Building an SME Portfolio – A VC’s           Perspective            Pranay Veer           PGDM 2011-13          NMIMS Hyde...
Many SMEs in traditional sectors have limited access to equity                                        capital             ...
How to know???? Is it feasible? If so – Which sectors? 5yr to 10 yr horizon? Structure/ Framework – To study the feasibili...
Analysis of the Environment   79000 SMEs or 5% of the total MSMEs in India                                                ...
Selection of Sectors - MATRIX1                                 2                                3    Survey of            ...
Portfolio Construction                                                                    Avg. IIP Growth rate Initial   •...
Portfolio Cash Flow - Criteria             No. of years to Exit the Proposed Investment              3 Years              ...
Cash Flows - 5 Year Exit Scenario
PARAMETERS                      3 Year Exit Scenario                 5 Year Exit ScenarioCAGR of the Portfolio            ...
FINDINGS & RECOMMENDATION    79000 SMEs in India contribute to 63% of total Fixed Assets and 55% of the Gross             ...
Limitations                           Scope for Improvement• SME Industry - Very                  • Company level analysis...
THANK YOU
Appendix I - Definition of MSMEMicro, Small & Medium Enterprises Development (MSMED) Act, 2006                            ...
Appendix II - Performance of MSME PERFORMANCE OF MSME SECTORNo. of Enterprises (In Lakhs)                              Mic...
Appendix III - Academic Contribution1. Score Based Matrix – For Portfolio Construction2. Analysis of MSME performance and ...
Venture Capital Funding for SMEs - Pranay Veer
Upcoming SlideShare
Loading in …5
×

Venture Capital Funding for SMEs - Pranay Veer

1,065 views

Published on

Published in: Economy & Finance
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
1,065
On SlideShare
0
From Embeds
0
Number of Embeds
11
Actions
Shares
0
Downloads
1
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Venture Capital Funding for SMEs - Pranay Veer

  1. 1. Building an SME Portfolio – A VC’s Perspective Pranay Veer PGDM 2011-13 NMIMS Hyderabad
  2. 2. Many SMEs in traditional sectors have limited access to equity capital To establish an Asset Management Company Provide Venture Capital/ Private Equity funding services To conduct a feasibility study of an SME Growth fund after identifying potential SME Sectors To critically evaluate the To build a portfolio of theTo identify potential sectors identified sectors & suggest sectors & project future Cash for investment in SMEs highly potential sectors for Flows of the fund investment
  3. 3. How to know???? Is it feasible? If so – Which sectors? 5yr to 10 yr horizon? Structure/ Framework – To study the feasibility of the SME fund Analysis of the Environment SME Industry Analysis Opportunities for Venture Capitalists in SME Selection of SME SectorsIdentification of Sectors (12 Sectors) Assessment of Selected SME Sectors (6 Sectors) Construction of Portfolio - Developing different PortfoliosEqual Weighted Portfolio Growth Based Portfolio Score Based Portfolio Portfolio Projections - 10 Years 5 Year EXIT Scenario 3 Year EXIT Scenario - Selected Scenarios
  4. 4. Analysis of the Environment 79000 SMEs or 5% of the total MSMEs in India Investment Scenario -Ministry of MSME in SMEs Generate 30% of Contribute to 63% • Difficult to get 55% of the Gross conventional funding total employment of total Fixed Output (28 lakhs) Assets • Most companies have less asset base • Take higher risk Growth Rates -SME v/s Industry 7.92% 1.5Average 12% times2007-08 8% Venture capital - A 14% savior2006-07 11.50% 13% • Focus  Growth2005-06 7.50% Industry prospects and not on 12% security2004-05 8% • Investment Long 11% SME term horizon2003-04 6.50% Sector 10% • Profile >> High risk2002-03 6%  High return 9% Source: SME White-book 2011-12, Businessworld
  5. 5. Selection of Sectors - MATRIX1 2 3 Survey of Dun & Bradstreet Ministry of MSME Venture Research 12 • Top 10 sectors based sectors Capitalists • Identified 10 on the Total number of • 12 websites potential sectors enterprises (74.18%)MANUFACTURING Manufacturing Services 1. Food Products & Beverages 1. Retail 2. Textiles Selected 2. Hotels & Restaurants Sectors 3. Publishing, Printing & Reproduction of Recorded Media 3. Education
  6. 6. Portfolio Construction Avg. IIP Growth rate Initial • Rs.20 Crores Manufacturing (2005-12) 1.5 timesCorpus • Min. corpus to start a fund under (AIF) these ratesof Fund Regulations (SME = Industry * Revenue growth rate (2012-13) 1.5) Services (CMIE - Economic Survey – 2011)To be invested in a series of: (3 stage investment) EqualTotal Corpus 20 Crores Crore EXIT Yr weighted Portfolio ScoreYear - 1 (2012) 25% 5 2017 Based PortfolioYear - 2 (2013) 35% 7 2018 Growth RateYear - 3 (2014) 40% 8 2019 Based portfolio
  7. 7. Portfolio Cash Flow - Criteria No. of years to Exit the Proposed Investment 3 Years 5 years Fund Projections 10 years (2012-2021) Hit/Loss Ratio 1 in every 5 companies is considered as a Loss Company (20%)No. of Companies calculation - For every investment (Hit/ Loss)Below 1.5 Crores > 1.5 – 2.5 Crores > 2.5 – 3.5 Crores > 3.5 – 4.5 Crores – 1 Company – 2 Companies – 3 Companies – 4 Companies
  8. 8. Cash Flows - 5 Year Exit Scenario
  9. 9. PARAMETERS 3 Year Exit Scenario 5 Year Exit ScenarioCAGR of the Portfolio 17.95% 18.59%Average of the CAGR 9.76% 13.42%(post Hit/Loss ratio) High Risk, comparatively less Comparatively less Risk, StableRisk/ Return returns Return Comparison with the Benchmarks FUND NAME 5 year Annualized CATEGORY (RANK 1 Funds – Money Control) Returns INDEX SENSEX** 15%SMALL & MID CAP HDFC Mid-Cap Opportunities Fund (G) 10%SMALL & MID CAP SBI Magnum Emerging Businesses Fund (G) 6.60% LARGE CAP Fidelity Equity Fund (G) 6.90% LARGE CAP UTI Opportunities Fund (G) 12.60% Index Franklin India Index Fund - BSE Sensex (G) 3.80% Index UTI Nifty Index Fund (G) 3.50% SME Fund SME Fund - Post Hit/loss ratio 13.42% ** SENSEX – 10 year annualized returns Source: Money Control
  10. 10. FINDINGS & RECOMMENDATION 79000 SMEs in India contribute to 63% of total Fixed Assets and 55% of the Gross Output of MSME Growth rate of MSME sector is 1.5 times the Indian Industry Manufacturing Segment – Food & Beverages, Textiles and Publishing, Printing & Reproduction of Recorded Media Services Segment – Education; Retail and Hotels & Restaurants In 5 year Exit Scenario – Viable Strategy with a CAGR post Hit/Loss ratio of 13.42% SME Fund is a feasible option Setup:- After identifying budding companies in the potential SME sectors
  11. 11. Limitations Scope for Improvement• SME Industry - Very • Company level analysis unorganized • Matrix• Data availability - Very limited ▫ Ratings in Public domain ▫ Weights• Lack of data  Assumptions • Actual data of growth rate of• Specific Company level info -not sectors in SMEs used• Interpretations and conclusions - Sector level Exit Scenario and Academic MSME Hit/Loss Ratio Score Based performance and Contribution Matrix challenges – An excel sheet model
  12. 12. THANK YOU
  13. 13. Appendix I - Definition of MSMEMicro, Small & Medium Enterprises Development (MSMED) Act, 2006 Source: MSME Census 2006-07
  14. 14. Appendix II - Performance of MSME PERFORMANCE OF MSME SECTORNo. of Enterprises (In Lakhs) Micro 14.85 Small 0.76 Medium 0.03 Total 15.64% of Total Enterprises 94.94% 4.89% 0.17% 100Employment (In Lakhs) 65.34 23.43 4.32 93.09% 70.19% 25.17% 4.64% 100Per Unit Employment 4.40 30.83 144.00 5.95Fixed Assets (In ‘000 Crores) 169.53 223.5 56.09 449.12% 37.75% 49.76% 12.49% 100Per Unit Fixed Asset 11.42 294.08 1869.67 28.72Gross Output (In ‘000 Crores) 312.97 318.79 75.74 707.5% 44.24% 45.06% 10.71% 100Per unit Output 21.08 419.46 2524.67 45.24 Source: Ministry of MSME Census 2006-07
  15. 15. Appendix III - Academic Contribution1. Score Based Matrix – For Portfolio Construction2. Analysis of MSME performance and challenges3. Specific analysis and study on SME Financing challenges4. Investment Scenario in MSMEs and opportunities to Venture Capitalists5. Construction of Portfolios based on SEBI – AIF Regulations (Draft)6. Exit Scenario and Hit/Loss Ratio is used for the analysis – An excel sheet model can be used to make 10 year projections for 3 year and 5 year exit scenario by only changing the portfolio weights.

×