The document summarizes key topics relating to private capital and venture capital in India. It discusses the evolution of private capital in India from the 1980s onward. It provides data on historical venture capital deal value and volume in India, with 2011 being a record year. The top 5 venture capital deals of 2011 are listed. The rest of the document outlines various aspects of the venture capital process, including the pre-investment and post-investment phases, managing exits, tips for a successful partnership between entrepreneurs and investors, and challenges that can arise.

1. Venture Capital Master-class
July 21, 2012

2. Master‐class Contents
Basics of Private Capital 2
Evolution of Private Capital in India 6
Venture Capital: Historic Deal Value and Volume 7
Issues and Challenges 9
2

3. What is Private Equity?
Private Equity Public equity
Stock market
listed
companies
Buy‐outs, Venture capital
Later stage financing, Early stage/Angel
Secondaries financing
 By definition: “Private Equity is the provision of equity capital by financial investors – over the
medium or long term – to non quoted companies with high growth potential”
 Private equity is illiquid, ownership is concentrated, valuation is difficult, intermediaries tend to be
small, finance is accompanied by control and mentoring
 Public equity is liquid, ownership is dispersed, valuation is relatively easy, intermediaries are large,
finance is often divorced from control and mentoring
 Venture Capital, is a sub‐set of Private Equity and refers to equity investments made for:
– The launch
– Early development
– Or expansion of a business
 Venture Capital focuses primarily on entrepreneurial undertakings rather than on mature businesses
 The essential difference between the two is the stage of investment
3

4. Corporate Development and Private Equity
Last financing round prior
to an initial public offering
IPO/M&A of a company
Financing the expansion of
growth companies
Private Third Stage
Equity Providing working capital
funding and required
Second Stage financing for young firms
during growth period
Financing the
First Stage commercialization and
production of products
Venture Providing capital required
Start‐up
Capital Financing for product development
and initial marketing
activities
Seed
Angel Financing
Providing small sums of
capital necessary to
Funding develop a business idea
4

5. Company Lifecycle and Investment Sizes
Slow
Growth
Late • Buy‐out/restructuring
Growth opportunities
• Size > $20 mm
• Ready for the next
growth orbit
• Investment sizes tend to
increase along this curve
Hyper • PEs tend to be active
Growth investors in early stage
• Growth Capital companies and passive in
Early • Size between $10 and 20
Growth mm more evolved companies
Seed • Venture Capital
Fund • Size < $10 mm
• Promoter’s own
money
• Friends/Family/Rel
atives/Well‐wishers Inception Growth Maturity
• Angel investors
5

6. Evolution of Private Capital in India
 The first generation venture capital funds were launched by financial institutions like ICICI
and IFCI
 1984: ICICI launched it VC scheme to encourage start‐up ventures in the emerging
technology sectors
 IFCI and Canara Bank followed by launching their own technology oriented VC funds
 Between 1995‐2000 several foreign funds like Baring PE partners, CDC Capital, Draper
International, HSBC Private Equity and Warbug Pincus had set food in India
 The first set of regulations around VC started coming in the mid‐90s:
– SEBI introduced the SEBI Venture Capital Funds Regulations, 1996
– These regulations were further amended based on the recommendations of the K.B.
Chandrashekhar Committee in 2000
 The technology bust in 2000 saw a PE slow down, when many foreign investors fled India
during that period
 Today, global PE firms continue to dominate the Indian market, appearing in 9 of the top 10
deals by value in Q4 2011
6

7. Venture Capital: Historical Deal Value and Volume
 Last three years have seen a tremendous amount of interest in India with investments in US$ million:
– Angel Funding = 24
– Venture Capital = 2,106
– Private Equity = 21,698
 Year 2011 had been record year for early‐stage Venture Capital investing
– Deal values & volumes at all time high
– Euphoria around e‐commerce, across mobile, internet and related verticals
– Evident from recent deals of InMobi, Fashionandyou, Snapdeal
 The next few years will distinguish the serious and long‐term players, from the others
500 Breakdown – Volume $20,000 Breakdown – Value ($ mm)
435 $18,484
450 $18,000
400 382
$16,000
350 313 $14,000 $13,151
286 270
300 $12,000
$9,944
250 207 $10,000
185 $7,922
200 154 156 $8,000 $7,167
142 133
150 122 $6,000
100 $3,832
44 $4,000
50 18 19 27 23 16 $1,034 $659 $891
$2,000 $564 $16 $670 $556
$13 $10 $5 $5 $14
0 $0
2006 2007 2008 2009 2010 2011 2006 2007 2008 2009 2010 2011
Angel/Seed Venture capital Private Equity Angel/Seed Venture capital Private Equity
Source: VCCEdge 7

8. Top 5 Venture Capital Deals in 2011
Target Buyer Value (US$ mm)
Happiest Minds Technologies Intel Capital 45
Canaan Partners
Fashionandyou.com Sequoia Capital India 40
Norwest Venture Partners
Intel Capital
Nokia Growth Partners
SnapDeal.com IndoUS Venture Partners 40
Nexus Venture Partners
Bessemer Venture Partners
Naaptol Online Shopping Canaan Partners 25
Silicon Valley Bank
New Enterprise Associates
TV18 Home Shopping SAIF Partners 22.25
GS Home Shopping
Source: VCCircle.com
8

9. The pure and simple truth is rarely pure and never simple.
9

10. The Engagement
 Pre‐investment phase
 Post‐investment phase
 Managing exit
10

11. Pre‐investment phase: The pre‐nuptials
 Valuation: Value versus Price
 Projections: Sustainable Growth
 Diligence
 Rights and Terms
 Dilution
 Building a connect
– Rational / logical connect
– Emotional connect
11

12. Post‐investment phase: A Successful Partnership
 Shared Vision
 Maintaining your business statistics
 Managing conflicts of interest
 Creating a governance framework
 Diverting or Diversification
 Finally, “No Surprises”
12

13. Managing exit
 Managing Duration Mismatch
 Market timing is important
 IPO can take a minimum one year time frame
13

14. Tips for a successful partnership
 Do not choose a VC player based on brand reputation but look at the VC firm’s fit
with the organisation
 Valuation is not everything. Long term alignment and comfort are equally
important
 Carefully understand the VC firm’s ‘Value Add’ model and see if the same aligns
well with your organisation need
 Do not rush through the process
 Share your successes but also be transparent about the weaknesses /
improvement areas. Nasty surprises in the short term (post investment) will do a
lot of damage to the relationship.
 Do not ‘outsource’ assignments to the VC firm. They are not the ‘pilots’ of the
business
 Promoters expect VC’s to take quick decisions
 VC should not end up as an option of last resort for promoters when they are
unable to tap the public or debt markets
14

15. Before the investment
The entrepreneur has the vision and the investor has the money
After the investment
The investor has the vision and the entrepreneur has the money
15