The document outlines the typical process for venture capital fund raising in India. It involves identifying an investment banker with relevant experience and networks. An investment memorandum and financial model are then prepared to capture the business details and project financials. Shortlisted investors are approached, and presentations are made to convince them. If interested, investors issue a term sheet covering valuation and deal structure. Due diligence is conducted before signing shareholder agreements and transferring funds. The obligations and restrictions for venture capital funds are also summarized.

1. VENTURE CAPITAL FUND RAISING
PROCESS IN INDIA

2.  Once your company has decided to explore the
venture capital funding route, it is very important for
your company to follow the appropriate process to
raise funds.
 In India, the typical venture capital fund raising
process involves the following steps:

3. IDENTIFYING THE RIGHT INVESTMENT BANKER
 Very good understanding of venture capital
business
 Good understanding of company’s industry and
business
 Ability to tell a good and true story about the
company
 Experience of dealing with the VCs
 Good network in the VC community
Skill Sets

4. INVESTMENT MEMORANDUM AND FINANCIAL
MODEL
Investment Memorandum
(IM)
• captures the company’s business in
such a manner that it addresses
most of the investor’s key questions
and helps the investor make his
mind about the company.
Financial Model (FM)
• captures various business variables
like revenue drivers, cost drivers,
capital expenditure etc. in a
Microsoft Excel file and projects the
company revenues, profitability,
cash flows and fund requirements
for next 5 to 7 years.

5.  Short listed investors should be comfortable
with the company’s industry, stage of
business (seed stage, early stage, growth
stage, pre-IPO etc.), and the company’s fund
requirements.
Short listing and approaching the
venture capital funds

6. MEETING THE VENTURE CAPITAL FUNDS
 The investment banker approaches the venture capital
funds and starts making presentation to them.
 The purpose of these presentations is to get the first
meeting between the promoters of the company and the
investors.
 In the follow-up meetings, the company tries to convince
the investors about the investment.
 Once the investors are convinced then they issue a
Term Sheet.

7. SIGNING THE TERM SHEET
 A Term Sheet (TS) covers the key terms of the
investment.
 Two of the most important terms in the TS are the
valuation of the company (price) and the transaction
structure.
 There are a number of other important terms related to
investor’s exit, board memberships etc, which are also
covered in the Term Sheet.
 Once there is an agreement on all the terms, a non-
binding Term Sheet is signed between the company and
the investors.

8. Generally investor’s due diligence process focuses
on the following aspects of the company and its
expansion plans:
 a. Financial
 b. Business
 c. Technological
Due Diligence by the Investors

9. SIGNING THE SHAREHOLDER’S AGREEMENTS
AND FUNDS TRANSFER
 Once the investors are satisfied with the outcome of the
due diligence process, they issue a Shareholder’s
Agreement (SHA).
 SHA covers all the terms of the Term Sheet and, in
addition, it has a number of other important terms and
conditions regarding dispute resolution, non-compete,
lock-in, share transfer process etc.
 Generally lawyers from the company’s side and the
investor’s side also get involved in this process.
 Once there is an agreement, all the shareholders of the
company and the investors sign the SHA and investor
transfers funds to the company.

10. OBLIGATIONS OF VENTURE CAPITAL FUND
 Venture Capital fund shall not carry out any other activity than that of venture
capital fund
 Venture capital shall disclose investment strategy at the time of making
investments
 VCF shall disclose the duration of the life cycle of the fund
 VCF shall not get its units listed on any recognized stock exchange till the
expiry of three years from the date of issuance of units by VCF
 VCF cannot invite offers from the public for subscribing for its units and shall
only receive monies by the way of private placement of the units
 VCF shall enter into the placement memorandum and subscription agreement
which contains terms and conditions subject to which monies is proposed to
be raised from the investors.
 A copy of the placement memorandum and subscription agreement will be
placed with the Board along with the actual money collected
 VCF shall maintain its books of accounts, records and documents for a period
of 8 years

11. MINIMUM INVESTMENT IN VENTURE
CAPITAL
 Venture Capital Fund may raise money from
Indian, foreign, non-resident Indian, by way of issue of
units
 Investments below Rs.5 lakhs from any investor shall
not be accepted other than employees, principal
officer, directors of venture capital fund or employees of
fund manager or asset management company
 Venture capital fund shall invest minimum of Rs.5 crores
in each of the schemes launched or fund set up

12. INVESTMENT RESTRICTIONS
Not more than 25% corpus can be invested in one VCU
Investment in securities of foreign companies subject to RBI and SEBI guidelines
No investment in associated companies

13. INVESTMENT RESTRICTIONS
Investment Structure
At least 66.67% of
investible funds in
unlisted equity shares
or equity linked
instruments of VCUs.
Not more than
33.33% of investible
funds
Subscribe to IPO
of a VCU
proposed to be
listed
Debt instrument
of a VCU which
the VCF already
has equity
investment
Preferential
allotment of
equity shares of
listed company
subjected to 1
year lock in
Equity shares or
equity linked
instruments of
financially weak
company or sick
company-listed
SPV