In India, straight equity and convertibles are popular and commonly used.

Nowadays, warrants are issued as a tool to bring down pricing. A variation

that was first used by PACT and TDICI was "royalty on sales". Under this,

the company was given a conditional loan. If the project was successful, the

company had to pay a percentage of sales as royalty and if it failed then the

amount was written off.

In structuring a deal, it is important to listen to what the entrepreneur wants,

but the venture capital comes up with his own solution. Even for the

proposed investment amount, the venture capital decides whether or not the

amount requested, is appropriate and consistent with the risk level of the

investment. The risks should be analyzed, taking into consideration the stage

at which the company is in and other factors relating to the project. (E.g. exit

problems, etc).

A typical proposal may include a combination of several different

instruments listed above. Under normal circumstances, entrepreneurs would

prefer venture capitals to invest in equity, as this would be the lowest risk

option for the company. However from the venture capitals point of view,

the safest instrument, but with the least return, would be a secured loan.

Hence, ultimately, what you end up with would be some instruments in

between which are sold to the entrepreneur. A number of factors affect the

choice of instruments, such as –

Categories Factors influencing the choice of InstrumentCompany specific Risk, current stage of operation, expected profitability,

future cash flows, and investment liquidity options.Promoter specific Current financial position of promoters, performance

track record, willingness of promoters to dilute stake.Product/Project

specific

Future market potential, product life cycle, gestation

period.Macro environment Tax options on different instruments, legal framework,

policies adopted by competition.

3. Investment valuation:

The investment valuation process is an exercise aimed at arriving at ‘an

acceptable price’ for the deal. Typically in countries where free pricing

regimes exist, the valuation process goes through the following steps:

1) Evaluate future revenue and profitability

2) Forecast likely future value of the firm based on experienced market

capitalization or expected acquisition proceeds depending upon the

anticipated exit from the investment.

3) Target ownership positions in the investee firm so as to achieve

desired appreciation on the proposed investment. The appreciation

desired should yield a hurdle rate of return on a Discounted Cash Flow

basis.

4) Symbolically the valuation exercise may be represented as follows:

NPV = [(Cash)/(Post)] x [(PAT x PER)] x k,

Where

a) NPV = Net Present Value of the cash flows relating to the investment

comprising outflow by way of investment and inflows by way of

interest/dividends (if any) and realization on exit. The rate of return used

for discounting is the hurdle rate of return set by the venture capital

investor.

b) Post = Pre + Cash

c) Cash represents the amount of cash being brought into the particular

round of financing by the venture capital investor.

d) ‘Pre’ is the pre-money valuation of the firm estimated by the investor.

While technically it is measured by the intrinsic value of the firm at the

time of raising capital. It is more often a matter of negotiation driven by

the ownership of the company that the venture capital investor desires

and the ownership that founders/management team is prepared to give

away for the required amount of capital

e) PAT is the forecast Profit after tax in a year and often agreed upon by

the founders and the investors (as opposed to being ‘arrived at’

unilaterally). It would also be the net of preferred dividends, if any.

f) PER is the Price-Earning multiple that could be expected of a

comparable firm in the industry. It is not always possible to find such a

‘comparable fit’ in venture capital situations. That necessitates, therefore,

a significant degree of judgment on the part of the venture capital to

arrive at alternate PER scenarios.

g) ‘k’ is the present value interest factor (corresponding to a discount

rate ‘r’) for the investment horizon.

It is quite apparent that PER time PAT represents the value of the firm at

that time and the complete expression really represents the investor’s share

of the value of the investee firm. In reality the valuation of the firm is driven

by a number of factors. The more significant among these are:

Overall economic conditions: A buoyant economy produces an

optimistic long- term outlook for new products/services and therefore

results in more liberal pre-money valuations.

Demand and supply of capital: when there is a surplus of venture

capital of venture capital chasing a relatively limited number of venture

capital deals, valuations go up. This can result in unhealthy levels of low

returns for venture capital investors.

Specific rates of deals: such as the founder’s/management team’s track

record, innovation/ unique selling propositions (USPs), the

product/service size of the potential market, etc affects valuations in an

obvious manner.

The degree of popularity of the industry/technology in question also

influences the pre-money. Computer Aided Skills Software Engineering

(CASE) tools and Artificial Intelligence were one time darlings of the

venture capital community that have now given place to biotech and

retailing.

The standing of the individual venture capital: Well established

venture capitals who are sought after by entrepreneurs for a number of

reasons could get away with tighter valuations than their less known

counterparts.

Investor’s considerations could vary significantly: A study by an

American venture capital, Venture One, revealed the following trend.

Large corporations who invest for strategic advantages such as access to

technologies, products or markets pay twice as much as a professional

venture capital investor, for a given ownership position in a company but

only half as much as investors in a public offering.

Valuation offered on comparable deals around the time of investing in

the deal.

Quite obviously, valuation is one of the most critical activities in the

investment process. It would not be improper to say that the success for a

fund will be determined by its ability to value/price the investments

correctly. Sometimes the valuation process is broadly based on thumb rule

metrics such as multiple of revenue. Though such methods would appear

rough and ready, they are often based on fairly well established industry

averages of operating profitability and assets/capital turnover ratios.

Such valuation as outlined above is possible only where complete freedom

of pricing is available. In the Indian context, where until recently, the pricing

of equity issues was heavily regulated, unfortunately valuation was heavily

constrained.

5. Documentation

It is the process of creating and executing legal agreements that are needed

by the venture fund for guarding of investment.

Based on the type of instrument used the different types of agreements are

Equity Agreement

Income Note Agreement

Conditional Loan Agreement

Optionally Convertible Debenture Agreement etc.

There are also different agreements based on whether the agreement is with

the promoters or the company. The different legal documents that are to be

created and executed by the venture firm are

Shareholders agreement: This agreement is made between the venture

capitalist, the company and the promoters. The agreement takes into

account

Capital structure

Transfer of shares: This lays the condition for transfer of equity

between the equity holders. The promoters cannot sell their shares

without the prior permission of the venture capitalist.

Appointment of Board of Directors

Provisions regarding suspension/cancellation of the investment. The

issues under which such cancellation or suspension takes place are

default of covenants and conditions, supply of misleading

information, inability to pay debts, disposal and removal of assets,

refusal of disbursal by other financial institutions, proceedings against

the company, and liquidation or dissolution of the company.

Equity subscription agreement: This is the agreement between the

venture capitalist and the company on

Number of shares to be subscribed by the venture capitalist

Purpose of the subscription

Pre-disbursement conditions that need to be met

Submission of reports to the venture capitalist

Currency of the agreement

Deed of Undertaking: The agreement is signed between the promoters

and the venture capitalist wherein the promoter agrees not to withdraw,

transfer, assign, pledge, and hypothecate etc their investment without

prior permission of the venture capitalist. The promoters shall not

diversify, expand or change product mix without permission.

Income Note Agreement: It contains details of repayment, interest,

royalty, conversion, dividend etc.

Conditional Loan Agreement: It contains details on the terms and

conditions of the loan, security of loan, appointment of nominee directors

etc.

Deed of Hypothecation, Shortfall Undertaking, Joint and Several

Personal Guarantee Power of Attorney etc.

Whenever there is a modification in any of the agreements, then a

Supplementary Agreement is created for the same.

6. Monitoring and follow up:

The role of the venture capitalist does not stop after the investment is made

in the project. The skills of the venture capitalist are most required once the

investment is made. The venture capitalist gives ongoing advice to the

promoters and monitors the project continuously.

It is to be understood that the providers of venture capital are not just

financiers or subscribers to the equity of the project they fund. They function

as a dual capacity, as a financial partner and strategic advisor.

Venture capitalists monitor and evaluate projects regularly. They are

actively involved in the management of the of the investor unit and provide

expert business counsel, to ensure its survival and growth. Deviations or

causes of worry may alert them to potential problems and they can suggest

remedial actions or measures to avoid these problems. As professional in

this unique method of financing, they may have innovative solutions to

maximize the chances of success of the project. After all, the ultimate aim of

the venture capitalist is the same as that of the promoters – the long term

profitability and viability of the investor company.

The various styles are:

Hands-on Style suggests supportive and direct involvement of the venture

capitalist in the assisted firm through Board representation and regularly

advising the entrepreneur on matters of technology, marketing and general

management. Indian venture capitalists do not generally involve themselves

on a hands-on basis bit they do have board representations.

Hands-off Style involves occasional assessment of the assisted firm’s

management and its performance with no direct management assistance

being provided. Indian venture funds generally follow this approach.

Intermediate Style venture capital funds awe entitled to obtain on regular

basis information about the assisted projects.

7. Exit:

One of the most crucial issues is the exit from the investment. After all, the

return to the venture capitalist can be realized only at the time of exit. Exit

from the investment varies from the investment to investment and from

venture capital to venture capital. There are several exit routes, buy-buck by

the promoters, sale to another venture capitalist or sale at the time of Initial

Public Offering, to name a few. In all cases specialists will work out the

method of exit and decide on what is most profitable and suitable to both the

venture capitalist and the investor unit and the promoters of the project.

At present many investments of venture capitalists in India remain on paper,

as they do not have any means of exit. Appropriate changes have to be made

to the existing systems in order that venture capitalists find it easier to

realize their investments after holding on to them for a certain period of

time. This factor is even more critical to smaller and mid sized companies,

which are unable to get listed on any stock exchange, as they do not meet the

minimum requirements for such listings. Stock exchanges could consider

how they could assist in this matter for listing of companies keeping in mind

the requirement of the venture capital industry.

To provide the lenders with additional security, a Special Purpose Vehicle

(SPV) can be created, which would hold the shares bought back from the

venture capitalist firm in a trust until the firm achieves a certain targeted rate

of return. Meanwhile a certain proportion of the firm’s sale proceeds can be

funneled directly to the SPV amortize the debt.

An exit via the capital market is certainly less expensive but this option is

open only to the more established firms. A listing on a stock exchange,

which would enable the venture capitalist to easily off-load his stake, is

obviously a far more feasible proposition for a firm already in existence for a

few years than for a new venture. There are stiff capital requirements for

listing on either the BSE or the NSE, the minimum capital requirement is

RS. 10 Crore. While the OTCEI would have been an ideal solution for a

young company contemplating listing, since its inception in 1992, the

Exchange has been plagued by poor liquidity, negative returns and a general

lack of investor interest.

Even if the OTCEI does manage to perk up, it cannot be expected that small

startups will enlist. Global experience indicates that, despite liberal

admission requirements, OTCEs for unlisted securities tend to be dominated

by fast growing or medium size companies.

CHAPTER 7

MEASURES TO BE PROVIDED

From the experience of Venture Capital activities in the developed countries

and detailed case study of venture capital in India we can derive that the

following measures needs to be provided to boost Venture Capital industry

in India.

Social Awareness:

Lack of social awareness of the existence of venture capital industry has

been observed. Hardly few know about the principal objectives and

functions of the existing venture capital funds in the country and thus

banking of the media is required to bridge the gulf between the society

and the existing venture capital funds.

Deregulated Economic Environment:

A less regulated and controlled business and economic environment

where an attractive customer opportunity exists or could be created for

high-tech and quality products.

Fiscal Incentives:

Though Venture Capital funds like Mutual funds are exempted from

paying tax on dividend income and long-term capital gains, from equity

investment, unlike Mutual funds there are pre-conditions attached to the

tax shelter. So it is imperative that the Government streamlines its

guidelines on tax exemption for Venture Capital Funds.

Entrepreneurship And Innovation:

A broad-based (and less family based) entrepreneurial traditions and

societal and governmental encouragement for innovation creativity and

enterprise.

Marketing Thrust:

A vigorous marketing thrust, promotional efforts and development

strategy employing new concepts such as venture fairs, venture clubs

venture networks, business incubators etc., for the growth of venture

capital.

A Statutory Co-ordination Body:

A harmonious co-ordination needs to be maintained among the

technology institutes, professional institutes and universities who are the

producers of future venture capital managers. The coordinating organ so

formed is expected to ventilate an outline of the latest requirements of the

venture capital funds management. Central Government should come

forward to promote the referred coordination organ in the form of a

statutory body. The coordination organ would not only maintain link with

the domestic professional institutions, technology institutes and

universities but also with the global venture capital funds in order to

exchange the novel ideas that can help in standardizing Indian practice on

venture capital funds.

Technological Competitiveness:

Encouragement and funding of R&D by private and public sector

companies and the government for ensuring technological

competitiveness.

Training and Development of Venture Capital Managers:

For the success of venture capital fund, be it privately owned or public

sector financial institutions, strategies need to be found to promote

entrepreneurship. For this, venture capital funds need professionals with

initiative, drive and vision to identify such entrepreneurs who have sound

& ideas and innovative vision. Unfortunately, such professionals are not

easily available particularly in developing countries like India. Therefore

management schools need to develop social training programs to train

venture capital mangers in which risk taking and entrepreneurial attitude

needs to be incubated.

Broad Knowledge Base:

A more general, business and entrepreneurship oriented education system

where scientist and engineers have knowledge of accounting, finance and

economics and accountants understand engineering or the physical

sciences.

Exit Routes:

For venture capital funds, exits are crucial; going public is one way for

the investors to be paid back. Current rules of companies going public in

India insist on sustained track record of profits. For entrepreneur driven

companies where value creation is through intellectual property patents,

methodologies and processes, such norms are archaic. Venture capitalists

earn through value creation leading to exits and not through dividends.

Venture funds would prefer the company to invest back dividends into

the business. As such the question of stream of dividends pay outs prior

to IPO over three years as is required in India is a hindrance.

Another exit route can be repurchases of shares by promoters but it is an

expensive way of assuring investors an exit bank roll. Inter accruals alone

may not be adequate to back roll the repurchases and institutional

funding for such buyouts is rarely forthcoming. Though there is no legal

bar on such funding, but the risk of extending against the shares of newly

established company have kept away most of the bank and financial

institutions. Creative financial engineering can find a way around this

problem. To provide the lenders with an additional degree of security, a

special purpose vehicle (SPV) can be created which would hold the

shares bought back from the venture capital firms in trust until the firm

achieves a certain rate of return. Meanwhile, a certain proportion of the

firm’s sales proceeds can be funneled directly to the SPV to amortize

debt.

CHAPTER 8

Case study

Canbank Venture Capital

Canbank Venture Capital Fund Ltd (CVCFL) is a wholly owned Subsidiary

of Canara Bank. Canbank Venture Capital Fund is India’s First and Only

Public Sector Bank sponsored Venture Capital Fund, set up in 1989. The

Fund is registered with SEBI.

Four Venture Capital Funds with an aggregate corpus of around INR 1200

Million launched till date. The portfolio investments are spread across

diverse industrial segments.

Canbank Venture Capital Fund Ltd (CVCFL) intends to set up a new,

general, close-ended Venture Capital/Private Equity Fund with a corpus of

INR 5000 Million shortly. In this regard, proposals have been invited from

consultancy firms of repute for appointment as Advisors for setting up the

new Fund.

Overview

Canbank Venture is a premier domestic Venture Capital Fund. An

experienced fund management company, Canbank Venture believes in

adopting a General Fund philosophy and has a good portfolio of investments

in several promising sectors. The fund's corpus is contributed by Public

Sector Banks and Financial Institutions.

Over the last 19years Canbank Venture has invested in several promising

companies, partnered progress and posted successful exits. We invest in

businesses with an established technological or market positioning edge and

good growth potential.

The company has a well qualified team to invest, manage and create value in

its investee companies.

Canbank Venture is currently investing from BHARATH NIRMAN FUND,

which is a broad based fund. The Fund focuses on Growth Capital. The

investment philosophy is to pursue transactions with established companies

managed by professional teams.

Directors

The Board of Directors of Canbank Venture comprises the senior

management of Canara Bank and banking doyens. The members of the

board are:

- Mr. A.C. Mahajan – Chairman, Canara Bank

- Mr. H.S. Upendra Kamath – Executive Director, Canara Bank

- Mr. D.S. Anandamurthy – General Manager, Canara Bank Director

-Mr. Suresh Gadwal B.V – Managing Director, Canara Bank

Team

Canbank Venture has an experienced team to invest and manage the funds

efficiently. The team members are experienced venture capitalists and have

good knowledge of various sectors. 

Mr. Suresh Gadwal B.V, Managing Director

Mr. Suresh Gadwal brings with him an experience of over 37 years in

banking, with varied exposure into Corporate Credit, Export Finance,

Syndication, Investment Banking and Relationship Banking. He has a niche

for structuring customized products to Corporates/PSUs based on their

requirements and has a network of contacts with HNIs/VIPs/ Corporates/

PSUs/ SEBI/ BSE/ NSE/ and other Intermediaries in the Capital Market

Ms. Rajee R, Vice President

Ms. Rajee, brings with her over 19 years of venture capital experience. She

has a degree in Electronics Engineering and a Masters in Business

Administration

Mr.Anil Kumar Shetty B.V, Asst. Vice President

Mr. Anil Kumar Shetty B.V, Asst. Vice President brings with him over 12

years of banking experience. He is a Post Graduate with CAIIB.

Funds

Canbank Venture Capital Fund has through its funds, invested in companies

covering a broad spectrum of industries.

Bharath Nirman Fund- Fund IV

The Core Contributors of the Fund are leading nationalized banks viz.,

Canara Bank, Allahabad Bank, Andhra Bank, Corporation Bank, Indian

Overseas Bank, Oriental Bank of Commerce, Vijaya Bank, and Small

Industries Development Bank of India (SIDBI)

The Investment Focus is on Emerging Indian SME Businesses in IT/ ITES/

BPO, Telecom, Biotechnology, Healthcare, Pharmaceuticals, Engineering,

Auto & Auto Components, Infrastructure led Sectors and Domestic Demand

Driven Segments.

Portfolio

Canbank Venture has a diverse portfolio of investments in different sectors. Some of our

investments are.

ASIATIC

ELECTRICAL &

SWITCHGEAR PVT

LTD

Asiatic is a leading supplier of standardized power

distribution and protection solutions for

uninterrupted power supply. It manufactures a

range of low voltage and high voltage distribution

products including Silicone Rubber Range of HT

Products.

MERCHEM LTD. Merchem Limited is one of India's leading

manufacturers of rubber & specialty chemicals,

serving rubber-processing and allied industries.

With state-of-the-art technology and world-class

manufacturing facilities, Merchem consistently

delivers superior quality products that are on par

with international standards.

COLOUR ROOF

(INDIA) LTD.

COLOUR ROOF (INDIA) LTD (CRIL) is

dedicated exclusively to manufacture of roof and

wall cladding profiled sheets, and is a highly

customer focused organization in cladding profiles

M-TECH

INNOVATIONS

LTD

M-Tech Innovations Ltd., is one of the leading

manufacturers of high-tech Security Cards, Bank

Cards, Smart Cards, Pre paid Cards, etc for

Banking/ Telecom / Automobile & Electronic

Sectors. M-Tech is an ISO 9001:2000 / TS

16949:2002 certified company.

UNITHERM

ENGINEERS LTD

Unitherm is a Diversified, leading Engineering

Group in the business of manufacturing Industrial

Furnaces and Heat Treatment Services.

POLYGEL

TECHNOLOGIES

(I) PVT. LTD.

Polygel is a Specialty Chemicals company,

engaged in manu-facture of Adhesives and

Sealants, Cable Gels, Organic Titanates, etc. The

Fund has exited from this company.

ITEAMIC PRIVATE

LTD

An IT / ITES integrated business and technology

solutions and consulting services provider, offering

domain knowledge in the financial services and

education sectors. The Fund has exited from this

company.

KLT

AUTOMOTIVE &

TUBULAR

PRODUCTS LTD.

A major manufacturer for automotive products,

precision tubes, chassis frames, chassis components

and body components / assemblies. The company is

a leading supplier of Automotive chassis frame

assemblies for MUV's , Pick-ups, and other light

commercial vehicles. The Fund has exited from this

company.

AVASARALA

TECHNOLOGIES

LTD

The Avasarala Group of companies is a Bangalore

based; well diversified group with interests in

Engineering Design, Process Machinery,

Conveyors & Automation Systems, Electron Guns

for picture tubes and CDT Tungsten Rod, Wire and

Powder products and Health Care. The Group is a

leader in manufacture of capital machinery for

engineering and electronic industries. The Fund has

exited from this company.

RT OUTSOURCING

SERVICES

LIMITED

An ITES Company providing web enabled

customer relationship management solutions and

services. The Fund has exited from this company.

PRATHISTA

INDUSTRIES

LIMITED

Manufacturer of Bio-Fertilizers, Bio-Pesticides &

Gluconate salts.

OMNITECH

INFOSOLUTIONS

LIMITED

The company offers customized end to end

solutions in the areas of e-commerce, web

technology, database management etc. The Fund

has exited from this company.

INVESTMENT CRITERIA

ACTIVITY:

Growth and Expansion financing.

TECHNOLOGY AND BUSINESS:

Businesses with established technological or market positioning edge

with sustainable competitive advantage, operating efficiencies and

attractive profit margins.

MANAGEMENT TEAM:                      

Strong Management Team with a demonstrated track record of

performance, integrity, commitment and enterprise.

SECTOR:

Investment will be in sectors with sustainable high growth potential.

NATURE AND SIZE OF ASSISTANCES:

Participation will be in the form of investment in equity/ equity

related instruments,/ debt instruments in unlisted companies in the

range of Rs.45 to 90 million

OUR ROLE IN THE VENTURE:                   

Board Representation.

RIGHT TO INFORMATION ACT, 2005.

The Government of India has enacted "Right to Information Act 2005” to

provide for setting out the practical regime of right to information for

citizens to secure access to information under the control of Public

Authorities in order to promote transparency and accountability in the

working of any public authority.

RIGHT TO INFORMATION

            The right to information includes an access to the information which

is held by or under the control of any public authority and includes the right

to inspect the work, document, records, taking notes, extracts or certified

copies of documents / records and certified samples of the materials and

obtaining information which is also stored in electronic form.

THE INFORMATION WHICH IS EXEMPT FROM DISCLOSURE

The Act provides under Sections 8 and 9, certain categories of information

that are exempt from disclosure to the citizens. The public may also refer to

the relative sections of the Act before submitting a request for information.

FEE / COST TO GET THE INFORMATION

A request for obtaining information under Section 6(1) of the Act needs to

be accompanied by an application fee of Rs.10 by way of cash against

proper receipt or by DD or bankers’ cheque.

WHO CAN ASK FOR INFORMATION?

 Any citizen can request for information by making an application in writing

or through electronic means in English / Hindi / official language of the

areas, in which the application is being made together with the prescribed

fees.

WHO WILL GIVE INFORMATION?

 Any public authority would designate Public Information Officer (PIO) who

will receive the requests for information from the public and arrange for

providing necessary information to the public as permitted under the law.

The public authorities are also required to designate authority (ies) senior in

rank to PIO, as Appellate Authorities, who will entertain and dispose off

appeals against the decision of the PIO as required under the Act. Any

person who does not receive the decision from PIO either by way of

information or rejection within the time frame, may within 30 days from the

expiry of period prescribed for furnishing the information or 30 days from

the date of receipt of the decisions, prefer an appeal to the Appellate

Authority.

THE ROLE OF PUBLIC INFORMATION OFFICERS (PIO)

The PIO will receive the application / request for information under the Act

and process the request for providing the information and dispose of the

same; either by providing the information or rejecting the request, within a

period of 30 days from the date of receipt of request.

Kotak Realty Funds

Introduction

Kotak Realty Funds Group (KRFG) is a division of Kotak Investment

Advisors Ltd (KIAL) that focuses on Real Estate Investment opportunities.

Established in May 2005, it is one of India's first private equity funds, with a

focus on real estate and real estate intensive businesses. Our realty

investment funds actively consider investment opportunities with the local

developers and projects in the residential, commercial and other real estate

sectors.

Real estate investment funds have a lot of potential, considering the boom in

the property sector, which is expected to continue because of a shortfall in

demand and growing incomes. The demand for funds is expected to increase

exponentially, and real estate private equity firms will benefit. Kotak realty

funds investment aim is to capitalize on this growing opportunity.

Kotak Investment Advisors Ltd (“KIAL”), a subsidiary of Kotak Mahindra

Bank was set up to focus on managing the Alternate Assets business of the

Kotak Group. As part of KIAL, KRFG currently manages 2 funds that are

domicile in India and advises one Offshore Fund.

Team

Indian Real Estate Fund Management Team

The real estate fund management team has a unique blend of real estate

industry and capital and financial markets experience. Core members of the

team, S. Sriniwasan, V. Hari Krishna, Vikas Chimakurthy, Amit Mathur and

Sandeep Agarwal have 71 years of cumulative experience in the real estate

industry and capital markets. The team has strong relationships and contacts

for deal creation and execution.

The team provides complementary skills in the real estate and financial

markets that will enable the Fund to benefit from the budding environment.

The real estate fund management team has sound knowledge of regional

laws and business practices.

Team members

S. Sriniwasan, 43, Chief Executive Officer

V. Hari Krishna, 32, Director – Investments

Vikas Chimakurthy, 34, Director – Investments

Naozad Sirwalla, 35, Chief Operating Officer

Amit Mathur, 35, Vice President, Acquisitions

Sandeep Agarwal, 29, Vice President, Acquisitions

Prakash Dalal, 45, Head Investor Relations

Shagoofa R. Khan, 32, Head, Legal & Compliance

Sakar Mawandia, 29, Associate Vice President

Deepshikha Dhamija, 30, Vice President

Vikhyat Srivastava, 25, Associate Vice President

Raj Shah, 23, Associate Vice President

NG Srinivasan, 51, Vice President, Investment Risk Management

Funds

Kotak Investment Advisors Ltd ("KIAL"), a subsidiary of Kotak Mahindra

Bank, focuses on managing the Alternate Assets business of the Kotak

Group

Kotak India Real Estate Fund: This is the first fund introduced by

Kotak Realty Fund and is close-ended with an AUM of Rs.4,580

million. It focuses on investing in the Indian real estate and allied

sectors.

Raised from domestic HNI clients, the India Real Estate Fund has

now been fully invested.

Kotak Alternate Opportunities India Fund: Kotak Alternate

Opportunities (India) Fund ("KAOIF" or "Fund") is the second

domestic fund from Kotak Realty Fund. It is a close-ended fund of Rs.

15,780 million with a focus on investing in the Indian real estate and

allied sectors. This also has been raised from domestic HNI's.

Kotak India Realty Fund Limited: Kotak India Realty Fund Limited

(Fund) is an offshore Fund of $ 281 million set up to invest in equity,

equity-related and/or debt securities in real estate and real estate-

related projects and companies across India. The Fund will be

managed by Kotak Mahindra (International) Ltd and is currently

investing in projects and companies across all asset classes in Real

Estate within FDI norms.

Portfolio

Current Investments

Project level investment in Mumbai IT Park ,

Project-Level Investment in Distressed Asset Property (Land) in Chennai,

Enterprise level investment in Lemon Tree Hotels,

Enterprise level investment in Pride Hotels Limited,

Enterprise level investment in Sobha Developers,

Project level investment in an IT Park, NOIDA – Delhi NCR. ,

Project level investment in Golf Community, Bangalore,

Enterprise level investment in NDR Warehousing Private Limited,

Enterprise level investment in Sunteck Realty Limited,

Project level investment in a residential township, Chennai,

Enterprise level investment in Lalith Gangadhar Constructions Pvt. Ltd.,

Project level investment in a residential township, Chennai,

Project level investment in Mid Income Housing in Hyderabad.

ICICI Venture Funds Management Company Limited

ICICI Venture (formerly TDICI Limited) was founded in 1988 as a joint

venture with the Unit Trust of India. Subsequently, ICICI bought out UTI's

stake in 1998 and ICICI Venture became a fully owned subsidiary of ICICI.

ICICI Venture also has an affiliation with the Trust Company of the West

(TCW), which provides it a platform for networking Indian companies with

global markets and technology. Strong parentage and affiliates for ICICI

Venture also translates into access to a broad spectrum of financial and

analytical resources thus enabling a keen understanding of the Indian

financial markets and entrepreneurial ethos.

IFCI VENTURE CAPITAL FUNDS LTD. (IVCF)

IFCI Venture Capital Funds Ltd. (IVCF) was originally set up by IFCI as a

Society by the name of Risk Capital Foundation (RCF) in 1975 to provide

institutional support to first generation professionals and technocrats setting

up their own ventures in the medium scale sector, under the Risk Capital

Scheme. In 1988, RCF was converted into a company, Risk Capital and

Technology Finance Corporation Ltd. (RCTC), when it also introduced the

Technology Finance and Development Scheme for financing development

and commercialization of indigenous technology. To reflect the shift in the

company's activities, the name of RCTC was changed to IFCI Venture

Capital Funds Ltd (IVCF) in February 2000.

SIDBI Venture Capital Limited (SVCL)

SIDBI Venture Capital Limited (SVCL) is a wholly owned subsidiary of

SIDBI, incorporated in July 1999 to act as an umbrella organization to

oversee the Venture Capital operation of SIDBI. SVCL mission is to

catalyze entrepreneurship by providing capital and other strategic inputs for

building businesses around growth opportunities and maximize returns on

investment. SVCL will manage the various Venture Capital Funds launched/

being launched by SIDBI.

Gujarat Venture Finance Limited (GVFL)

Started in July 1990, at the initiative of the World Bank, GVFL Ltd. is

regarded as a pioneer of Venture Capital in India. Over the past ten years,

GVFL Ltd. has provided financial and managerial support to over 57

companies with a high growth potential.

GVFL Ltd invests all over India and across industries. It has created a niche

for itself in small and medium scale companies. Investment and monitoring

such companies require considerable effort and involvement as compared to

large projects. Over the last ten years GVFL Ltd. has been developing an

edge, dealing in such investments.