INDIAN FINANCIAL SYSTEM

CIA - III

VENTURE CAPITAL

SUBMITTED BY:

ARIHANT SETHIA (0911351)

SURAJ KUMAR (0911322)

AYUSH AGARWAL (0911307)

ROHIT MAHESWARI (0911372)

VENTURE CAPITAL

Venture Capital

Long term risk capital to finance high technology projects which involve risk but at the same time as high potential for growth.

Definition (VCC) – “A financing institution which joins an

entrepreneur as a co-promoter in a project and share the risks and rewards of the enterprise”

The term ‘venture capital’ is understood in many ways.

Contd..

Venture capital is a form of equity financing especially designed for funding high risk and high reward projects with the objective of earning a high rate of return.

1.It promoted by technically or professionally qualified but unproven entrepreneur

2. It seeking to harness commercially unproven technology

3. High risk venture

Features of Venture Capital Financing

Form of equity participation, convertible debt or long term loan

High risk but high growth projects

Commercialization of new ideas or technologies. (not for trading, agency, etc.)

Joins as a co-promoter and shares profits and losses

Contd..

Continuous guidance

VC disinvests his holdings

Inputs needed during the setting up of the business

Small and medium scale industries

What is involved in the investment process?

Is the product or service commercially viable? Does the company have potential for sustained growth? Does management have the ability to exploit this

potential and control the company through the growth phases?

Does the possible reward justify the risk?Does the potential financial return on the investment

meet their investment criteria?

Scope of Venture Capital

Venture capital take different forms at different stages of the project

Banks and other financial institutions provide finance facilities only

from 2nd or 3rd stage

Financing of Venture capital

Development of an idea (seed finance)

Implementation stage (start up finance)

Fledging stage (additional finance)

Establishment stage (establishment finance)

Disinvestment Mechanism

Objective of VC’s to sell of the investments made by him at substantial

gains.

Objective of investment is not profit but capital appreciation at the time of

disinvestment

Options available

Promoter’s buy back

Public issue

Sale to other venture capital funds

Management buy outs

Advantages of Venture Capital

Advantages to Investing PublicReduce risk significantly against unscrupulous

managementVCC representing directors will ensure that the affairs

of the business are conducted prudently

Advantages to PromotersConvincing only officials of the venture fundEfforts required are less compared to those of

entrepreneurs choosing to raise capital through public issue

Advantages (Contd..)

General advantagesIntermediary between investors (high returns) and

entrepreneurs

Development of economy

Acts as a cushion to support business borrowings

New products/process

Venture Capital Financing Stages

There are typically six stages of financing offered in Venture Capital:

A. EARLY STAGE FINANCING Seed capital and research and development projects Start ups Second Round Finance B. LATER STAGE FINANCING Development Capital, expansion finance, replacement capital,

turn around, Buy out.

Factors Affecting Investment Decision

Strong mgt teamA Viable IdeaBusiness PlanProject Cost and ReturnFuture Market ProspectExisting TechnologyMiscellaneous Factors

Venture Capital in India

It can be divided into following categories:-

Specialized financial institution and their financing schemes

A. Risk Capital Schemes of IFCI B. Technology Development & information company of India (TDICI) of ICICI C. SEED Capital Scheme of IDBI

Funds Promoted by State Level Institutions (a) Andhra Pradesh Industrial Development Corporation Ltd. (APIDC)- VCs Ltd. (b) Gujrat Venture Finance Ltd. (GVFL)Funds Promoted by Public Sector Banks Such as Canara Bank VC Fund Private Agencies:- It includes as the: 1. Credit Capital Venture fund 2. 20th Century VC fund 3. India Investment fund 4. Indus VC fund 5. SBI Capital Venture Capital fund

Overseas Venture Capital fund: It look for investment in areas ensuring high and guaranteed returns such as tourism, hospitals, air transport, IT, Comm., etc.

Difficulties in India:

1.The restrictive legal and financial framework is one of the main reason for the lack of development of venture capital.

2. There are no private pool of capital of finance risk venture in India.

Small companies have no access to share capital or long term debenture capital.

Need for growth:- India process a pool of young educated and technically qualified entrepreneurs with real innovative mind. Vast potential of our country need to be properly tapped for continuous development.

SEBI(VENTURE CAPITAL FUND) REGULATIONS, 1996

I). Registration of venture capital funds: 1. Application of grant of Certificate 2. Eligibility Criteria: (i) if the application made by the Company (ii) if the application by the trust (iii) if the application made by the body corporate

SEBI Regulations (Contd..)

II) Investment conditions and restrictions:

Minimum investment in a VC fund:

1.) A Venture Capital fund may raise

monies from any investor whether

Indian, foreign, or non-resident

Indian.

2.) No Venture Capital fund set up as a

company.

SEBI Regulations (Contd..)

III) General Obligation and responsibilities:-

Prohibition on investing subscription from

the public.

Private Placement

Maintenance of Books and Records

Submission of Reports to the Board

Winding Up

SEBI Regulations (Contd..)

IV) Inspection and Investigation:-

1. To ensure that the books of account, records and documents are being maintained by the venture capital

2. Investigate into complaints received from investors.

V) Liability for action in Case of Default

1. Contravenes any of the provisions of the act

2. Fails to furnish any information relating to its activity as a venture capital.

THANK YOU!!!