VENTURE CAPITAL

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VENTURE CAPITAL

  1. 1. VENTURE CAPITAL & PRIVATE EQUITY INDIAN EXPERIENCE BY G. N. BAJPAI
  2. 2. IMPERATIVES OF VENTURE CAPITAL (VC) <ul><li>Technological progress is the key driver of economic growth </li></ul><ul><li>Technological progress involves: </li></ul><ul><ul><li>Improvement in skills </li></ul></ul><ul><ul><li>Better capital equipment </li></ul></ul><ul><ul><li>New products, processes & business methods </li></ul></ul><ul><li>Technological progress in emerging economies will emerge from enterprises catch-up </li></ul><ul><li>Technology capacity is necessary to adopt technologies to local conditions </li></ul><ul><li>VC encourages technological progress via research & development </li></ul><ul><li>VC converts research & development into new ventures </li></ul>
  3. 3. FINANCING STAGES DURING LIFE- CYCLE OF INITIATIVE <ul><li>VC funding is special which enterprises tap at different stages of life cycle of initiative </li></ul><ul><li>Seed - to prove concept </li></ul><ul><li>Start-up - product development & market testing </li></ul><ul><li>First stage - commercial production </li></ul><ul><li>Second stage - expansion to scale </li></ul><ul><li>Later stage - expansion of profitable enterprise </li></ul><ul><li>Bridge/ Mezzanine - preparation for going public </li></ul>
  4. 4. SNAPSHOT OF INDIAN VENTURE CAPITAL SCENARIO SOURCE: www.nishithdesai.com/Research-Papers/VCF-Xroads.pdf
  5. 5. EVOLUTION OF PRIVATE EQUITY FINANCE Sources: TSJ Media, ICVA publications (various Years) Growth/ Maturity- Diversified Seed, Early stage & Development Telecom & IT Development Diversified Seed, Early stage & Development Diversified PRIMARY STAGES & SECTORS 75 50 20 8 NUMBER OF FUNDS PHASE IV 2002-2005 PHASE III 1998-2001 PHASE II 1995-97 PHASE I PRE-1995
  6. 6. EVOLUTION OF PRIVATE EQUITY FINANCE (cont.) Primary Sources of Funds Data Sources: TSJ Media, ICVA publications (various Years) Phase I Pre- 1995 Phase II 1995-97 Phase III 1998-2001 Phase IV 2002-05
  7. 7. EVOLUTION OF PRIVATE EQUITY FINANCE (cont.) Primary Sources of Funds Data Sources: TSJ Media, ICVA publications (various Years) Phase I Pre- 1995 Phase II 1995-97 Phase III 1998-2001 Phase IV 2002-05
  8. 8. EVOLUTION OF PRIVATE EQUITY FINANCE (cont.) Sources: TSJ Media, ICVA publications (various Years) 11.75 5.2 2 1 Average Investments ($m) 446 548 65 30 Total Number of transactions 100 2     Number of transactions 1882 21.9     Growth / Maturity ($m) 288 273 45 20 Number of transactions 3107 2168.1 110 25 Development ($m) 58 273 20 10 Number of transactions 250 657 15 5 Seed/ Early stage ($m) Overseas Institutional Overseas Institutional Government World Bank, Government Primary sources of Funds Phase IV Phase III Phase II PhaseI   Evolution of Private Equity Finance (cont.)
  9. 9. INDIA RISK CAPITAL INVESTMENTS BY STAGE 2003-05 13.1   499.1   38 16.2   1087   67 15   2189   146 Total Report of the committee on Technology Innovation & Venture capital Govt of India Planning Commission New Delhi July 2006 41.1 16.5 82.2 5.3 2           61.2 14 306 3.4 5 Buyout 46.1 37 184.5 10.5 4 23.9 43.9 477.3 29.9 20 15.6 34.9 763 33.6 49 PIPE 10.5 8.4 41.9 10.5 4 15.9 21.9 238.4 22.4 15 16 29.1 638 27.4 40 Late Stage 5.6 11.2 55.8 26.3 10 18.8 22.5 244.9 19.4 13 13.8 15.2 332 16.4 24 Growth Stage                     5.36 6.9 150 19.2 28 Sub-Total Early Stage                     11.8 3.2 71 4.1 6 (Cross-Border)                               Early Stage 7.5 27 134.7 47.4 18 6.6 11.6 125.9 28.4 19 3.6 3.6 79 15.1 22 ( India Based)                               Early Stage $ M % Share Amt $ M % Share Deals No. $ M % Share Amt $ M % Share Deals No. $ M % Share Amt $ M % Share Deals No.   Average Deal Size Value Volume Average Deal Size Value Volume Average Deal Size Value Volume Stage of Company Development 2003 2004 2005  
  10. 10. VC IN INDIA <ul><li>Securities & Exchange Board of India (SEBI) regulates both Domestic Venture Capital Funds & Foreign Venture Capital Investors & Registration benefits </li></ul><ul><li>Income passes through to investors without tax when Trusts are registered under the Indian Trust Act & Venture Capital Companies </li></ul><ul><li>FVCIs freely remit funds to India for investments in Indian venture capital undertakings (VCUs) & SEBI registered DVCFs </li></ul><ul><li>FVCIs are exempt from both the entry & exit pricing regulations that otherwise apply to foreign investors, such as market-related pricing on disinvestment </li></ul><ul><li>Sale of shares by VCFs to company insiders post- listing is exempt from SEBI takeover code </li></ul><ul><li>VCFs automatically obtain (“QIB”) Qualified Institutional Buyer status, which is useful in participating in new security placements </li></ul><ul><li>Exemption from one year lock-in for disinvestment post-IPO for shares purchased prior to the IPO </li></ul><ul><li>VCFs do not get treated as promoters for purposes of IPO </li></ul>
  11. 11. WHAT IS INDIA WORKING ON? <ul><li>Securities & Exchange Board of India (SEBI) to: </li></ul><ul><ul><li>Obviate restriction on preferential offering </li></ul></ul><ul><ul><li>Permit investment in projects/SPVs& surplus funds in bank deposits etc. </li></ul></ul><ul><ul><li>Mitigate restrictions of Substantial Acquisition & Takeover Regulations </li></ul></ul><ul><li>Reserve Bank of India (RBI) to: </li></ul><ul><ul><li>Grant general permission under FEMA and clear inconsistencies </li></ul></ul><ul><ul><li>Allow banks to value VCF investments on cost basis </li></ul></ul><ul><ul><li>Allow investment in real estate </li></ul></ul><ul><li>Government of India: </li></ul><ul><ul><li>Revisit tax issues for greater participation </li></ul></ul><ul><ul><li>Allow investments in VCF by pension funds </li></ul></ul><ul><ul><li>Streamline regulations under companies act including winding up & valuation guidelines </li></ul></ul>
  12. 12. CONTACT DETAILS <ul><li>Mr. G. N. Bajpai </li></ul><ul><li>Chairman </li></ul><ul><li>Mob : 98335 64458 </li></ul><ul><li>Email : [email_address] </li></ul>Add : Intuit Consulting Pvt. Ltd. Trade World, ‘B’ Wing, 7 th Floor, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai – 400 013. India. Tel : +91-22-40043041-44 Fax : +91-22-40043045
  13. 13. THANK YOU

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