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A Profile of Venture Capital in India-
 B.V.Raghunandan, SVS College, Bantwal-Karnataka-India




    Dr.Veerendra Patil College, Bangalore
              Karnataka-India
             October 21, 2011
Definitions of Venture Capital




• Venture Capital is, “finance for young developing firm
  in areas of high technology”-William Davis
• VC is, "money put up by financial institutions or
  wealthy individuals to back risky commercial venture.
  This can be at the beginning of the venture’s life, or it
  can be later in its life” -Tim Hindle
Definitions of VC…continued
• VC is, “an equity or equity-
  featured capital seeking
  investment in new
  companies, new products,
  new processes,
  or new service, that offer
  the potential of high return
  on investment” -I F C
• VC is, “an equity related
  investment in a high growth
  business in return for a
  minority shareholding in the
  business or the irrevocable
  right to acquire it”
Features of Venture Capital
1. Form of Investment
2. New Companies
3. Turn-around Cos
4. High Risk-Return
5. Long-term Asscn
6. Exit Schedule
7. Participation in Mgt
8. Benchmarks
9. Taking Control
10.Technocrat Customers
Form of Investment
• Equity Form of
  Financing
• Gestation Period
• Avoiding Debt Trap
• Mega Projects
• Risky Projects
• Ownership cum
  Management cum
  Consultancy
• Finance with
  Responsibility
New Companies
• Companies Operating in • Technology Content
  High Growth Industry   • New Graduates
• Sunrise Industry       • Industry Requiring
• Service Industry         Professionalism
Turn Around Companies




•   Sick Companies
•   Failed Companies
•   Poorly Managed Companies
•   Restructured Companies
•   Changed Product Profile
High Risk-Return Ventures
• Expectation of a High Level of
  Returns
• A High Risk Profile of Ventures
• Conventional Cost Curves are
  Avoided
• Projects of Blue Ocean
  Strategies
• Aiming at First Mover
  Advantage
• Ability in Timely Project
  Completion
• Evaluation of Project
  Completion
Long Term Association




• Relation Lasting for a Period of around 7 years or
  more
• Intimate Association
• Creation of a Data Base
• Basis for Promoting other Projects
• Creation of a Database
Exit Schedule
• Target Period-5 to 7
  years
• Makes the Company
  Profitable
• Makes the Company
  to Issue an IPO
• VC sells off all the
  Shares & Gets out
• Makes the VC highly
  liquid
Participation in Management




• Close Watch of Project Implementation
• Technical and Business Consultancy
• Helps the VC to understand the behind-the schedule
  implementation
• Finance cum Entrepreneur
• Draws the Collaboration from other Projects financed
  in the present and in the past
Benchmarks of Performance




•   Benchmarks are established
•   Close Supervision of project implementation
•   Analysis of Causes for Project Delays
•   Entrepreneurial Qualities of the VC make the analysis
    more understandable and realistic
Taking Control of VC Unit




•   VC can take-over the VC Unit
•   Happens in case of consistent under-performance
•   Bring in another management team through MBI
•   Finances the other Group to buy the stake from the
    Original Promoter
Technocrat Customers




•   Professional Promoters
•   Techno-Savvy Promoters
•   Avoiding Family Owned Business
•   Promoting the Projects of Fresh Graduates
Factors leading to VC Financing
• Free Licensing
  Policy
• Well Developed
  Capital Market
• New Projects
• Taxation Policy
• Professional
  Promoters
• Surplus Funds
• High Risk Funding
• Enterprise Culture
Venture Capital Vs Private Equity
      Venture Capital            Private Equity
• New Projects                • Existing Projects
• Manage Initial Problems     • No need to manage initial
                                problems
• Investment Horizon-5 to 7   • Investment Horizon is 3 to 5
  years                         years
• Longer Gestation            • Shorter Gestation Period
Investment Process
1)   Seed Financing           7) Bridge Financing
2)   Start-up Financing       8) Management Buyouts
3)   First Stage Financing
                              9) Management Buyin
4)   Second Stage Financing
5)   Mezzanine Financing
                              10) Turn-around Finance
VC Financing in India
• Term Lending       • Private Sector
  Institutions       • Foreign Funds
• Commercial Banks
Term Lending Institutions
• Venture Finance without participation in
  management or exit schedule
• ICICI set up Technology Development &
  Information India Limited in 88-89
• IFCI set up Risk Capital and Technology
  Finance corporation Ltd
• IDBI set up IDBI-VCF
• IL&FS set up IL&FS Venture Corporation
• Since April 1999,
                       C
  banks are allowed
  to enter VC sector   o
• Maximum              m
  investment in        m
  corporate            er
  securities limited
  to 5%, but stands    ci
  enhanced to the      al
  extent VC finance    B
• Many banks           a
  entered on their
  own or as a joint    n
  venture              k
                       s
Private Sector
• Not many until 2000
• Many IT Companies are entering the VC
  sector through their surplus funds
• Indus Venture Capital Fund, Credit Capital
  Venture Fund, Marigold Capital
  Management Limited
• Most of the IT Professionals like Narayana
  Murthy (Catamaran) and Azim Premji are
  entering VC Financing
Foreign Funds
• HSBC Pvt
  Equity India Ltd
• Temasek
• Draper
  International
• Underbridge
• Overbridge
• General
  Atlantic
  Partners
• New Vernon
Emerging Trends




• Avoiding Exits
• VCs forming Limited Liability
  Partnership
• Funded Units become the Limited
  Companies under the control of the LLP
• In India, more attention to SME Sector
• More Attention towards fresh Graduates
THANK YOU

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A profile of venture capital in india b.v.raghunandan

  • 1. A Profile of Venture Capital in India- B.V.Raghunandan, SVS College, Bantwal-Karnataka-India Dr.Veerendra Patil College, Bangalore Karnataka-India October 21, 2011
  • 2. Definitions of Venture Capital • Venture Capital is, “finance for young developing firm in areas of high technology”-William Davis • VC is, "money put up by financial institutions or wealthy individuals to back risky commercial venture. This can be at the beginning of the venture’s life, or it can be later in its life” -Tim Hindle
  • 3. Definitions of VC…continued • VC is, “an equity or equity- featured capital seeking investment in new companies, new products, new processes, or new service, that offer the potential of high return on investment” -I F C • VC is, “an equity related investment in a high growth business in return for a minority shareholding in the business or the irrevocable right to acquire it”
  • 4. Features of Venture Capital 1. Form of Investment 2. New Companies 3. Turn-around Cos 4. High Risk-Return 5. Long-term Asscn 6. Exit Schedule 7. Participation in Mgt 8. Benchmarks 9. Taking Control 10.Technocrat Customers
  • 5. Form of Investment • Equity Form of Financing • Gestation Period • Avoiding Debt Trap • Mega Projects • Risky Projects • Ownership cum Management cum Consultancy • Finance with Responsibility
  • 6. New Companies • Companies Operating in • Technology Content High Growth Industry • New Graduates • Sunrise Industry • Industry Requiring • Service Industry Professionalism
  • 7. Turn Around Companies • Sick Companies • Failed Companies • Poorly Managed Companies • Restructured Companies • Changed Product Profile
  • 8. High Risk-Return Ventures • Expectation of a High Level of Returns • A High Risk Profile of Ventures • Conventional Cost Curves are Avoided • Projects of Blue Ocean Strategies • Aiming at First Mover Advantage • Ability in Timely Project Completion • Evaluation of Project Completion
  • 9. Long Term Association • Relation Lasting for a Period of around 7 years or more • Intimate Association • Creation of a Data Base • Basis for Promoting other Projects • Creation of a Database
  • 10. Exit Schedule • Target Period-5 to 7 years • Makes the Company Profitable • Makes the Company to Issue an IPO • VC sells off all the Shares & Gets out • Makes the VC highly liquid
  • 11. Participation in Management • Close Watch of Project Implementation • Technical and Business Consultancy • Helps the VC to understand the behind-the schedule implementation • Finance cum Entrepreneur • Draws the Collaboration from other Projects financed in the present and in the past
  • 12. Benchmarks of Performance • Benchmarks are established • Close Supervision of project implementation • Analysis of Causes for Project Delays • Entrepreneurial Qualities of the VC make the analysis more understandable and realistic
  • 13. Taking Control of VC Unit • VC can take-over the VC Unit • Happens in case of consistent under-performance • Bring in another management team through MBI • Finances the other Group to buy the stake from the Original Promoter
  • 14. Technocrat Customers • Professional Promoters • Techno-Savvy Promoters • Avoiding Family Owned Business • Promoting the Projects of Fresh Graduates
  • 15. Factors leading to VC Financing • Free Licensing Policy • Well Developed Capital Market • New Projects • Taxation Policy • Professional Promoters • Surplus Funds • High Risk Funding • Enterprise Culture
  • 16. Venture Capital Vs Private Equity Venture Capital Private Equity • New Projects • Existing Projects • Manage Initial Problems • No need to manage initial problems • Investment Horizon-5 to 7 • Investment Horizon is 3 to 5 years years • Longer Gestation • Shorter Gestation Period
  • 17. Investment Process 1) Seed Financing 7) Bridge Financing 2) Start-up Financing 8) Management Buyouts 3) First Stage Financing 9) Management Buyin 4) Second Stage Financing 5) Mezzanine Financing 10) Turn-around Finance
  • 18. VC Financing in India • Term Lending • Private Sector Institutions • Foreign Funds • Commercial Banks
  • 19. Term Lending Institutions • Venture Finance without participation in management or exit schedule • ICICI set up Technology Development & Information India Limited in 88-89 • IFCI set up Risk Capital and Technology Finance corporation Ltd • IDBI set up IDBI-VCF • IL&FS set up IL&FS Venture Corporation
  • 20. • Since April 1999, C banks are allowed to enter VC sector o • Maximum m investment in m corporate er securities limited to 5%, but stands ci enhanced to the al extent VC finance B • Many banks a entered on their own or as a joint n venture k s
  • 21. Private Sector • Not many until 2000 • Many IT Companies are entering the VC sector through their surplus funds • Indus Venture Capital Fund, Credit Capital Venture Fund, Marigold Capital Management Limited • Most of the IT Professionals like Narayana Murthy (Catamaran) and Azim Premji are entering VC Financing
  • 22. Foreign Funds • HSBC Pvt Equity India Ltd • Temasek • Draper International • Underbridge • Overbridge • General Atlantic Partners • New Vernon
  • 23. Emerging Trends • Avoiding Exits • VCs forming Limited Liability Partnership • Funded Units become the Limited Companies under the control of the LLP • In India, more attention to SME Sector • More Attention towards fresh Graduates