VENTURE

CAPITAL

VENTURE CAPITAL

The provision of funding for a start-up. For example, suppose a company with little access to

capital is attempting to open a new market or access an old one with a better product. It

may not be able to receive loans, either because of an unproven track record or because it

is already significantly in debt, and it may have exhausted financing from family and friends.

Venture capital allows this company to begin and build upon its operations by providing

necessary funding. Usually, the provider of venture capital takes equity in the company in

exchange for the money. Venture capital firms may also provide needed expertise in how to

run a business than can help the start-up become successful.

VENTURE CAPITAL INVESTMENT

PROCESS

The venture capital activity is a sequential process involving the following

six steps.

1. Deal origination

2. Screening

3. Due diligence Evaluation)

4. Deal structuring

5. Post-investment activity

6. Exit

Stages of Financing

Seed Money

To prove a concept (15-25L)

Extreme risk

Start Up

Provided to companies (25-60L)

Very high risk

First Round

Manufacturing funds

(1-3cr)

High risk

Second Round

Working capital & expenses (2-5cr)

Sufficiently high

Third Round

For newel profitable company(2-10cr)

Medium

Forth Round

Bridge Financing for going public

process (100cr)

Low

1) Those promoted by the Central Government controlled development finance institutions.

For example:

- ICICI Venture Funds Ltd.

- IFCI Venture Capital Funds Ltd (IVCF)

- SIDBI Venture Capital Ltd (SVCL)

2) Those promoted by State Government controlled development finance institutions.

For example:

- Punjab Infotech Venture Fund

- Gujarat Venture Finance Ltd (GVFL)

- Kerala Venture Capital Fund Pvt Ltd.

3) Those promoted by public banks.

For example:

- Canbank Venture Capital Fund

- SBI Capital Market Ltd

VENTURE CAPITAL IN INDIA

4)Those promoted by private sector

companies.

For example:

- IL&FS Trust Company Ltd

- Infinity Venture India Fund

5)Those established as an overseas venture capital fund.

For example:

- Walden International Investment Group

- HSBC Private Equity

management Mauritius Ltd

PIRAMAL GROUP

The family office of Ajay Piramal is stepping into venture capital investing

to get a slice of the fast-growing entrepreneurial ecosystem in the country.

Known as being one of the savviest value investors in India Inc, Piramal is

backing the newly floated Montane Ventures, an early-stage fund, as its

anchor investor, a first such move by an Indian business conglomerate.

Piramal's family office, sources said, is ploughing as much as $50 million

into Montane Ventures, which plans to raise up to $150 million with

participation from external investors, going forward. The Piramal group,

however, did not disclose how much the family office has invested in the

fund.

Celebrated as an ace dealmaker, having reaped windfall gains by selling

stake in telecoms major Vodafone, Piramal, whose diversified group has

interests across pharmaceutical, finance and private equity, would stand

out as one of the first Indian business leaders to propel a pure-play

venture capital fund.

TOP CITIES ATTRACTING VENTURE CAPITAL

INVESTMENTSCITIES SECTORS

MUMBAI Software services, BPO, Media, Computer

graphics, Animations, Finance & Banking

BANGALORE All IP led companies, IT & ITES, Bio-

technology

DELHI Software services, ITES , Telecom

CHENNAI IT , Telecom

HYDERABAD IT & ITES, Pharmaceuticals

PUNE Bio-technology, IT , BPO

PRIVATE EQUITY VENTURE CAPITAL

% ACQUISITION PE firms almost always buy

100% of a company in an LBO

VCs only acquire a minority

stake – less than 50%

STRUCTURE PE firms use a combination

of equity and debt

VC firms use only equity

INVESTMENT PE firms buy mature, public

companies

VCs invest mostly in early-

stage – sometimes pre-

revenue – companies

RISK AND RETURN But it would never work in PE,

where the number of

investments is smaller and the

investment size is much larger

– if even 1 company “failed,”

the fund would fail. So that’s

why they invest in mature

companies where the chance

of failing in 3-5 years is close

to 0%.

VCs expect that many of the

companies they invest in will

fail, but that at least 1

investment will generate huge

returns and make the entire

fund profitable. Venture

capitalists invest small

amounts of money in dozens

of companies, so this model

works for them.

SEBI REGULATIONS A venture capital fund may be set up by a company or a trust, after a certificate of

registration is granted by SEBI on an application made to it. On receipt of the certificate of

registration, it shall be binding on the venture capital fund to abide by the provisions of the

SEBI Act, 1992.

A VCF may raise money from any investor, Indian, Non-resident Indian or foreign, provided

the money accepted from any investor is not less than Rs 5 lakhs. The VCF shall not issue

any document or advertisement inviting offers from the public for subscription of its security

or units.

SEBI regulations permit investment by venture capital funds in equity or equity related

instruments of unlisted companies and also in financially weak and sick industries whose shares

are listed or unlisted.

At least 80% of the funds should be invested in venture capital companies and no other limits

are prescribed.

SEBI Regulations do not provide for any sectoral restrictions for investment except investment

in companies engaged in financial services.

MICRO VENTURE CAPITAL (MICRO VC)• Micro venture capital is money invested to seed early-stage emerging companies with

amounts of finance that is typically less than that of traditional venture capital. In contrastto traditional venture capital which is money used to invest in companies looking to fundgrowth (also referred to as a Series A round of funding), micro venture capital consists ofsmaller seed investments, typically between 50 lacs to 1.5Cr., in companies that have yetto gain traction. In India the number of micro venture capital firms have continued to riserapidly over the last 5/6 years, and have become an important source of finance for start-up companies.

• Characteristics Of Micro VC’sA. Initial investment at the seed stageB. Investment on behalf of 3rd party Limited PartnersC. Most commonly have fund sizes that are less than around 100 Cr.

• Most micro venture capital firms pursue start-ups that are at their seed stage because oftheir lower initial cost basis. Though there is a high probability that the majority of thesestart-ups will not survive long enough to reach a Series-A round of funding, micro venturecapital firms are willing to make the investment because start-ups generally do not requirelarge sums of capital to bring a product to market, and because they believe that itrequires only a few successful companies for them to see profitable returns.

• Micro venture capital is money invested to seed early-stage emerging companies withamounts of finance that is typically less than that of traditional venture capital. In contrast totraditional venture capital which is money used to invest in companies looking to fund growth(also referred to as a Series A round of funding), micro venture capital consists of smaller seedinvestments, typically between 50 lacs to 1.5Cr., in companies that have yet to gain traction. InIndia the number of micro venture capital firms have continued to rise rapidly over the last 5/6years, and have become an important source of finance for start-up companies.

• Characteristics Of Micro VC’sA. Initial investment at the seed stageB. Investment on behalf of 3rd party Limited PartnersC. Most commonly have fund sizes that are less than around 100 Cr.

• Most micro venture capital firms pursue start-ups that are at their seed stage because of theirlower initial cost basis. Though there is a high probability that the majority of these start-upswill not survive long enough to reach a Series-A round of funding, micro venture capital firmsare willing to make the investment because start-ups generally do not require large sums ofcapital to bring a product to market, and because they believe that it requires only a fewsuccessful companies for them to see profitable returns.

• The big players have also started to form Micro VC’s with an idea of scooping up a huge &successful start-up.

• Professional from VC funds have started quitting their jobs & are showing inclination towardsmicro VC’s

• Challenges1. Such investor will face fewer Series-A deals as the same will go to bigger VC’s & the

important deals will never come to Micro VC’s.

2. Most of Micro VC’s are equipped with professionals & who neither have entrepreneurialbackground nor thorough understanding of how VC works.

THANKYOU

MANALI DALVI 13

ABHISHEK DARIRA 14

NANCY FERNANDES 15

HARESH GALA 16

SUNIL GODBOLE 17