VENTURE CAPITAL Happy Afternoo n Prepared & Presented By Vinod Raj Gowrish Bhargav
VENTURE CAPITAL• An Undertaking • Amount invested by theinvolved Risk person/s to carry out the newly established OR business• Dare to do orSay some thing
Meaning Venture capital means funds made available for startup firms and small businesses with exceptional growth potential. Venture capital is the financial support to young, rapidly growing companies/ individuals that have potential to develop into significant economic contributors by the Business men/ Group to create a product or service which has a unique idea.
Features/Characteristics of Venture CapitalHigh riskParticipation in managementProvided at earlier StageFinance to Smaller and Less Mature companiesFinance new and: rapidly growing companies Lack of liquidity Long time horizon
Need of Venture Capital To bridge the gap b/w Capital and Knowledge Maximum utilization of available resources
ADVANTAGES OF VENTURE CAPITAL To Investors To Venture Capital Undertakings To Society/Economy
TYPES OF FUNDING Seeding Capital Startup capital Early Stage Capital Expansion Capital Last Stage Capital
RISK IN EACH STAGE Financial Stage Period (Funds Risk Perception Activity to be locked in years) financed For supporting Seeding Capital 7-10 Extreme a concept or idea or R&D for product development Initializing Start Up Capital 5-9 Very High operations or developing prototypes StartEarly Stage Capital 3-7 High commercials production and marketing
Continue…Financial Stage Period (Funds Risk Perception Activity to be locked in years) financed Expand marketExpansion Capital 3-5 Sufficiently high and growing working capital need Market expansion, acquisition &Late Stage Capital 1-3 Medium product development for profit making company
VENTURE CAPITALISTA venture capitalist is a person or investment firm that makes venture investments, and these venture capitalists are expected to bring managerial and technical expertise as well as capital to their investmentsCharacteristics Well Managerial Skills Well Knowledgeable Sophisticated Investors – Comes forward to take risk Decision Making Ability Analyzing Skills Technology Back Ground – Scientist/Researchers
SERVICES GENERALLY PROVIDED BY VCS Finance to new and: rapidly growing companies Finance to Typically knowledge-based sustainable, up scaleable companies Purchase equity/quasi-equity securities Assist in the development of new products, or services Add value to the company through active participation
FUNDING PROCESS Step 1 Business Plan Submission Step 2 Introductory Conversation/Meeting Step 3 Due Diligence Step 4 Term Sheets and Funding
METHODS OF VENTURE CAPITAL FINANCING Equity Conditional loan Participating debentures Quasi equity Income note
VENTURE CAPITAL FUND A venture capital fund refers to a pooled investment vehicle that primarily invests the financial capital of third-party investors in enterprises As per SEBI (Venture Capital Funds) Regulations, 1996Venture capital fund means a fund established in the form of a trust or a company including a body corporate and registered Under these regulations which has a dedicated pool of capital raised in a manner specified in the regulations, and invests in venture capital undertaking in accordance with the regulations.
Registration of Venture Capital Fund :• Make an application to SEBI for grant of a Certificate• In Prescribed Form• With non refundable fee• Within prescribed PeriodEligibility Criteria :1. If a application made bya. Companyb. Trustc. Body corporate2. Not refused/suspended/cancelled under regulation 30
Procedure for Grant of Certificate• Satisfy the Eligible Criteria• Pay Prescribed Registration Fee• Inform SEBI in writingEffect of Refusal to grant Certificate• Cannot carry activities of Venture Capital Funding• Issue the directions• Appointment of Person
Investment Conditions and Restrictions• Raise FundsAny InvestorNot Less than Rs. 5 Lakh• Minimum Rs. 5 Crores required to startup Operations• Invest not More than 25 % of Corpus in one VCU• May invest in Foreign Companies subject to Guidelines issuedby RBI or SEBI form time to time• Atleast 66.67% of Investments on Unlisted Equity Shares• Not More than 33.33% of Investments in Debt and IPO’s• No investments to be listed without maturity of 3 years• No to Financial Services Providing Institutions• Preference to Sick & Financially Weak Companies
General Obligations and Responsibilities•No Public OfferMaintenance of Books and Records•Proper Books of Accounts, Records and Documents•For a period of 8 years•Place where books are maintainPower of SEBI•Call for InformationWinding Up• Intimate to SEBI• No Investment to be made• With in 3 months
Income Tax Provisions For VC Sec 10(23FA) – Exemption of - dividends [other than dividends referred to in section 115-O], or - long-term capital gains of a venture capital fund or a venture capital company from investments made by way of equity shares in a venture capital Undertaking
Provisos- Such venture capital fund or venture capital company is approved by the Central Government- any approval by the Central Government shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years, as may be specified in the order of approval :- This clause will apply only in respect of any investment made before the 31st day of March, 2000.
Explanation – Meaning of certain terms for the purpose of this clause(a)―venture capital fund‖ means such fund, operating under a trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908), established to raise monies by the trustees for investments mainly by way of acquiring equity shares of a venture capital undertaking in accordance with the prescribed guidelines;(b)―venture capital company‖ means such company as has made investments by way of acquiring equity shares of venture capital undertakings in accordance with the prescribed guidelines; and
(c) ―venture capital undertaking‖ means such domestic company whose shares are not listed in a recognized stock exchange in India and which is engaged in the — (i) business of— (A) software; (B) information technology; (C) production of basic drugs in the pharmaceutical sector; (D) bio-technology; (E) agriculture and allied sectors; or (F) such other sectors as may be notified by the Central Government in this behalf; or (ii) production or manufacture of any article or substance for which patent has been granted to the National Research Laboratory or any other scientific research institution approved by the Department of Science and Technology
Sec 10(23FB) – any income of a venture capital company or venture capital fund from investment in a venture capital undertaking
Explanation For the purposes of this clause — (a) ―venture capital company‖ means such company— (i) which has been granted a certificate of registration under the Securities and Exchange Board of India Act, 1992 (15 of 1992), and regulations made thereunder (ii) which fulfils the conditions as may be specified, with the approval of the Central Government, by the Securities and Exchange Board of India, by notification in the Official Gazette, in this behalf
(b) ―venture capital fund‖ means such fund— (i) operating under a trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908) or operating as a venture capital scheme made by the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963);] (ii) which has been granted a certificate of registration under the Securities and Exchange Board of India Act, 1992 (15 of 1992), and regulations made thereunder (iii) which fulfils the conditions as may be specified, with the approval of the Central Government, by the Securities and Exchange Board of India, by notification in the Official Gazette, in this behalf;
(c) ―venture capital undertaking‖ means such domestic company whose shares are not listed in a recognized stock exchange in India and which is engaged in the— (i) business of— (A) nanotechnology; (B) information technology relating to hardware and software development; (C) seed research and development; (D) bio-technology; (E) research and development of new chemical entities in the pharmaceutical sector; (F) production of bio-fuels; (G) building and operating composite hotel-cum-convention centre with seating capacity of more than three thousand; or (H) developing or operating and maintaining or developing, operating and maintaining any infrastructure facility as defined in the Explanation to clause (i) of sub-section (4) of section 80-IA; or (ii) dairy or poultry industry
Venture capital funds in India VCFs in India can be categorized into following five groups – - Those promoted by the Central Government - Those promoted by State Government - Those promoted by public banks - Those promoted by private sector companies - Those established as an overseas venture capital fund
Indian Venture capital & Private Equity association (IVCA) It was established in 1993 and is based in Delhi, the capital of India Mission – - to promote the development of venture capital and private equity industry in India, and - to support entrepreneurial activity and innovation.
Private Policy Collection of personal Information Use of Collected information Secrecy of Data
Member Services Website - a virtual hub of venture capital and professional service providers Company and individual member listing on IVCA’s searchable web-site with a direct link to the firms web-site Annual IVCA conference (2009) Networking events across India Information for entrepreneurs and portfolio companies seeking capital Employment database for venture capital and private equity professionals Research, publications and statistical information weekly news update and quarterly newsletter Discounted registration fees for IVCA members at industry and networking events Preferred speaking opportunities for members at industry events
Venture capital industry wise Segmentation Percentage 9.03 6.94 IT & ITES 3.36 7.73 Energy Manufacturing 12.92 11.5 Media & Ent. BFSI Shipping & logistics 4.32 Eng. & Const. 11.43 Telecom Health care 4.82 Others 27.95Percentage calculated on the total VC investment- 14,234 USB (fig. of 2007)
Factors for success of VC The regulatory, tax and legal environment Resource raising, investment, management and exit should be as simple and flexible as needed and driven by global trends. Venture capital should become an institutionalized industry that protects investors and investee firms
Effects of Recession on VC The down market virtually closed the IPO market for emerging companies. With less opportunities for getting ROI investors tend to scale back, adjust their investment focus and/or get more picky in funding companies. The investors that put money into their funds became less aggressive during recession so it was harder for the VCs to raise money.
Future prospects of VC In India VC can help in the rehabilitation of sick units. VC can assist small ancillary units to upgrade their technologies VCFs can play a significant role in developing countries in the service sector including tourism, publishing, health care etc. They can provide financial assistance to people coming out of universities, technical institutes, etc thus promoting entrepreneurial spirits