Research Project Report on Growth of Venture Capital Finance in India and Role of Business Confidence Index

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The research project report “Growth of Venture Capital Finance in India and role of Business Confidence Index” is undertaken as a part of MBA curriculum at Kurukshetra University. Venture Capital Finance is a mode of financing a high risk and new business ventures and is no more in the dormant stage in India.

The academic research study has been undertaken in order to know the current scenario of venture capital finance in India and to predict it near future rate of growth. The report also lookouts for market share of different economic sectors in terms of Venture Capital Investments and analyses growth of venture capital investment in these sectors.

The research project report further analyse whether values of Business Confidence Index can predict growth rate of Venture Capital Investments. For this reason Business Confidence Index by Confederation of Indian Industry (CII) has been used.

The report starts with Introduction to the topic i.e. Venture Capital Financing. It then throws light of this Industry in India. The report than provides objectives of this project, reviews of literature done and Research methodology used. It then provides details of Analysis and Interpretation followed by findings and conclusion.

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Research Project Report on Growth of Venture Capital Finance in India and Role of Business Confidence Index

  1. 1. A Research Report ON Growth of Venture Capital Finance in India and Role of Business Confidence Index In partial fulfillment of the requirements for the degree of Master of Business Administration (Kurukshetra University, Kurukshetra; Session 2012-14) Under Supervision of: Submitted By: Dr. Shilpa Jain Piyush Gupta Head of Department Student, MBA IV MBA, SDIMT Reg. No. 05 MY 1282 S. D. Institute of Management and Technology Jagadhri, Yamunangar, Haryana 135003
  2. 2. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 2 DECLARATION I, Piyush Gupta, hereby declare that the work presented herein is genuine work done originally by me and has not been published or submitted elsewhere for the requirement of a degree programme. Any literature, data or works done by others and cited within this dissertation has been given due acknowledgement. Piyush Gupta MBA (2012-14) Roll No. ______
  3. 3. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 3 Table of Contents ACKNOWLEDGEMENT 5 PREFACE 6 1 INTRODUCTION TO VENTURE CAPITAL FINANCE 7 1.1 VENTURE CAPITAL FINANCING 7 1.2 BENEFITS OF VC OVER OTHER FUNDING METHODS 9 1.3 A BRIEF HISTORY 10 1.4 VENTURE CAPITAL FINANCINGPROCESS 12 1.5 WHAT DO VCS LOOK FOR? 13 2 VENTURE CAPITAL IN INDIA AND BUSINESS CONFIDENCE 14 2.1 INDUSTRYOVERVIEW 14 2.2 STRENGTHS AND CHALLENGES OF INDIA 15 2.3 GROWTHOF VENTURE CAPITAL INDUSTRY 16 2.4 BUSINESS CONFIDENCE INDEX 18 3 INTRODUCTION TO THE STUDY 21 3.1 BACKGROUND OF THESTUDY 21 3.2 NEED FOR THE STUDY 22 3.3 OBJECTIVES OF STUDY 23 3.4 SCOPEOF STUDY 24 4 LITERATURE REVIEW 25 5 RESEARCH METHODOLOGY 29
  4. 4. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 4 5.1 DATA COLLECTION 29 5.2 RESEARCH DESIGN 30 5.3 LIMITATIONS OF STUDY 30 6 ANALYSIS AND INTERPRETATION 31 6.1 ANALYSING GROWTH OF VENTURE CAPITAL FINANCE IN INDIA AND FORECASTING VC INVESTMENTS IN NEAR FUTURE 31 6.2 ANALYSIS OF VENTURE CAPITAL INVESTMENTS IN DIFFERENT SECTORS OF ECONOMY 35 6.3 CII’S BUSINESS CONFIDENCE INDEX AND VENTURE CAPITAL INVESTMENT GROWTH 46 7 FINDINGS AND CONCLUSION 49 7.1 FINDINGS 49 7.2 CONCLUSION 51 8 REFERENCES 52 8.1 BIBLIOGRAPHIC REFERENCES 52 8.2 WEB REFERENCES 53 9 SUGGESTED READINGS 54 APPENDIX 55 APPENDIX I - DATA SETS 55 APPENDIX II - GLOSSARYOF TERMS AND ABBREVIATIONS 58
  5. 5. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 5 ACKNOWLEDGEMENT This research project “Growth of Venture Capital Finance in India and Role of Business Confidence Index” in itself is an acknowledgement to the inspiration, drive, and technical assistance contributed to it by many individuals. The project and its report work would have never been completed without the guidance and assistance that I received from time to time during the whole research process. I express my sincere gratitude to my Internal Supervisor Dr. Shilpa Jain (Head of Department, MBA, SDIMT Jagadhri) for giving me unconditional support and an opportunity to enhance my skill in the field of my project. I would like to thank Dr. Shelly Gupta (Director, SDIMT Jagadhri) for her immense cooperation and provision of every possible required resource during project work. Above all, I am grateful to GOD who showed me rays of light to do the project and I am also thankful to all my family members and friends for their constant support and inspiration to complete this report. Piyush Gupta MBA(2012-2014) Roll No.
  6. 6. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 6 PREFACE The research project report “Growth of Venture Capital Finance in India and role of Business Confidence Index” is undertaken as a part of MBA curriculum at Kurukshetra University. Venture Capital Finance is a mode of financing a high risk and new business ventures and is no more in the dormant stage in India. The academic research study has been undertaken in order to know the current scenario of venture capital finance in India and to predict it near future rate of growth. The report also lookouts for market share of different economic sectors in terms of Venture Capital Investments and analyses growth of venture capital investment in these sectors. The research project report further analyse whether values Business Confidence Index can predict growth rate of Venture Capital Investments. For this reason Business Confidence Index by Confederation of Indian Industry (CII) has been used. The report starts with Introduction to the topic i.e. Venture Capital Financing. It then throws light of this Industry in India. The report than provides objectives of this project, reviews of literature done and Research methodology used. It then provides details of Analysis and Interpretation followed by findings and conclusion.
  7. 7. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 7 1 INTRODUCTION TO VENTURE CAPITAL FINANCE 1.1 Venture Capital Financing Business requires capital, and getting it at the right time is very important. There are several alternatives to fund the business. A brief heading to name a few would be: • Owner or proprietor’s capital • Equity partner • Debt Finance These can further be branched to many options giving entrepreneur several options to chooseamong. In this study the focus would be more on financing by venture capital which comes under equity financing. Venture capital is a risk financing in the form of equity or quasi-euity. It gives the business funds based on their potential and their interest as perceived by the investor. Funds might be required for seed stage funding, expansion/development funding or for acquisition financing. Venture capital is established among developed countries and is developing in third world countries because of its impact on encouraging entrepreneurial activities within a nation. Venture Capital firms invest funds on any business with a professional outlook; they focus on their primary segment which varies among different specializations (e.g. e-commerce, Oil & Gas, Healthcare, Manufacturing, Health/life sciences, etc.). 'Venture Capital' is an important source of finance for those small and medium-sized firms which have very few avenues for raising funds.
  8. 8. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 8 Although such a business firm may possess a huge potential for earning large profits in the future and establish itself into a larger enterprise. But the common investors are generally unwilling to invest their funds in them due to risk involved in these types of investments. In order to provide financial support to such entrepreneurial talent and business skills, the concept of venture capital emerged. In a way, venture capital is a commitment of capital, or shareholdings, for the formation and setting up of small scale enterprises at the early stages of their life cycle.1 Venture capitalists comprise of professionals of various fields. They provide funds (known as Venture Capital Fund) to these firms after carefully scrutinizing the projects. Their main aim is to earn huge returns on their investments, but their concepts are totally different from the traditional moneylenders. They know very well that if they may suffer losses in some project, the others will compensate the same due to high returns. They take active participation in the management of the company as well as provide the expertise and qualities of a good banker, technologist, planner and managers. Thus, the venture capitalist and the entrepreneur literally act as partners. 1 “Venture Capital”, accessed February 18, 2014 http://business.gov.in/business_financing/venture_capital.php
  9. 9. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 9 1.2 Benefits of VC over other Funding Methods Venture capital has a number of advantages over other forms of finance:  It injects long term equity finance which provides a solid capital base for future growth.  The venture capitalist is a business partner, sharing both the risks and rewards. Venture capitalists are rewarded by business success and the capital gain.  The venture capitalist is able to provide practical advice and assistance to the company based on past experience with other companies which were in similar situations.  The venture capitalist also has a network of contacts in many areas that can add value to the company, such as in recruiting key personnel, providing contacts in international markets, introductions to strategic partners, and if needed co-investments with other venture capital firms when additional rounds of financing are required.
  10. 10. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 10 1.3 A Brief History One of the first steps toward a professionally-managed venture capital industry was the passage of the Small Business Investment Act of 1958. The 1958 Act officially allowed the U.S. Small Business Administration (SBA) to license private "Small Business Investment Companies" (SBICs) to help the financing and management of the small entrepreneurial businesses in the United States. It is commonly noted that the first venture-backed startup is Fairchild Semiconductor (which produced the first commercially practical integrated circuit), funded in 1959 by what would later become Venrock Associates. During the 1960s and 1970s, venture capital firms focused their investment activity primarily on starting and expanding companies. More often than not, these companies were exploiting breakthroughs in electronic, medical, or data-processing technology. As a result, venture capital came to be almost synonymous with technology finance. The public successes of the venture capital industry in the 1970s and early 1980s (e.g., Digital Equipment Corporation, Apple Inc., Genentech) gave rise to a major proliferation of venture capital investment firms. The number of firms multiplied, and the capital managed by these firms increased ten folds over the course of the decade. Growth in the venture capital industry remained limited throughout the 1980s and the first half of the 1990s.
  11. 11. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 11 The late 1990s were a boom time for venture capital. Initial public offerings of stock for technology and other growth companies were in abundance, and venture firms were reaping large returns. The NASDAQ crash and technology slump that started in March 2000 shook virtually the entire venture capital industry as valuations for startup technology companies collapsed. Over the next two years, many venture firms had been forced to write-off large proportions of their investments, and many funds were significantly "under water" (the values of the fund's investments were below the amount of capital invested). The revival of an Internet-driven environment in 2004 through 2007 helped to revive the venture capital environment. Currently, Venture Capital Environment is at all time high leading to emergence of all together new businesses. Innovations are sprouting at fast speed and VC investments are helping them for realizing full potential of Entrepreneurs.
  12. 12. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 12 1.4 Venture capital financing process There are typically six stages of venture round financing offered in Venture Capital that roughly correspond to these stages of a company's development.  Seed funding: Low level financing needed to prove a new idea, often provided by angel investors. Crowd funding is also emerging as an option for seed funding.  Start-up: Early stage firms that need funding for expenses associated with marketing and product development  Growth (Series A round): Early sales and manufacturing funds  Second-Round: Working capital for early stage companies that are selling product, but not yet turning a profit  Expansion: Also called Mezzanine financing, this is expansion money for a newly profitable company  Exit of venture capitalist: Also called bridge financing, 4th round is intended to finance the "going public" process Between the first round and the fourth round, venture-backed companies may also seek to take venture debt.
  13. 13. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 13 1.5 What do VCs look for? Venture capitalists are higher risk investors and, in accepting these risks, they desire a higher return on their investment. The venture capitalist manages the risk/reward ratio by only investing in businesses which fit their investment criteria and after having completed extensive due diligence. Venture capitalists have differing operating approaches. These differences may relate to location of the business, the size of the investment, the stage of the company, industry specialization, structure of the investment and involvement of the venture capitalists in the company’s activities. The venture capital firm will ask prospective investee companies for information concerning the product or service, the market analysis, how the company operates, the investment required and how it is to be used, financial projections, and importantly questions about the management team. All the above questions should be answered in the Business Plan. Assuming the venture capitalist expresses interest in the investment opportunity, a good business plan is a pre-requisite.
  14. 14. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 14 2 VENTURE CAPITAL IN INDIA AND BUSINESS CONFIDENCE 2.1 Industry Overview India currently has more than about 400 Venture capital firms. The Venture Capital industry has shown an exponential upward curve from investments of about USD 57 billion in 2008 to USD 140 billion in 2013. Unlike before as observed in the early stages of the industry’s growth the investments were inclined largely towards the Real Estate and IT sector, but within 7 years of success stories now in 2014 venture capital firms are now interested in nearly all sectors. With developing Indian entrepreneurship standards, government support, policies and globalization policies there are vast opportunities for private equity investors to capitalize on. Among cities, companies headquartered in Bangalore and Mumbai were the favourite among VC investors during 2013 attracting 49 investments each, followed by Delhi-based companies that accounted for 24 investments and Chennai-based companies with 21 investments. Gurgaon and Hyderabad followed with 15 deals and 8 deals respectively Preferred regions for VC investments are Mumbai, Delhi & NCR, and Bangalore, followed by Chennai and Hyderabad. Tier-2 cities like Lucknow and Chandigarh are slowly catching up in attracting VC Investments.
  15. 15. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 15 2.2 Strengths and Challenges ofIndia India is an attractive market with a challenging business environment. Its appeal lies in its competitive labor costs, lucrative domestic market, and its skilled workforce. Foreign investors also applaud its strong management and business education system, as well as its improving telecommunications infrastructure. However, the country’s weaknesses are its under-developed infrastructure and a restrictive operative environment. Key Strengths  Local Labor Costs  Domestic Market  Business and Management Education  Skilled Services Workforce  Telecommunications Infrastructure Key Challenges  Legislative and administrative environment  Transport and logistics infrastructure  Corporate Taxation  Ease of doing business
  16. 16. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 16 2.3 Growth of Venture Capital Industry Up to 1996: The Early Years:  Funds that were mobilized for venture investment were small in value.  The venture capitalists in those times were mostly from a banking background.  Banks approached the subject of venture funding much likely they approached debt financing of a project.  The accent was on the asset-side of the balance sheet. And the focus on innovation and business building was low.  Value creation as a focus had not yet been fully discovered, and exit strategies were being thought more around the life-term of the fund.  Valuations were low.  No competition between VCs.  Indian entrepreneurs had not yet discovered the venture capital route to funding and growth and it reflected in the small amounts that were invested.  There was little or no active participation of venture capitalists in entrepreneurial activities such as financial structuring, business strategy.  Business enhancement through networks. 1997 to 2000: The Rock ‘n’ Roll Years:  The SEBI guidelines of 1996 acted as huge incentive for domestic and foreign venture capital companies to focus their attention on India.
  17. 17. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 17  The range of venture capitalists now spanned incubators, angel investors, classic venture capitalists and even private equity players. And the lines between them had begun to blur.  Venture capitalists were instrumental in introducing risk taking too many, members of the professional class. 2001 Onwards: The Reality Years:  The number of people who had got in to venture capital game was truly impressive.  In addition to the seasoned players, there were finance and noon finance professionals of different hues entering the industry and people with little or no experience running the companies.  Venture capital community is finally recognizing that the evolution and business is an on-going process. This added to the return of the business maturation cycle of five to seven years, portends a less frenetic and more sustained pace of venture activity.  Domestic Venture Capital firms have realised the potential of Indian Entrepreneurs.  Legislative support has seen tremendous reforms.  According to surveys by International agencies like Deloitte, EY; Foreign Investors attractiveness among India is increasing.
  18. 18. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 18 2.4 Business Confidence Index About Business Confidence Index Business Confidence Index (BCI) is an economic indicator that measures the amount of optimism or pessimism that business/investment managers feel about the prospects of business in their countries/organisations. It also provides an overview of the state of the economy. It is usually based on survey of such managers. BCI is usually given by industrial organisations conducting such economic surveys. In India, Business Confidence is given by Confederation of Indian Industries. About CII The Confederation of Indian Industry (CII) is an association of Indian businesses which works to create an environment conducive to the growth of industry in the country. CII is a non-government, not-for-profit, industry-led and industry-managed organization, playing a proactive role in India's development process. Founded in 1895, CII has over 7100 members, from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 enterprises from around 257 national and regional sectoral industry bodies.
  19. 19. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 19 CII works closely with Government on policy issues, interfacing with thought leaders, and enhancing efficiency, competitiveness and business opportunities for industry through a range of specialized services and strategic global linkages. About CII’s Business Confidence Index Every quarter CII provides Business Confidence survey results in the form of Index for forthcoming quarters. The CII’s Business Confidence Index is an indicator designed to measure the degree of optimism on the state of the economy in India that business owners are expressing through their activities of investing and spending. Decreasing business confidence often implies slowing economic growth because business owners are likely to decrease their investment. The idea is that the more confident business owners and managers feel about the economy, their companies, their jobs and incomes, the more likely they are to make investments and purchases. Business Confidence in India increased to 54.90 in the fourth quarter of 2013 from 45.70 in the third quarter of 2013. Business Confidence in India is reported by the Confederation of Indian Industry (CII). From 2005 until 2013, India Business Confidence averaged 59.3 reaching an all time high of 71.8 in March of 2007 and a record low of 45.7 in September of 2013. In India, the Business Confidence Index (BCI) is based on a sample size of around 300 companies covering all industry sectors, including small, medium and large enterprises from different regions. BCI is calculated as a weighted average of the Current Situation Index (CSI) and the Expectation Index (EI), with greater weight given to EI as compared to CSI. These indices are based on three questions on the performance of the economy,
  20. 20. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 20 respondent’s industry and respondent’s company. Respondents are asked to rate the current and expected performance on a scale of 0 to 100. A score above 50 indicates positive confidence while a score above 75 would indicate strong positive confidence.
  21. 21. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 21 3 INTRODUCTIONTO THE STUDY 3.1 Backgroundof the Study Today due to the economic crisis and the change in job market, Entrepreneurship has gained interest. A number of young people in India today, plans to setup their own ventures and capitalize this opportunities. In today’s highly dynamic economic climate with regular technological inventions, few traditional business models may survive but margin lies more towards more innovative business ideas. Now, along with conglomerates that fuel economic growth SMEs and other innovative businesses have gained the momentum towards contribution in it. Starting and expanding an enterprise has its own risk and is never easy. There are number of parameters that contribute to its success or downfall. Some of these include:  Should one choose Venture Capital or any other mode of finance?  Which sector one should start its venture in?  What array of businesses are points of attraction among Venture Capitalists?  What is possible near future growth in sector of one’s choice? The study helps in providing answers to these questions by analysing status of Venture Capital in India, Which sectors are on rise, what is the confidence level of Indian and Foreign investors.
  22. 22. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 22 3.2 Needfor the Study The need of study has following facets:  The study has been conducted for gaining the practical knowledge about Venture Capital Finance in India  The study has been undertaken as a part of MBA curriculum for the partial fulfilment of the requirement of MBA degree by Kurukshetra University, Kurukshetra.  There is a limited Academic Literature available regarding Venture Capital Finance in India.
  23. 23. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 23 3.3 Objectives of Study As we know Venture Capital Finance is no more in the dormant stage in India. But there is a dearth of academic research on the topic. In order to fill the gap the study has been undertaken. The main objectives of study are:  To know the current scenario of venture capital finance in India  To predict the future rate of growth of Venture Capital Finance  To lookout for market share of different economic sectors in terms of Venture Capital Investments  To analyse growth of venture capital investment in different sectors of economy  To analyse whether Business Confidence Index can predict growth rate of Venture Capital Investments
  24. 24. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 24 3.4 Scope of Study  The study is about Venture capital Finance in India. So any kind of financing other than Venture Capital is out of scope. Also, data of any country other than India is out of scope of this study.  This study has used CII’s Business Confidence. Any other Business Confidence Survey doesn’t hold in scope of the study.  Only studies of Venture Capital Investments are in scope. Factors responsible for such investments are out of scope.
  25. 25. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 25 4 LITERATURE REVIEW Although there is limited literature available for Venture Capital Finance in Indian context, there are extensive texts available on Venture capital all over the world. Following are some insightful work done by different academicians and researchers in the same line. I M Panday “The process of developing venture capital in India” - Technovation, Volume 18, Issue 4, April 1998 This study investigates the process of developing venture capital in a developing country — India. The discussion documents the experiences of the largest venture capital firm in India (TDICI) in initiating and developing the concept of venture capital as well as learning the venture capital business. The history of modern venture capital in India is of recent origin; it only goes back to the mid-eighties. In the initial years, venture capital firms (VCFs) in India encountered a number of problems in developing their businesses. From the in-depth case study of TDICI, it is found that the firm went through the initial constraint of not knowing the venture capital business well, and learnt through experience. It faced problems in raising funds and evaluating prospective ventures. It initially focused its investment in the high-technology business, but gradually shifted the focus towards other potentially high-growth, high-profitable businesses, not just high-tech businesses. It is also noticed that TDICI undertook a number of business development initiatives to popularise the venture capital business in India. It introduced a simple organisational structure for facilitating quick decision- making, and developed innovative funding and financing mechanisms.
  26. 26. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 26 Dossani, R. and Kenney “Creating an Environmentfor Venture Capital in India”- M. World Development, 30 (2) 227–253 (2002) The institution of venture capitalism is a difficult one to initiate through policy intervention, particularly in developing countries with unstable macroeconomic environments and histories of state involvement in the use of national capital and in the composition of production. India has all these constraints. The emergence of a thriving software services industry after 1985 created the raw material that venture capital could finance, thus achieving a critical precondition for venture capital's growth. It was followed by efforts to create a venture capital industry. After several setbacks, some success has been achieved largely due to a slow process of moulding the environment of rules and permissible institutions. The process was assisted by the role of overseas Indians in Silicon Valley's success in the 1990s. Yet, in terms of what is needed, most of the work remains to be done. Inevitably, this will be the result of joint work by policymakers and practitioners. Asim Mishra “Indian Venture Capitalists (VCs): Investment Evaluation Criteria” - ICFAI Journal of Applied Finance, Vol. 10, No. 7, pp. 71-93, July 2004 This paper analyses the validity of venture evaluation model in India by directly comparing the relative importance of evaluation criteria on the funding decision with the relative importance to factors influencing venture's empirical performance. In the light of the differences in investment opportunities around India, and the nature of industrial development in
  27. 27. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 27 South East Asia in general, the author anticipated that the investment criteria employed by Venture Capital Firms (VCFs) in India would differ. A questionnaire was administered to venture capitalists (regular members of Indian Venture Capital Association) to determine the criteria they use to decide on funding new ventures. The response rate was 100%. A list of forty two criteria was developed on previously developed lists. The criteria fell into six groups: the entrepreneur's personality, the entrepreneur's experience, characteristics of the product or service, characteristics of the market, financial consideration and characteristics of venture management team. Answers were given on a four point rating scales. The results reveal that criteria adopted by Indian VCs are different from those adopted by VCs in other countries including US. The results also confirm that the Sayed Ahmed Naqi and Samanthala Hettihewa “Venture capital or private equity? The Asian experience”- Business Horizons Volume 50, Issue 4, July–August 2007 Venture capital in Asia has exhibited remarkable growth over the last two decades. Researchers and practitioners have, however, expressed doubts as to whether what is being reported as venture capital in Asia can really be classified as such. Authors of scholarly studies often avoid this debate and, consequently, fail to caution readers about the applicability of their research findings. Through an exploration of the history, development, and composition of venture capital in Asia, this article not only confirms significant differences between Asian and traditional venture capital, but also finds that venture capital in Asia differs little from what is commonly called private equity. As such, a need exists within the venture capital
  28. 28. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 28 literature to recognize this peculiarity of the Asian venture capital market. Moreover, venture capitalists considering expansion into Asia must comprehend the nature of the Asian market in order to avoid disillusionment and frustrations which may result from inadequate understanding. A. Thillai Rajan “Venture capital and efficiency of portfolio companies” - IIMB Management Review, Volume 22, Issue 4, December 2010 Venture Capital (VC) has emerged as the dominant source of finance for entrepreneurial and early stage businesses, and the Indian VC industry in particular has clocked the fastest growth rate globally. Academic literature reveals that VC funded companies show superior performance to non VC funded companies. However, given that venture capitalists (VCs) select and fund only the best companies, how much credit can they take for the performance of the companies they fund? Do the inherent characteristics of the firm result in superior performance or do VCs contribute to the performance of the portfolio company after they have entered the firm? A panel that comprised VCs, an entrepreneur and an academic debated these and other research questions on the inter-relationships between VC funding and portfolio firm performance. Most empirical literature indicates that the value addition effect dominates the selection effect in accounting for the superior performance of VC funded companies. The panel discussion indicates that the context as well as the experience of the General Partners in the VC firms can influence the way VCs contribute to the efficiency of their portfolio companies.
  29. 29. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 29 5 RESEARCHMETHODOLOGY Research Methodology is a way to systematically solve the research problem. In it, step-by-step methods are followed to solve a particular problem. It refers to a search for knowledge. It can also be defined as a scientific and systematic search for pertinent information on a specific topic. The study is carried out around different sources of data regarding Venture Capital Finance in India. The data is analysed using different functions of Microsoft Office Excel 2007 and Microsoft Office Word 2007. The main statistical tools used are Correlation, Exponential Growth and Linear Forecast. 5.1 Data Collection The study is based on secondary data on Venture Capital Investments. The data is collected from different publications and online resources including  SEBI’s Handbook of Statistics on Indian Securities Markets  SEBI’s website  Indian Venture Capital Association reports  Bain & Company’s reports  CII, Deloitte and E&Y survey results  Trading Economics website  and many other books, publications, reports and articles
  30. 30. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 30 5.2 ResearchDesign Research Design is the way in which the research is carried out. It works as a blue print. Research Design is the arrangement of conditions for the collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure. The Research design for the study is descriptive in nature. The research is done with analog observations. Predictive analysis is done in order to know pattern of near future investment patterns. 5.3 Limitations of Study The Study is based on the data provided by different sources, any incorrectness or biasness in same might also have been resulted in same for this study.
  31. 31. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 31 6 ANALYSIS AND INTERPRETATION 6.1 Analysing Growth of Venture Capital Finance in India and Forecasting VC Investments in near future To understand the scenario of venture capital investments in India, firstly we looked at the Total Investment Details of SEBI Registered Venture Capital Funds (VCF) and Foreign Venture Capital Investors (FVCI) as of Dec 31 of each year starting 2007. Year Total VC Investments (in Rs. Crores) 2007 28260 2008 33939 2009 42059 2010 47859 2011 56868 2012 55542 2013 69520 Table 1: Cumulative Total Investment Details of SEBI Registered Venture Capital Funds (VCF) and Foreign Capital Investors (FVCI) as of Dec 31 of each year
  32. 32. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 32 With the help MS Word Excel, Growth Rate is determined for given values from year 2007-2013 and prediction for next two years is made using following GROWTH function: GROWTH(known_Ys, known_ Xs, New_Xs, constant) Here, Ys = Known Values of Total Investments Xs = Year corresponding to known Ys (2007-2013) New Xs = Year for which Value to be forecasted (2014), (2015) Constant = None Following are the Forecasted Values of Total Investment in 2014 and 2015 using Growth function. Year Expected Total VC Investments (in Rs. Crores) 2014 80988 2015 93383 Table 2: Forecasted values of Total Investments by Venture Capital Funds as of Dec 31 of 2014 and 2015
  33. 33. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 33 When values of Venture Capital Investments in India from 2007 to 2013 and their forecasted values for 2014 and 2015 are plotted on a Line Graph, following curve is obtained: Fig 1. Line Graph of Total Venture Capital (VC) investments from year 2007 to 2013 along with forecasted values for year 2014 and 2015 Interpretation Fig. 1 shows the Line Graph of Total Venture Capital (VC) investments from year 2007 to 2013 along with forecasted values for year 2014 and 2015. The black curve shows Exponential Growth curve for same. We can infer that Venture Capital Investments in India have grown exponentially. If 0 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total VC Investments (inRs. Crores) Total Investments (in Rs. Crores) Expon. (Total Investments (in Rs. Crores))
  34. 34. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 34 same trend continues, the investments by VC in India will be increasing in near future. Also, Investments have been slow in one year dropping from Rs. 56868 crores in 2011 to Rs. 55542 crores in 2012 but they have gained their momentum back in 2013 by increasing more that 25%. The Value of Investments in 2014 and 2015 is predicted to be near Rupees 81 and 93 thousand crores respectively.
  35. 35. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 35 6.2 Analysis of Venture Capital Investments in different sectors of economy Now we look at the different sectors of Economy details Venture Capital Investments of SEBI Registered Venture Capital Funds (VCF) and Foreign Capital Investors (FVCI) as of Dec 31 of each year (FVCFs) >Year v Sectors of Economy 2007 2008 2009 2010 2011 2012 2013 Information technology 2169 2520 2864 3319 4322 4481 5325 Telecommunications 990 1076 4268 7469 7516 7086 7798 Pharmaceuticals 1076 1229 1478 1325 1132 1151 1006 Biotechnology 385 634 461 289 283 278 326 Media/ Entertainment 470 906 1434 1006 1124 739 1406 Services Sector 2475 2976 3529 2677 2973 2809 3697 Industrial Products 2047 1951 2344 1355 2014 2107 2377 Real Estate 6348 6311 8185 9783 10831 9987 12048 Others 16749 24413 27158 20637 26673 26903 35535 Table 3: Cumulative Total Investment Details of SEBI Registered Venture Capital Funds (VCF) and Foreign Capital Investors (FVCI) as of Dec 31 of each year
  36. 36. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 36 Table 3 shows Annual Venture Capital Investments data for different sectors of economy. Different sectors of economy for which data has been obtained are Information Technology, Telecommunications, Pharmaceuticals, Biotechnology, Media/Entertainment, Services Sector, Industrial Products and Real Estate. Now in order to analyse percent share of Venture Capital Investment in 2013 for each different sector following pie chart is obtained. Fig 2. Total VC Investment Share of different sector of Economy in India 8% 11% 2% 1% 2% 5% 3% 17% 51% Sector-wise Venture Capital Investments in India in 2013 Information technology Telecommunications Pharmaceuticals Biotechnology Media/ Entertainment Services Sector Industrial Products Real Estate Others
  37. 37. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 37 Interpretation In 2013, Real Estate is the biggest sector of Venture Capital Investments, followed by Telecommunications and Information Technology. Services Sector stands at 4th position followed by Industrial Products sector and Media/Entertainment sector. Pharmaceutical and Biotechnology sector has least share of Venture Capital Funds among 8 sectors.
  38. 38. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 38 To understand the scenario of growth in each sector, line graphs have been obtained using values from Table 3. In each graph, a black coloured trend line is obtained which shows forecasted linear trend of respective sector. Fig 3. Total Venture Capital (VC) investments curve from year 2007 to 2013 in Information Technology Sector. It also shows forecasted linear trend line. Information Technology (IT) has been high growth factor all these years. According to Bain India Private Equity report 20142, IT is expected to be one of the most attractive sectors for PE and VC investments in the next two years. We can infer that IT is going to be one of the high growth sectors attracting large amount of Venture Capital in year 2014 and 2015. 2 INDIA PRIVATE EQUITY REPORT 2014 - Bain & Company and IVCA 0 1000 2000 3000 4000 5000 6000 7000 8000 2007 2008 2009 2010 2011 2012 2013 Informationtechnology Information technology Linear (Information technology)
  39. 39. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 39 Fig 4. Total Venture Capital (VC) investments curve from year 2007 to 2013 in Real Estate Sector. It also shows forecasted linear trend line. As India is developing country and Real Estate is an utmost important need of any developing nation. Real Estate sector has always seen reasonable growth and is still attracting investment. It can be inferred that this sector will be growing in 2014 and 2015 in terms of Venture Capital Investment. 0 2000 4000 6000 8000 10000 12000 14000 16000 2007 2008 2009 2010 2011 2012 2013 Real Estate
  40. 40. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 40 . Fig 5. Total Venture Capital (VC) investments curve from year 2007 to 2013 in Telecommunication Sector. It also shows forecasted linear trend line. Telecommunication sector has seen some of the biggest investments in 2009 and 2010 making it Hot Favorite sector of Venture Capital Investment in those years. Following bad news of scams and cancelation of 2G licenses the sector has not attracted much investment from year 2010. Although Forecasted Linear 7 year trend line projects it as high growth sectors but when we look at data from last 4 years, Telecommunications has been laggard leading to very slow growth in upcoming years. 0 2000 4000 6000 8000 10000 12000 14000 2007 2008 2009 2010 2011 2012 2013 Telecommunications
  41. 41. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 41 . Fig 6. Total Venture Capital (VC) investments curve from year 2007 to 2013 in Media/Entertainment Sector. It also shows forecasted linear trend line. Media/Entertainment Sector has seen moderate growth in past years. In 2013, Venture Capitalists have shown significant interest. There were good numbers of deals in the sector. The sector is further going to show moderate growth depending upon current factors affecting the sector. 0 200 400 600 800 1000 1200 1400 1600 2007 2008 2009 2010 2011 2012 2013 Media/Entertainment
  42. 42. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 42 . Fig 7. Total Venture Capital (VC) investments curve from year 2007 to 2013 in Services Sector. It also shows forecasted linear trend line. 2009 and 2013 are the only years of high growth for Services Sector. Because of less inclined forecasted linear trend of the investments in the sector, there will be moderate growth in venture capital investments in India in upcoming years. 0 500 1000 1500 2000 2500 3000 3500 4000 2007 2008 2009 2010 2011 2012 2013 Services Sector
  43. 43. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 43 . Fig 8. Total Venture Capital (VC) investments curve from year 2007 to 2013 in Industrial Products’ Sector. It also shows forecasted linear trend line. Industrial Products sector is a source of high employment opportunities for less skilled labor. The sector has not seen much growth in terms of venture capital investments. Because of less inclined forecasted linear trend of the investments in the sector, there will be slow growth in venture capital investments in India in upcoming years. 0 500 1000 1500 2000 2500 2007 2008 2009 2010 2011 2012 2013 Industrial Products
  44. 44. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 44 Fig 9. Total Venture Capital (VC) investments curve from year 2007 to 2013 in Pharmaceutical Sector. It also shows forecasted linear trend line. Fig 10. Total Venture Capital (VC) investments curve from year 2007 to 2013 in Biotechnology Sector. It also shows forecasted linear trend line. Fig. 9 and Fig. 10 shows Total Venture Capital (VC) investments curve from year 2007 to 2013 and forecasted linear trend in Pharmaceutical and 0 200 400 600 800 1000 1200 1400 1600 2007 2008 2009 2010 2011 2012 2013 Pharmaceuticals 0 100 200 300 400 500 600 700 2007 2008 2009 2010 2011 2012 2013 Biotechnology
  45. 45. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 45 Biotechnology Sector. These sectors have been sectors of declining growth since 2009. There is not much growth expected in 2014 and 2015 from these sectors. Interpretation There are different sectors of Economy in India. Out of all above mentioned Economic Sectors, few sectors are attracting more Venture Capital Funds than others. With analysis of each sector we can categorize them by rate of growth of investments over 7 years.  Information Technology and Real Estate have continuously seen High Growth and are predicted to do so in coming years. For Entrepreneurs these sectors can be fruitful to start their venture in.  Telecommunication and Media/Entertainment have been areas of Moderate Growth and may do better in coming years. For Entrepreneurs these sectors can be fruitful but they must keep caution while starting their venture in.  Services Sector and Industrial Products Sector are areas of very Slow Growth in terms of VC investments in these areas. One must have strong know how of these sectors while starting any business.  Pharmaceuticals and Biotechnology are Sectors of Declining Growth in VC Investments. One may have hurdles in getting investments for ventures in these sectors.
  46. 46. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 46 6.3 CII’s Business Confidence Index and Venture Capital Investment Growth Confederation of Indian Industry (CII) provides Business Confidence Index about confidence among industry about doing business in India. Here we do comparative study of Business Confidence and Percent change in total investments, VCFs Investments and FVCFs investment in each quarter starting June 2011. Quarter CII Busine ss Confid ence Index Chang e in Busine ss Confid ence Total invest ment % chang e in total invest ment VCFs invest ment % chang e in VCFs invest ment FVCF investm ent % change in FVCFs investme nt Jun-11 54844 26222 37098 Sep-11 66.2 55536 1.26 26896 2.57 37635 1.45 Dec-11 66.7 0.5 56868 2.4 27592 2.59 38730 2.91 Mar-12 62.5 -4.2 59408 4.47 28920 4.81 39815 2.8 Jun-12 53.6 -8.9 61056 2.77 29238 1.1 41277 3.67 Sep-12 48.6 -5 53574 -12.25 29924 2.35 33291 -19.35 Dec-12 52.9 4.3 55542 3.67 31556 5.45 33773 1.45 Mar-13 55 2.1 62866 13.19 31336 -0.7 41174 21.91 Jun-13 51.3 -3.7 63310 0.71 31669 1.06 40848 -0.79 Sep-13 49.9 -1.4 64336 1.62 30975 -2.19 43140 5.61 Dec-13 51.3 1.4 69520 8.06 35400 14.29 44889 4.05 Correlation Coefficient 0.48 0.3 0.41 Mar-14 51.2 Jun-14 45.7 Sep-14 54.9 Table 4: CII’s Business Confidence Index values, Change in Business Confidence, Percentage Change in VCFs, FVCFs and Total Venture Capital Investment in each Quarter from June 2011
  47. 47. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 47 Here, Change in Business Confidence = Business Confidence Current year - Business Confidence in Previous year Percent Change in investment = ( 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑖𝑛 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑌𝑒𝑎𝑟−Investment in previous year 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑖𝑛 𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑌𝑒𝑎𝑟 ) ∗ 100 Correlation Coefficient has been derived using MS Excel’s CORREL Function on given values of data. CORREL(array1,array2) For our analysis here, Array 1 = Array of values Change in Business Confidence Array 2 = Array of values of Percentage Change in VCFs, FVCFs and Total VC Investments % change in total investment % change in VCFs investment % change in FVCFs investment Correlation Coefficientwith change in CII’sBCI 0.48 0.3 0.41 Table 5: Correlation Coefficient between Change in CII’s Business Confidence Index values and Percentage Change in VCFs, FVCFs and Total Venture Capital Investment in each Quarter from Jun 2011 to Dec 2013 Interpretation Table 4 shows data of CII’s Business Confidence Index values, Change in Business Confidence, Percentage Change in VCFs, FVCFs and Total Venture Capital Investment in each Quarter from June 2011. In table 5, Correlation Coefficient is used to measure the significance of Business
  48. 48. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 48 Confidence survey by CII in case of Venture Capital Investments in the country. The correlation coefficient between Change in Business Confidence and percent change in Total Investment, VCFs Investments and FVCFs Investments comes out to be 0.48, 0.3 and 0.41 respectively. The correlation coefficient turns out to be positive between the index values and investment data. Although not significant at precision levels of 0.01 and 0.05, we can infer that there is Positive Relation between Index and Venture Capital Investment Rate. For forthcoming (March 2014 – 51.2 and June 2014 – 45.7) quarters CII Business Confidence Index shows a decrease in confidence values, therefore we can infer that Venture Capital Investment in these quarters can be less than Investments in last quarter of 2013. But as we can see Business Confidence for September 2014 is going significantly up (54.9), we can infer that there will be increase in Venture Capital Investments in that quarter.
  49. 49. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 49 7 Findings and Conclusion 7.1 Findings  There was an exponential increase in Venture capital from 2007 till date  It is predicted that there will be good amount of Venture Capital Investments about to occur in 2014 and 2015.  Around Rs. 81000 crores of VC investments will be made in 2014  2015 will see VC investments of around Rs 93400 Crores.  Real Estate Sector gets maximum share of Total Venture Capital Investments among different sectors of Economy in 2013, followed by Telecommunications and Information Technology.  Among different sectors of economy, Information Technology and Real Estate are sectors with high growth rate of Venture Capital Investment and is expected to do well in comings years as well.  In terms of Venture Capital investments made Telecommunications and Media/Entertainment sectors are growing at medium pace. Telecommunications have seen decline only in recent years, the most obvious reason for it is the policy paralysis and scams around this sector in India.  Services Sector and Industrial Products Sectors are not attracting much VC investments and growing very slow.  Sectors of Pharmaceuticals and Biotechnology have been left quite far in attracting VC investments. They have shown declining trend and there is less hope from these sectors in upcoming years.
  50. 50. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 50  Every Quarter, CII provides values Business Confidence Index based on the perception of investors. When these values are correlated with Investment details SEBI registered Venture Capital Funds (VCFs) and Foreign Venture Capital Funds (FVCFs), they showed a positive Correlation.  The CII’s Business Confidence Index for First two quarters of 2014 i.e. March 2014 and June 2014 has decreased from their previous quarters. This will have negative effect on Venture Capital Investments i.e. The Total Venture Capital investments will decrease in these quarters.  For 3rd Quarter of 2014 i.e Sep 2014, The Business Confidence is quite high and has increased sharply. This increase in confidence in 3rd quarter signifies the increase in Venture Capital Investments in India towards end of this year.  Business Confidence Surveys like CII’s can predict the flow of Venture Capital Investments in Long Term but cannot surely predict small term movements in Investments Values.
  51. 51. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 51 7.2 Conclusion Venture capital financing has become a part of the popular business in India. VC investments are growing at an exponential rate and one who is starting or expanding his business can look it as a good option of financing its venture. For predicting the scenario of Venture Capital Investments in India in upcoming years, analysts can look at Business Confidence Index by CII. Our study shows that values of the Index and amount of Investments are correlated. With our analysis we can infer that there will be an increase in Venture Capital Investments in 3rd quarter of 2014. In India, Information Technology and Real Estate are sectors with High Growth in VC Investments whereas Pharmaceuticals and Biotechnology are sectors with Declining Growth in VC Investments.
  52. 52. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 52 8 REFERENCES 8.1 Bibliographic References Bloomfield, Stephen. 2005. Venture Capital Funding - A practicle guide to raising funds. s.l. : Kogan Page Limited, 2005. Brigham, Eugene F. and Houston, Joel F. 2009. Fundamentals of Financial Management. s.l. : South-Western Cengage Learning, 2009. Vol. 12. CII Business Confidence Index Falls Sharply in Q2FY14. 2013. s.l. : Confederation of Indian Industries, 2013, Economy Matters. Economic and business prospects for 2014. Affairs, Policy and Public. 2014. 2014, CII. Empirical Study on Venture Capital and Private Equity Investments: US & India. Pandey, Dheeraj and Rajan, Thillai A. 2011. 2011. International Conference on Technology and Business Management. 2012. Handbook of Statistics on Indian Securities Market. : SEBI, 2012. 2013. Handbooks of Statistic on the Indian Economy : Reserve Bank of India, 2013. 2014. INDIA PRIVATE EQUITY REPORT. : Bain & Company and Indian Venture Capital Association, 2014. Venture Capital and Private Equity in India: An Analysis of Investments and Exits. Rajan, Thillai A and Deshmukh, Ashish. IIT Madras Journal.
  53. 53. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 53 8.2 Web References Report of K B Chandrasekhar Committee on Venture Capital, SEBI http://www.sebi.gov.in/commreport/sebicomm.html Venture Capital, Business Portal of Government of India http://business.gov.in/business_financing/venture_capital.php Venture Capital for MSMEs, SIDBI Ventures http://www.sidbiventure.co.in/ Venture capital, Wikipedia http://en.wikipedia.org/wiki/History_of_private_equity_and_venture_capital Search Results on Venture Capital, Business Today http://businesstoday.intoday.in Venture capital investments in India slide to $1.4 bn: Ernst & Young, Indian Express http://indianexpress.com/article/news-archive/web/venture-capital-investments-in-india- slide-to-1-4-bn-ernst-young/ VC Industry to grow in India: Deloitte, Indian Express http://indianexpress.com/article/news-archive/web/vc-industry-to-grow-in-india-deloitte/ 2014 to be year of adjustments; investment cycle may take time to revive, Team VCC http://www.vccircle.com/news/alternative-investment/2014/02/19/2014-be-year- adjustments-investment-cycle-may-take-time Should you take seed funding from a VC ?, Yourstory India http://www.yourstory.com/2014/03/seed-funding-vc/ $1.6 Billion invested in Indian Startups in around 300 deals in 2013, YourStory India http://www.yourstory.com/2013/12/1600mn-invested-in-indian-startups-in-2013/
  54. 54. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 54 9 SUGGESTEDREADINGS How to get registered as a Venture Capital Fund - SECURITIES AND EXCHANGE BOARD OF INDIA Impact of Budget 2014-15 on Startup Companies - YOURSTORY.COM India Private Equity Report 2014 – BAIN & COMPANY
  55. 55. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 55 APPENDIX Appendix I - Data Sets Data Set 1: Industry wise Cumulative Investment Details of SEBI Registered Venture Capital Funds (VCF) and Foreign Capital Investors (FVCI) Particulars as on December 31, 2013 (Rs. in Crore) Sectors of Economy VCF FVCI Total* Information Technology 954 4499 5325 Telecommunication 1468 7013 7798 Pharmaceuticals 420 646 1006 Biotechnology 222 142 326 Media/Entertainment 1148 827 1406 Services Sector 2428 2353 3697 Industrial Products 1252 1444 2377 Real estate 11482 1758 12048 Others 16026 26209 35535 Total 35400 44889 69520 *excludes Rs.10769 crore of FVCI investments through VCFs Note: 1. The above report is compiled on the basis of quarterly information submitted to SEBI by registered Venture Capital Funds and Foreign Venture Capital Investors. 2. Due to change in reporting format with effect from the quarter ended 31st March 2010, the investment details for the March '10 and December '09 quarter are not strictly comparable.
  56. 56. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 56 Data Set 2: Cumulative Investment Details of SEBI Registered Venture Capital Funds (VCF) and Foreign Capital Investors (FVCI) Quarter Cumulative net investments by all VCFs as at the end of the quarter Cumulative net investments by all FVCIs at the end of the quarter Total investment (*) Mar-07 11270 7856 17621 Jun-07 12868 10706 20310 Sep-07 14264 13401 23218 Dec-07 17325 15384 28260 Mar-08 19955 16705 31682 Jun-08 20128 16926 32379 Sep-08 22488 16165 34772 Dec-08 21216 19800 33939 Mar-09 22771 23047 37578 Jun-09 22192 24151 37151 Sep-09 24102 25849 40560 Dec-09 24893 26827 42059 Mar- 10 18273 28894 39051 Jun-10 21500 30722 43686 Sep-10 22977 33102 47843 Dec-10 23023 33241 47859 Mar-11 25576 35593 52688 Jun-11 26222 37098 54844 Sep-11 26896 37635 55536 Dec-11 27592 38730 56868 Mar-12 28920 39815 59408 Jun-12 29238 41277 61056 Sep-12 29924 33291 53574 Dec-12 31556 33773 55542 Mar-13 31336 41174 62866 Jun-13 31669 40848 63310 Sep-13 30975 43140 64336 Dec-13 35400 44889 69520
  57. 57. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 57 Data Set 3: CII Business Confidence Index from “Economy Matters” Data Set 4: India’s Business Confidence from “Trading Economies”
  58. 58. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 58 Appendix II - Glossary of Terms and Abbreviations Abbreviations BCI Business Confidence Index CII Confederation of Indian Industries CSI Current Situation Index EI Expectation Index E&Y Ernst & Young FVCI Foreign Venture Capital Investors IT Information Technology MBA Masters of Business Administration NASDAQ National Association of Securities Dealers Automated Quotations NCR Nation Capital Region SBA Small Business Administration SBICs Small Business Investment Companies SEBI Securities and Exchange Board of India SME Small and Medium scale Enterprise TDICI Technology Development and Information Company of India VC Venture Capital VCF venture capital firms VCs Venture Capitalists Terms Acquisition The establishment of control in one business entity by another, often with the assistance of private equity. Third party acquisition is a common Exit Mechanism for private equity funds. Acquisition Financing Capital provided to a company to finance its controlling interest in another entity for growth purposes. Angel A wealthy individual who invests in entrepreneurial firms. Although angels perform many of the same functions as venture capitalists, they invest their own capital rather than that of institutional or other individual investors.
  59. 59. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 59 Bridge Financing Capital provided on a short-term basis to a company prior to its going public or its next major private equity transaction. Capital Gains The proceeds obtained on the sale of assets Deal Each transaction involving a private equity fund or funds in a given portfolio company represents one round of financing. Each financing is made up of one or more investments, depending on the presence of co-investors. Financings are also known as deals Due Diligence The process of assessing the business and financial viability of a potential investment target, as well as the potential terms and conditions of an investment agreement. Financings and Investments Each transaction involving a private equity fund or funds in a given portfolio company represents one round of financing. Each financing is made up of one or more investments, depending on the presence of co-investors. Financings are also known as deals Fund A pool of capital raised periodically by a venture capital organisation. Usually in the form of limited partnerships, venture capital funds typically have a ten-year life, though extensions of several years are often possible. Institutional Investor Pension funds, insurance companies, endowments, charitable foundations, mutual funds and other non-bank financial institutions that are often key suppliers to private equity funds. In Canada, certain large institutional investors also have in-house progra
  60. 60. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 60 Institutional Venture Capital The organized market for venture activity, based on an industry of management firms and funds, as distinct from the informal investment mark. Internal rate of return (IRR) The discount rate equating the present value of cash outflows with the present value of cash inflows. Investment adviser A financial intermediary who assists investors, particularly institutions, with investments in venture capital and other financial assets. Advisers assess potential new venture funds for their clients and monitor the progress of existing investments. In s Investment banks Financial institutions that organise the provision of medium to longer-term loans, usually for larger amounts than clearing banks. Later they can play an important role in the process of “going public” by advising on the terms and price of public issues a Merger The strategic combination of one business entity with another, often with the assistance of private equity. Mezzanine Capital A specialized form of private equity, characterized chiefly by use of Subordinated Debt, or preferred stock with an equity kicker, to invest largely in the same realm of companies and deals as buyout funds Refinancing The purchase of the venture capital investors' or others' shareholdings by another investment institution.
  61. 61. Growth of Venture Capital Finance in India and Role of Business Confidence Index | 61 Rescue/turnaround To finance a company in difficulties or to rescue it from receivership. Restructuring/ Turnaround Financing Capital provided to a established firm, usually in a traditional sector, that is undergoing financial distress or a major re-organization, but is perceived as having long-term commercial viability. Seed Financing Capital provided to facilitate commercialization of new product concepts, often from laboratories, research centres or entrepreneurs. If successful, a seed financing may result in a Start-up. Start-up Financing Capital provided to facilitate the first-time establishment of a legal company structure around a marketable product concept Venture capitalist A general partner or associate at a venture capital organisation. Write-off The write-down of a portfolio asset to the value of zero, with the result that the private equity investor or investors go without proceeds upon disposition.

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