What is VC Funding? “It is just the story of man with the idea and the man with the money”; "Money provided by professionals who invest alongside management in young, rapidly growing companies that have the potential to develop into significant economic contributors." - Indian Venture Capital Association (IVCA)
Unique features of VC firms Investment in high risk, high-returns ventures; Participation in management; Expertise in managing funds; Raises funds from several sources; Diversification of the portfolio; Exit after specified time
Background Wealth families started VC in 1920’s & 30’s Rockfeller started a special fund called VENROCK in 1950 by funding Easter Airlines and XEROX. In India, the need for VC is recognized in 7th five year plan VC in India started in 1988 with the formation of Technology Development and Information Company of India Ltd. (TDICI) - promoted by ICICI and UTI The first private VC fund was sponsored by Credit Capital Finance Corporation (CFC) and promoted by Bank of India, Asian Development Bank and the Commonwealth Development Corporation viz. Credit Capital Venture Fund
Types of VCF’s VCFs promoted by the Central govt. controlled development financial institutions TDICI, ICICI, IDBI…. VCFs promoted by the state government-controlled development finance institutions APVCL, GVCFL, GIIC…. VCFs promoted by Public Sector banks Canara Bank, SBI…. VCFs promoted by the foreign banks or private sector companies and financial institutions Grindlay’s India Development Fund
What do Venture Capitalists looks for?
Venture Capitalist Looks
Appropriate Investment Structure
Quality and Depth of Management
Significant gross profit margins
IPO candidate or acquisition target
Essential areas to be covered in business plan
Background on the company
The product or service
The management team
Amount and use of finance required and exit opportunities
Critical Steps to Writing a Business Plan Writing a business plan can be an overwhelming task. These feelings often translate into immobilization or confusion as to how to start the business plan Following are steps to be followed while preparing business plan:-
Audience & Funding Type
Research & Information Collection:
General Industry Overview
Review & Editing
Venture capital in India The Indian Venture Capital Association was established in 1993 and is based in Delhi. IVCA’s mission is to promote the development of venture capital and private equity industry in India and to support entrepreneurial activity and innovation.
Stages Phase I - Formation of TDICI in the 80’s and regional funds as GVFL & APIDC in the early 90s. Phase II - Entry of Foreign Venture Capital funds (VCF) between 1995-1999 Phase III - (2000 onwards). Emergence of successful India-centric VC firms Phase IV – (current) Global VCs and PE firms actively investing in India 150 Funds active in the last 3 years (Government, Overseas, Corporate, Domestic)
The Opportunity High Growth in Technology and Knowledge based Industries (KBI) Ability to build market leading companies in India that serve both global and domestic markets. India moving beyond supplier of low-cost services to higher-value products. Quality of entrepreneurship on ascending curve.
VCFs in India APIDC Venture Capital Limited Auto Ancillary Fund Information Technology Fund Punjab Infotech Venture Fund Canbank Venture Capital Fund Limited National Venture Fund for Software and Information Technology Industry
How does VCFs works?
The Venture Capitalist investment process:
Investment Themes The investment themes are driven by four broad macro drivers: Indian domestic consumption growth The India outsourcing advantage in both services and manufacturing Infrastructural creation and allied services Cross border - Assisting Indian corporates to expand overseas
Some Facts and Figures: Venture capitalists invested $29.4 billion in 3,813 deals in 2007 -- marking the highest yearly investment total since 2001 -- according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Financial.
Sector and Industry Analysis The Life Sciences sector (Biotechnology and Medical Device industries together) set an all-time record for venture capital investing in 2007 with $9.1 billion in 862 deals, compared to $7.6 billion going into 786 deals in 2006. Software investing in 2007 was $5.3 billion going into 905 deals, compared to $5.1 billion going into 920 deals in 2006.
The Clean Technology sector, experienced significant growth in 2007 with $2.2 billion invested in 202 deals. Internet-specific companies received $4.6 billion in 748 deals in 2007 The Media and Entertainment industry saw more venture capital dollars in 2007, with $1.9 billion going into 340 deals
Start developing relationships with potential investors as soon as practicable. Qualify potential investors based on their preferences and availability of capital Prepare a concise business plan and update it regularly. Be realistic in financial projections. Do not be secretive or suspicious. Develop an in-depth knowledge of your market and competition before seeking investors. Encourage customer references early. Travel to the investor's office to secure an initial meeting. Seek advice from venture capitalists even if they reject your initial proposal. Don't be discouraged - perseverance is often a key ingredient to your success. Recommendations