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INDEX

SR NO.
1
2
3
4
5
6
7
8
9
10
11
12

13
14

15
16

17
18
19
20
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CONTENTS
Summary
Meaning
Why companies need
financing?
Features of venture capital
Advantages of venture
capital
Disadvantages of venture
capital
Origin of venture capital in
India
Venture capital in India
Stages of venture capital
Organisational structure of
venture capital firms
Where does venture
capital money come from?
Difference between
venture capital and private
equity.
What do venture
capitalists look for?
What kinds of businesses
are attractive to venture
capitalists?
Venture capital is not
suitable for all businesses.
Top cities attracting
venture capital
investments.
The funding process
Exit strategy
Methods of venture capital
financing
Categories of venture
capital
Regulations by SEBI
Top most active venture
capital firms in India

PG NO.
3
4
5
6-7
8
9
10
11
12-13
14
15
16

17-18
19

20
21

22
23
24
25-31
32-41
42-48

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24
25
26
27
28
29
30
31
32

Venture capital industry


wise segmentation
Growth of venture capital
in India
SWOT analysis
Issues faced by venture
capital in India
Tax benefits
Myths and facts about
venture capital
success stories of IFCI ltd
Case study
Survey report
conclusion

49
50
51-53
54
55
56
57-58
59
60-62
63

SUMMARY
Venture Capital is defined as providing seed, start-up and first stage finance to
companies and also funding expansion of companies that have demonstrated
business potential but do not have access to public securities market or other credit
orientedfunding institutions
A Venture Capital Fund (VCF) strives to provide entrepreneurs with the support they
need to create up-scalable business with sustainable growth, while providing
their contributors with outstanding returns on investment, for the higher risks they
assume. The industrys growth in India can be considered in two phases. The first
phase was spurred on soon after the liberalization process began in 1991.
The second phase was considered from 1996, where SEBI came out with guidelines
for venture capital funds has to adhere to, in order to carry out activities in India. This
was the beginning of the second phase in the growth of venture capital in India.
The Indian venture capital industry, at the present, is at crossroads. There are
somemajor issues faced by this industry which are as follows, like Limitations onstru
cturing of venture capital funds, Problem in raising of funds, Absence of
angelinvestors, Limitation on investment instrument, Limitation on Exit Mechanism,
Legal framework, etc.
Venture capital industry in India is still in its early stages and to give it a proper
fillipit is important to develop related infrastructure as has been successfully done
internationally specially in US, Taiwan and Israel. Following areas need due
attention. The Indian government has been highly supportive of growth in technology
and knowledgebased sectors. All VC funds registered with SEBI are exempted
fromincome tax. The benefits received by contributors to the VC funds are also taxex
empt. The government has opened up new sectors for venture funding like real
estate, bullion. FDIs have been proposed through automatic route for venture funds
like biotechnology. Technology based companies have always been the anchors
for venture capitalists. In the past, the focus has been on IT, communication and biot
echnology. But there are many niche areas where significant value can be created.
Entertainment and digital media is also a new, emerging area

The Venture Capital market in its nascent stage so, there is a good scope for the
venture capitalist in India in near future. It has a huge potential to establish itself in
the emerging market

MEANING
Money provided by investors to start-up firms and small businesses with perceived
long-term growth potential. This is a very important source of funding for start-ups
that do not have access to capital markets. It typically entails high risk for the
investor, but it has the potential for above-average returns.
Venture capital can also include managerial and technical expertise. Most venture
capital comes from a group of wealthy investors, investment banks and other
financial institutions that pool such investments or partnerships. This form of raising
capital is popular among new companies or ventures with limited operating history,
which cannot raise funds by issuing debt. The downside for entrepreneurs is that
venture capitalists usually get a say in company decisions, in addition to a portion of
the equity.
Venture Capital is a form of "risk capital". In other words, capital that is invested in a
business where there is a substantial element of risk relating to the future creation of
profits and cash flows. Risk capital is invested as shares (equity) rather than as a
loan and the investor requires a higher "rate of return" to compensate him for his
risk.
Venture Capital provides long-term, committed share capital, to help unquoted
companies grow and succeed. If an entrepreneur is looking to start-up, expand, buyinto a business, buy-out a business in which he works, turnaround or revitalize a
company, venture capital could help do this. Obtaining venture capital is substantially
different from raising debt or a loan from a lender. Lenders have a legal right to
interest on a loan and repayment of the capital, irrespective of the success or failure
of a business. As a shareholder, the venture capitalist's return is dependent on the
growth and profitability of the business. This return is generally earned when the
venture capitalist "exits" by selling its shareholding in the business.

WHY COMPANIES NEED FINANCING?

For start-ups and growing companies, as well as those facing a major change,
financing is one of the key major issues

new capital is needed for:


1. Financing of product development
2. Financing of market penetration.
3. Financing of investments.
4. Working capital financing to secure operative continuity.
5. Maintaining liquidity to be able to cover daily payments

During their start-up, growth and expansion stages, the companies are often
faced with the fact that the incoming cash flow is not sufficient for the
operations.

The companys cumulative cash flow is negative.

FEATURES OF VENTURE CAPITAL


The main feature of venture capital can be summarised as follows:
High degrees of risk.
Venture capital represents financial investment in a highly risky project with
the objective of earning a high rate of return.
Equity participation
Venture capital financing is, invariably, an actual or potential equity
participation wherein the objective of venture capitalist is to make capital gain
by selling the shares once the firm becomes profitable.
Long term investment
Venture capital financing is a long term investment. It generally takes a long
period to encash the investment in securities made by the venture capitalists.
Participation in management.
In addition to providing capital, venture capital funds take an active interest in
the management of the assisted firms. Thus, the approach of venture capital
firms is different from that of a traditional lender or banker. It is also different
from that of an ordinary stock market investor who merely trades in the shares
of a company without participating in their management. It has been rightly
said, venture capital combines the qualities of banker, stock market investor
and entrepreneur in one.

Achieve social objective.


It is different from the development capital provided by several central and
state level government bodies in that the profit objective is the motive behind
the financing. But venture capital projects generate employment, and
balanced regional growth indirectly due to setting up of successful new
business.

Investment is liquid.
A venture capital is not subject to repayment on demand as with an overdraft
or following a loan repayment schedule. The investment is realised only when
the company is sold or achieves a stock market listing. It is lost when the
company goes into liquidation.

ADVANTAGES OF VENTURE CAPITAL

Since VC funding is not a loan scheme, there is no repay schedule; which


means you dont have to repay debt as a cost of doing business.

Many VCs have consultants and professionals on their staff that has deep
knowledge of specific markets. These experts can help your business avoid many
of the pitfalls that are usually associated with start-ups.

Being an entrepreneur does not automatically make you a good business


manager. However, since VCs will hold a percentage of equity in your business,
they will most likely have a say in how it is managed. So if you are really not a
good manager, this can be a significant benefit.

Because they are obligated to make profit from their investment in your
business, VCs often provide HR consultants (who are specialists in hiring talents)
to hire the best staff for your business. This can help you avoid hiring the wrong
people.

Because VC firms are under strict supervision by regulatory bodies, there are
very few or no unscrupulous VCs.

VC firms are very easy to locate because they are documented in business
directories.

DISADVANTAGES OF VENTURE CAPITAL

Some VC firms require much more ROI than expected. In many cases, it can
be as much 60 percent of the equity in your company. This, in effect, means the
VC firm is controlling your business; not you, the owner.

Usually, VC firms will want to add a member of their team to your companys
management team. While this is generally to ensure the success of your business,
it can create internal problems.

Another big problem you will most likely face when you opt for VC funding is
that you will give up many key decisions on how your company will operate. This is
because the VC firm will require to be informed of any major decision you make,
and they usually have the power to override such decisions.

Though they generally treat information confidentially, VC firms usually refuse


to sign a non-disclosure agreement due to the legal ramifications of doing so. This
can put your ideas at risk, especially when its new.

Because they are keen on making profit, and they invest huge funds (which
means they take large risks), venture capitalists take too long to decide whether to
invest in your business or not.

Most VC firms do not release all the needed funds up front. Rather, they
usually release funds in stages with an eye on the expansion of your business.
Because this approach may not be suitable for your funding plans, it may ruin your
business.

Usually, VC firms want to close the deal and get their investment back within
three to five years. If your business plan contemplates a longer timetable before
providing liquidity, VC funding may not be suitable for you.
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ORIGIN OF VENTURE CAPITAL IN INDIA

This activity in the past was possibly done by the developmental financial institutions
like IDBI, ICICI and State Financial Corporations. These institutions promoted
entities in the private sector with debt as an instrument of funding.
For a long time funds raised from public were used as a source of VC. This source
however depended a lot on the market vagaries. And with the minimum paid up
capital requirements being raised for listing at the stock exchanges, it became
difficult for smaller firms with viable projects to raise funds from public.
In India, the need for VC was recognised in the 7th five year plan and long term
fiscal policy of GOI. In 1973 a committee on Development of small and medium
enterprises highlighted the need to faster VC as a source of funding new
entrepreneurs and technology. VC financing really started in India in 1988 with the
formation of Technology Development and Information Company of India Ltd.
(TDICI) - promoted by ICICI and UTI.
The first private VC fund was sponsored by Credit Capital Finance Corporation
(CFC) and promoted by Bank of India, Asian Development Bank and the
Commonwealth Development Corporation viz. Credit Capital Venture Fund. At the
same time Gujarat Venture Finance Ltd. and APIDC Venture Capital Ltd. were
started by state level financial institutions. Sources of these funds were the financial
institutions, foreign institutional investors or pension funds and high net-worth
individuals. Though an attempt was also made to raise funds from the public and
fund new ventures, the venture capitalists had hardly any impact on the economic
scenario for the next eight years.
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VENTURE CAPITAL IN INDIA


History of Venture Capital in India dates back to early 70's when Govt of India
appointed a committee laid by Late Shri R.S.Bhatt to find out the ways to meet a void
in conventional financing for funding start-up companies based on absolutely new
innovative technologies. Such companies either did not get any financial support or
the funding was inadequate which resulted into their early mortality. The committee
recommended starting of Venture Capital industry in India. In mid 80's three all India
financial institutions viz IDBI, ICICI, IFCI started investing into the equity of small
technological companies.
In Nov 1988, Govt of India decided to institutionalize Venture Capital Industry and
announce guidelines in the parliament. Controller of Capital issues implemented
these guidelines known as CCI for VC. These guidelines were very restrictive and
following a very narrow definition of VC. They required Venture Capital to be
invested in companies based on innovative technologies started by first generation
entrepreneur. This made VC investment highly risky and unattractive. Nonetheless
many private initiatives were taken. At the same time World Bank selected 6
institutions to start VC investment in India. This included TDICICI (ICICI), GVFL,
Canbank Venture Capital Fund, APIDC, RCTC (now known as IFCI Venture Capital
Funds Ltd.) and ILF (now known as Pathfinder).
In 1995, Govt of India permitted Foreign Finance companies to make investments in
India and many foreign VC private equity firms entered India.
In 1996, government announced guidelines to regulate the VC industry. Though
there were many shortcomings these guidelines were the starting point.
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In 1997, IT boom in India made VC industry more significant. Due to symbiotic


relationship between VC and IT industry, VC got more prominence as a major source
of funding for the rapidly growing IT industry. Indian VC's which were so far investing
in all the sectors changed their focus to IT and telecom industry.
The recession during 1999 - 2001 took the wind out of VC industry. Most of the VC
either closed down or wound-up their operations. Almost all of them changed their
focus to existing successful firms for their growth and expansion. VC firms also got
engaged into funding buyouts, privatisation and restructuring. Currently, just a few
firms are taking the risk of investing into the start-up technology based companies

STAGES OF VENTURE CAPITAL.


Pre seed stage
A relatively small amount of capital is provided to an inventor or entrepreneur to
prove a specific concept for a potentially profitable business opportunity that still has
to be developed and proven. The funded work may involve product development (as
opposed to "pure" research), but it rarely involves initial marketing.
Seed stage
Financing is provided to newly formed companies for use in completing product
development and in initial marketing. These companies may be in the process of
being organized or may have been in business a short time. In either case, products
have yet to be sold commercially. Generally, such businesses have assembled key
management, have prepared their initial business plan, and have conducted at least
initial market studies.
Early stage (First stage)
Financing is provided to companies that have expended their initial capital and now
require funds to initiate commercial-scale manufacturing and sales.
Second stage
Working capital is provided for the expansion of a company which is producing and
shipping products and which needs to support growing accounts receivable and

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inventories. Although the company clearly has made progress, it may not yet be
showing a profit at this stage.
Third stage
Funds are provided for the major expansion of a company which has increasing
sales volume and which is breaking even or which has achieved initial profitability.
Funds are utilized for further plant expansion, marketing, and working capital or for
development of an improved product, a new technology, or an expanded product
line.

Bridge financing (also later stage or expansion stage)


The firm is mature and profitable, and often still expanding. Financing is provided
for a company expected to "go public" within six months to a year. Often bridge
financing is structured so that it can be repaid from the proceeds of a public
offering. Bridge financing also can involve restructuring of major stockholder
positions through secondary transactions. This is done if there are early investors
who want to reduce or liquidate their positions. This also might be done following a
management change so that the ownership of former management (and relatives
or associates) can be purchased prior to the company's going public.

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ORGANISATIONAL STRUCTURE OF VENTURE CAPITAL FIRMS


There is a substantial difference between big and small firms, and even among firms
of similar size there are choices as to how a VC firm can be structured, but in
general the full hierarchy looks something like this:
Managing Partner
Partner
Junior Partner
Principal
Associate
Venture Fellow
Analyst
Intern
Admin
In addition, there are several other roles that are outside the hierarchy, including:
CFO
Venture Partner
Entrepreneur in Residence
Marketing
Portfolio Support
Scout
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Because venture funds are (a) much smaller than law or accounting firms; (b) much
more based on unique personal performance; and (c) operating in the context of a
specific fund(s) with a defined ten-year life, career paths in VC are somewhat
different from those in other fields.
As such, there is absolutely no built-in expectation that someone entering as an
analyst or associate will automatically become a partner in seven years. In fact, the
majority of partners in VC funds either were co-founders of the fund, or were
recruited in horizontally at the partner level (with or without prior experience as a
VC.) Similarly, most analysts have undergraduate degrees, and the expectation is
that after a couple of years they will move on, either to go back to school or to some
entrepreneurial/operational activity.

WHERE DOES VENTURE CAPITAL MONEY COME FROM?

Professional venture capital firms raise money from insurance companies,


educational endowments, pension funds and wealthy individuals.

These organizations have an investment portfolio which they allocate to


various asset classes such as stocks, bonds, real estate etc.

One of the assets classes is called alternative investments-venture capital is


such an investment. Perhaps 5% to 10% of the portfolio might be allocated to
the alternative investments.

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DIFFERENCE BETWEEN VENTURE CAPITAL AND PRIVATE EQUITY.


VENTURE CAPITAL

PRIVATE EQUITY

Target companies

Mature companies-often
under-performing or
under-valued.

Start-ups, early stage


companies.

Target industries

All industries, usually with


established marketplace
for the product or service.

Industries like technology,


bio-technology etc.

Rate of interest
expectation.

Depends on inherent risk


of specific firm or industry.

Many failures, some solid


returns, a few spectacular
successes. Expectations
must reflect the risks.

Investment size

100 million for big PE


Less than 10 million.
funds, 10+ million for small
funds and individual

Share acquired by
investor/fund

Often 100% control of


company.

Usually minority stake in


company.
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Liquidity horizon

6 to 10 years

4 to 7 years

Funding structure

Equity and debt

Often equity only, but can


be structured to fit needs
of both parties.

Investor-active/passive?

Investors may be passive


with respect to
management, unless
purpose of acquisition is to
improve company
performance.

Investors provide advice,


connections, distribution,
monitor cash burn etc.

WHAT DO VENTURE CAPITALISTS LOOK FOR?


Venture funds, both domestic and offshore, have been around in India for some
years now. However it is only in the past 12 to 18 months, they have come into the
limelight. The rejection ratio is very high, about 10 in 100 get beyond pre-evaluation
stage, and 1 gets funded. Venture capital funds are broadly of two kinds
generalists or specialists. It is critical for the company to access the right type of
fund, i.e. who can add value. This backing is invaluable as focused / specialized
funds open doors, assist in future rounds and help in strategy. Hence, it is important
to choose the right venture capitalist.The standard parameters used by venture
capitalists are very similar to any investment decision. The only difference being exit.
If one buys a listed security, one can exit at a price but with an unlisted security,
exit becomes difficult. The key factors which they look for in
The Management

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Most businesses are people driven, with success or failure depending on the perform
ance of the team. It is important to distinguish the entrepreneur from the professional
management team. The value of the idea, the vision, putting the team together,
getting the funding in place are amongst others, some key aspects of the role of the
entrepreneur. Venture capitalists will insist on a professional team coming in,
including a CEO to execute the idea. One-man armies are passe. Integrity andcomm
itment are attributes sought for. The venture capitalist can provide the strategic
vision, but the team executes it. As a famous Silicon Valley saying goes "Success is
execution, strategy is a dream.
The Idea
The idea and its potential for commercialization are critical. Venture funds look for a
scalable model, at a country or a regional level. Otherwise the entire game would be
reduced to a manpower or machine multiplication exercise. For example, it is very
easy for Hindustan Lever to double sales of Liril - a soap without incremental capex,
while Gujarat Ambuja needs to spend at least Rs4bn before it can increase sales
by1mn ton. Distinctive competitive advantages must exist in the form of scale,
technology, brands, distribution, etc which will make it difficult for competition to enter
Valuation
All investment decisions are sensitive to this. An old stock market saying "Every
stock is a buy at a price and vice versa". Most deals fail because of valuation
expectation mismatch. In India, while calculating returns, venture capital funds will
take into account issues like rupee depreciation, political instability, which adds to the
risk premia, thus suppressing valuations. Linked to valuation is the stake, which the
fund takes. In India, entrepreneurs are still uncomfortable with the venture capital
taking control" in a seed stage project.
Exit
Without exit, gains cannot be booked. Exit may be in the form of a strategic sale
or/and IPO. Taxation issues come up at the time. Any fund would discuss all exit
options before closing a deal. Sometimes, the fund insists on a buy back clause to
ensure an exit.
Portfolio Balancing
Most venture funds try and achieve portfolio balancing as they invest in different
stages of the company life cycle. For example, a venture capital has invested in
a portfolio of companies predominantly at seed stage, they will focus on expansionst
age projects for future investments to balance the investment portfolio. This would
enable them to have a phased exit.

18

In summary, venture capital funds go through a certain due diligence to finalize


thedeal. This includes evaluation of the management team, strategy, execution andc
ommercialization plans. This is supplemented by legal and accounting due diligence,
typically carried out by an external agency. In India, the entire process takes about 6
months. Entrepreneurs are advised to keep that in mind before looking to raise
funds. The actual cash inflow might get delayed because of regulatory issues. It is
interesting to note that in USA, at times angels write checks across the table.

WHAT KIND OF BUSINESSES ARE ATTRACTIVE TO VENTURE


CAPITALISTS?
Businesses that have high growth potential are attractive for venture capital
investment. Current size of business is not a matter of relevance where venture
capital investment is concerned. Most venture capital firms opt for companies that
can offer a significant turnover in five years. Thus some of the common factors that
venture capital investment looks for include:

high growth prospects


ambitious teams
experienced management
Ability to convert plans into reality.

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The time period of venture capital investment in a project usually falls between four
to seven years. Venture capital investments in mature businesses where improved
performance occurs quicker and sooner would lead to quicker selling off of
investments. In businesses where development of business model takes time,
venture capital investments stay put for longer periods until profits are realized.

VENTURE CAPITAL IS NOT SUITABLE FOR ALL BUSINESSES, AS A


VENTURE CAPITALIST TYPICALLY SEEKS :
1. Superior Businesses:Venture capitalists look for companies with superior products or services
targeted at large, fast growing or untapped markets with a defensible strategic
position such as intellectual property or patents.
2. Quality and Depth of Management:-

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Venture capitalists must be confident that the firm has the quality and depth in
the management team to achieve its aspirations. Venture capitalists seldom
seek managerial control, rather they want to add value to the investment
where they have particular skills including fund raising, mergers and
acquisitions, international marketing, product development, and networks.
3. Appropriate Investment Structure:As well as the requirement of being an attractive business opportunity, the
venture capitalist will also seek to structure a deal to produce the anticipated
financial returns to investors. This includes making an investment at a
reasonable price per share (valuation).
4. Exit Opportunity:Lastly, venture capitalists look for the clear exit opportunity for their
investment such as public listing or a third party acquisition of the investee
company.

21

22

THE FUNDING PROCESS.


Step 1: Business plan submission
The first step in approaching a VC is to submit a business plan. At minimum, your
plan should include:

a description of the opportunity and market size;

resumes of your management team;

a review of the competitive landscape and solutions;

detailed financial projections; and

a capitalization table.

You should also include an executive summary of your business proposal along with
the business plan.
Once the VC has received your plan, it will discuss your opportunity internally and
decide whether or not to proceed. This part of the process can take up to three
weeks, depending on the number of business plans under review at any given time.
Step 2: Introductory conversation/meeting.
If your firm has the potential to fit with the VC's investment preferences, you will be
contacted in order to discuss your business in more depth. If, after this phone
conversation, a mutual fit is still seen, you'll be asked to visit with the VC for a oneto-two hour meeting to discuss the opportunity in more detail. After this meeting, the
VC will determine whether or not to move forward to the due diligence stage of the
process.
Step 3: Due diligence
The due diligence phase will vary depending upon the nature of your business
proposal. The process may last from three weeks to three months, and you should
expect multiple phone calls, emails, management interviews, customer references,
product and business strategy evaluations and other such exchanges of information
during this time period.
Step 4: Term sheets and funding.
If the due diligence phase is satisfactory, the VC will offer you a term sheet. This is a
non-binding document that spells out the basic terms and conditions of the
investment agreement. The term sheet is generally negotiable and must be agreed
upon by all parties, after which you should expect a wait of roughly three to four
23

weeks for completion of legal documents and legal due diligence before funds are
made available.

EXIT STRATEGY
The exit strategy is the VC's way of cashing out on its investment in a portfolio
company. A VC often hopes to sell its equity (stock, warrants, options, convertibles,
etc.) in a portfolio company in three to seven years, ideally through an initial public
offering (IPO) of the company. The company becomes liquid through the sale of its
stock to the public and the VC sells its stock to reap its return.
While an IPO may be the most visible and glamorous form of exit, it's not the most
common. Most companies are sold through a merger or acquisition event before an
IPO can occur. If the portfolio company is bought out or merges with another
company, the VC receives stock or cash from the event.
Another alternative may be the reorganization of a portfolio company's debt and
equity mixture, called a recapitalization. The VC exchanges its equity for cash, the
management team gains equity incentives, and the company is positioned for future
growth.

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METHODS OF VENTURE CAPITAL FINANCING


A pre-requisite for the development of an active venture capital industry is the
availability of variety of financial instruments which cater to the different risk-return
needs of investors. They should be acceptable to entrepreneurs as well.
Venture capital financing in India took four forms:

Equity.
Conditional loan.
Convertible debentures.
Cumulative convertible preference shares.

Equity
All VCFS in India provides equity. When a venture capitalist contributes equity
capital, he acquires the status of an owner, and becomes entitled to a share in the
firms profits as much as he is liable for losses.
Conditional loan
A conditional loan is repayable in the form of a royalty after a venture is able to
generate sales. No interest is paid on such loans in India, VCFs charged loyalty
between 2-15%.
Convertible debentures and cumulative convertible preference shares.
Convertible debentures and cumulative convertible preference shares require an
active secondary market to the attractive securities from the investors point of view.
in the Indian context, both VCFs and entrepreneurs earlier favoured a financial
package which has a higher component of loan. this was because of the promoters
fear of loss of ownership and control to the financier to share in the risk of inherent in
the use of equity.

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CATEGORIES OF VENTURE CAPITAL


In India Venture Capital Can Be Categorised Into The Following Groups:

Promoted By Central Government :


1) SIDBI Venture Capital Limited (SVCL)
2) IFCI Venture Capital Funds Limited (IVCF)

Promoted by state government :


1) Gujarat Venture Finance Limited.
2) Kerala Venture Capital Fund Pvt Ltd.
3) Punjab Infotech Venture Fund.
4) Hyderabad Information Technology Venture Enterprises Limited.

Promoted By Public Banks :


1) Canbank Venture Capital Fund.
2) SBI Capital Markets Limited.

Promoted By Private Sector Companies :


1) IL & FS Trust Company Limited.
2) Infinity Venture India Fund.

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SIDBI VENTURE CAPITAL LIMITED (SVCL)


TEX funds (TF)
TEX fund is a type of close ended fund with a life of 7 years. It was
established in June 2014. It is registered with securities and exchange
board of India (SEBI). Primary objective of such fund is the development of
the power loom and related textile sector. Each investment is limited to 3
crore.
Samridhi fund
Department of international development (DFID), United Kingdom in
association with SIDBI envisaged the creation of samridhi fund. The aim is
to provide capital to social enterprise to gain financial as well as social
returns. This fund is established in states like Bihar, Uttar Pradesh,
Madhya Pradesh, Orissa, Chhattisgarh, Jharkhand, Rajasthan and west
Bengal. Investment size of such fund is 5-25 crore. The sectors mainly
targeted are: water & sanitation, affordable healthcare, clean energy,
education, skill building etc. The term of such fund is 7 years.
India opportunities fund
IOF is a type of close ended fund. Term of such fund is 10 years. Major
contributors of this fund are Indian public sector banks and insurance
companies. Sectors that are highlighted are light engineering, clean tech,
agro-based industries, logistics, infrastructure etc.
SME growth fund
Investment size of such fund is 500 crore and the term is 8 years. The
main aim is to provide risk capital to innovative and high technology
businesses.
National venture fund for software and information technology.
This fund is launched by honble prime minister Atal Behari Vajpayee on
December 10, 1999. Investment size is 1000 million out of which 500
million is contributed by SIDBI, 300 million by ministry of information
technology, government of India and 200 million by IDBI.
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IFCI VENTURE CAPITAL FUND.


Green India Venture Fund.
Objective of green India venture fund is to invest in companies setting up
clean development mechanism (CDM) projects. Investment size of such
fund is 20 million to 300 million. The targeted segments are projects
focusing on energy efficiency, renewable/non-conventional energy, energy
storage, waste management, pollution control projects, afforestation and
reforestation activities.
India Enterprise Development Fund (IEDF)
The objective of IEDF is to invest in knowledge based projects with
relatively high entry barriers, critical applications, prospects for high growth
and global scalability. The investment under IEDF would generally be
made in companies promoted by professionally qualified and/or
experienced promoters. The promoters/companies should have
assimilated the project/process/ technology and can establish commercial
viability of venture.
India Automotive Components Manufacturers Private Equity Fund.
Objective of such fund is to invest at least 60% of the corpus in the
automotive component sector. In addition, up to 40% of the corpus may be
invested in companies in other sectors including, but not limited to
companies engaged in manufacture, supply and/ or marketing of
components or equipments for machinery, engineering, defence, aviation
or any other sector. Investment criteria of such fund are SME's with track
record in auto component industry and other component manufactures.
Venture Capital Fund For Scheduled Caste
The objective of this fund to promote entrepreneurship among the
scheduled caste population in India, to promote entrepreneurship amongst
the Scheduled Castes who are oriented towards innovation and growth
technologies. Investment size of this fund is 200 crore and the term is 10
years.

28

GUJARAT VENTURE FUND LIMITED

29

GVFL Since its Inception Has Managed Seven Venture Funds. The Funds
Were Invested In 81 Technology and Growth Stage Companies. GVFL
Was A Forerunner to Support New and Untried Technology Based
Projects. The First Three Funds GVCF 1990, GVCF 1995, and GVCF
1997 Has Been Liquidated With Good Returns. The SME Technology
Venture Fund Is Focusing On Early And Growth Stage Technology
Companies Across India. GVFL Has Launched Its Latest FundGolden Gujarat Growth Fund-I with A Targeted Corpus of 1000 Crore
(INR).

KERALA VENTURE CAPITAL FUND

Kerala Venture Capital Fund is a close ended venture capital fund of


Kerala Venture Capital Fund Pvt. Ltd. The fund was sponsored by Small
Industries Development Bank of India (SIDBI), Kerala State Industrial
Development Corporation Ltd. (KSIDC) and Kerala Financial Corporation
(KFC). The fund targets companies operating in the fields of Information
Technology, Biotechnology and Tourism. The investment would primarily
be within the State of Kerala.

PUNJAB INFOTECH VENTURE FUND


Punjab infotech venture fund (PIVF) is scouting for a suitable strategic
partner/investor under the public private partnership (PPP) initiative to
enhance further its level of operational efficiency and to bridge the gap in
the existing fund corpus. PVIF with a corpus of 20 crore was set up by the
Punjab government through its corporate bodies like Punjab information &
communication technology corporation limited (Punjab infotech), Punjab
state industrial development Punjab financial corporation in association
with the small industrial development bank of India as a 10 year close
ended fund with the objective of investing in small and medium enterprise
(SMEs) primarily in information technology and software sectors.

HYDERABAD INFORMATION TECHNOLOGY VENTURE


ENTERPRISES LIMITED

Hyderabad Information Technology Venture Enterprises Limited (HITVEL,


www.hitvel.co.in) is the Asset Management Company under the
management of Srei Venture Capital Limited, the subsidiary of Srei
Infrastructure Finance Limited (www.srei.com). HITVEL manages the
HIVE Fund contributed by A.P. Industrial Development Corporation
Limited (www.apidc.org), A.P. Industrial Infrastructure Corporation Limited
(www.apiicltd.com), and Small Industries Development Bank of India
(www.sidbi.com). The HITVEL team has completed several early-stage
investments in Information Technology companies in India. A new fund,
HIVE II is being launched by HITVEL for investment targeting the IT ITES
Sector in India. The IT ITES sectors in India have a huge potential for
30

rapid growth as has been demonstrated previously in the case of


numerous organizations. HIVE II proposes investing unlisted companies
with tremendous potential for growth in terms of revenues and profitability,
thereby offering significant returns over a period of time.

CANBANK VENTURE CAPITAL FUND


31

The fifth fund of CVCF was launched in the month of June 2010 with the
corpus of Rs. 500 crore. Canara bank is the anchor investor and the rest
of the contributors are by domestic PSU banks/financial institutions and
insurance companies. Emerging India growth fund is a sector agnostic,
domestic fund which shall invest in diverse sectors. Prime focus shall be
on extending assistance to units in MSME sector investment in industries
with positive outlook.

SBI CAPITAL MARKETS LIMITED

SBI Capital Markets Ltd. (SBICAP) is Indias largest domestic Investment


Bank, offering the entire gamut of
investment banking and corporate advisory services. These services
encompass Project Advisory and Loan Syndication, Structured Debt
Placement, Capital Markets, Mergers & Acquisitions, Private Equity and
Stressed Assets Resolution.

IL & FS TRUST COMPANY LIMITED


32

ITCL provides trusteeship services to over 50% of the Alternate


Investment Funds registered with SEBI. As the largest Trustee to funds in
India, ITCL significantly contributes to the development of funds market in
India through expert advisory and effective risk management solutions.
SEBI's AIF Regulations issued in May 2012 regulate all forms of vehicles
set up in India for pooling of funds from investors, Indian or Foreign, on a
private placement basis. ITCL is acting as Trustee to over 50% of
the Alternate Investment Funds registered. ITCL also acts as the trustee
to Indias First Angel Fund registered with SEBI; ITCL is also uniquely
positioned to set up pre issuance Trust favourable under SEBI's Real
Estate Investment Trust (REIT) and Infrastructure Investment Trusts
(INVIT) Regulations.

INFINITY VENTURE INDIA FUND.

Infinity Venture Fund is a venture capital firm specializing start-ups. It


seeks to invest in products and services that utilize technology, internet,
new-media, telecommunications and convergence abilities for investment.
It typically invests in companies based in India. Infinity Venture Fund is
based in Mumbai, India with additional office in New Delhi, New York and
Bangalore.

33

REGULATIONS BY SEBI
Short Title and Commencement.
These regulations may be called securities and exchange board of India
(venture capital funds) regulations, 1996. They shall come into force on
the date of their publication in the Official Gazette.

Definitions.
venture capital undertaking means a domestic company
1. whose shares are not listed on a recognised stock exchange in
India
2. Which is engaged in the business for providing services, production
or manufacture of article or things or does not include such activities
or sectors which are specified in the negative list by the Board with
the approval of the Central Government by notification in the Official
Gazette in this behalf.

34

REGISTRATION OF VENTURE CAPITAL FUNDS


Application for Grant of Certificate.
1. Any company or trust [or a body corporate] to carry on any activity
as a venture capital fund on or after the commencement of these
regulations shall make an application to the Board for grant of a
certificate.
2. Any company or trust [or a body corporate], who on the date of
commencement of these regulations is carrying any activity as a
venture capital fund without a certificate shall make an application
to the Board for grant of a certificate within a period of three
months from the date of such commencement.
Provided that the Board, in special cases, may extend the said
period upto a maximum of six months from the date of such
commencement.
3. An application for grant of certificate under sub-regulation
(1) or sub-regulation (2) shall be made to the Board in Form A and
shall be accompanied by a non-refundable application fee as
specified in Part A of the Second Schedule to be paid in the
manner specified in Part B thereof.
4. Any company or trust [or a body corporate] referred to in subregulation (2) who fails to make an application for grant of a
certificate within the period specified therein shall cease to carry on
any activity as a venture capital fund.
5. The Board may in the interest of the investors issue directions with
regard to the transfer of records, documents or securities or
disposal of investments relating to its activities as a venture capital
fund
6. The Board may in order to protect the interests of investors appoint
any person to take charge of records, documents, securities and
for this purpose also determine the terms and conditions of such
an appointment.
Eligibility Criteria
For the purpose of the grant of a certificate by the board the applicant
shall have to fulfil in particular the following conditions, namely:
If the application is made by the company:
(i) Memorandum of association has as its main objective, the carrying on
of the activity of a venture capital fund.
(ii) It is prohibited by its memorandum and articles of association from
35

making an invitation to the public to subscribe to its securities.


(iii) Its director or principal officer or employee is not involved in any
litigation connected with the securities market which may have an
adverse bearing on the business of the applicant.
(iv) Its director, principal officer or employee has not at any time been
convicted of any offence involving moral turpitude or any economic
offence.
(v) It is a fit and proper person.
If the application is made by a trust:
(i) The instrument of trust is in the form of a deed and has been duly
registered under the provisions of the Indian Registration Act, 1908 (16 of
1908).
(ii) The main object of the trust is to carry on the activity of a venture
capital fund.
(iii) The directors of its trustee company, if any, or any trustee is not
involved in any litigation connected with the securities market which may
have an adverse bearing on the business of the applicant.
(iv) The directors of its trustee company, if any, or a trustee has not at any
time, been convicted of any offence involving moral turpitude or of any
economic offence.
(v) The applicant is a fit and proper person.
If the application is made by a body corporate:
(i) It is set up or established under the laws of the Central or State
Legislature.
(ii) The applicant is permitted to carry on the activities of a venture capital
fund.
(iii) The applicant is a fit and proper person.
(iv) The directors or the trustees, as the case may be, of such body
corporate have not been convicted of any offence involving moral
turpitude or of any economic offense.

36

(v) The directors or the trustees, as the case may be, of such body
corporate, if any, are not involved in any litigation connected with the
securities market which may have an adverse bearing on the business of
the applicant.

Furnishing of information, clarification.


The board may require the applicant to furnish such further information as
it may consider necessary.

Consideration of application.
An application which is not complete in all respects shall be rejected by
the Board:
Provided that, before rejecting any such application, the applicant shall be
given an opportunity to remove, within thirty days of the date of receipt of
communication, the objections indicated by the Board.
Provided further that the Board may, on being satisfied that it is necessary
to extend the period specified in the first proviso, extend such period by
such further time not exceeding ninety days.

Procedure for grant of certificate.


(1) If the Board is satisfied that the applicant is eligible for the grant of
certificate, it shall send intimation to the applicant.
(2) On receipt of intimation, the applicant shall pay to the Board; the
registration fee specified in Part A of the Second Schedule in the manner
specified in Part B thereof.
(3) The Board shall on receipt of the registration fee grant a certificate of
registration in Form B.
Conditions of certificate.
The certificate granted under regulation 7 shall be inter-alia, subject to the
following conditions namely:
(a) The venture capital fund shall abide by the provisions of the Act, and

37

these regulations.
(b) The venture capital fund shall not carry on any other activity other than
that of a venture capital fund.
(c) The venture capital fund shall forthwith inform the Board in writing if
any information or particulars previously submitted to the Board are found
to be false or misleading in any material particular or if there is any
change in the information already submitted.
Procedure where certificate is not granted.
(1) After considering an application made under regulation 3, if the Board
is of the opinion that a certificate should not be granted, it may reject the
application after giving the applicant a reasonable opportunity of being
heard.
(2) The decision of the Board to reject the application shall be
communicated to the applicant within thirty days.
Effect of refusal of grant certificate.
(1) Any applicant whose application has been rejected under regulation
9 shall not carry on any activity as a venture capital fund.
(2) Any company or trust [or a body corporate] referred to in subregulation (2) of regulation 3, whose application for grant of certificate has
been rejected under regulation 9 by the Board shall, on and from the date
of the receipt of the communication under sub-regulation (2) of regulation
9, cease to carry on any activity as a venture capital fund.
(3) The Board may in the interest of the investors issue directions with
regard to the transfer of records, documents or securities or disposal of
investments relating to its activities as a venture capital fund.
(4) The Board may in order to protect the interests of the investors
appoint any person to take charge of records, documents, securities and
for this purpose also determine the terms and conditions of such an
appointment.

38

INVESTMENT CONDITIONS AND RESTRICTIONS


Minimum investment in venture capital fund.
(1) A venture capital fund may raise monies from any investor whether
Indian, foreign or non-resident Indians [by way of issue of units]
(2) No venture capital fund set up as a company or any scheme of a
venture capital fund set up as a trust shall accept any investment from
any investor which is less than five lakh rupees: Provided that nothing
contained in sub-regulation (2) shall apply to investors who are
(a) employees or the principal officer or directors of the venture capital
fund, or directors of the trustee company or trustees where the venture
capital fund has been established as a trust; or
(b) The employees of the fund manager or asset management company.
(3) Each scheme launched or fund set up by a venture capital fund shall
have firm commitment from the investors for contribution of an amount of
atleast Rupees five crores before the start of operations by the venture
capital fund.
Investment conditions and restrictions.

39

All investment made or to be made by a venture capital fund shall be


subject to the following conditions, namely:
(a) Venture capital fund shall disclose the investment strategy at the time
of application for registration.
(b) Venture capital fund shall not invest more than 25% corpus of the fund
in one venture capital undertaking.
(c) shall not invest in the associated companies; and
(d) venture capital fund shall make investment in the venture capital
undertaking as enumerated below:
(i) Atleast 75% of the investible funds shall be invested in unlisted equity
shares or equity linked instruments.
ii) Not more than 25% of the investible funds may be invested by way of
(a) Subscription to initial public offer of a venture capital undertaking
whose shares are proposed to be listed subject to lock-in period of one
year.
(b) Debt or debt instrument of a venture capital undertaking in which the
venture capital fund has already made an investment by way of equity.
Prohibition On Listing
No venture capital fund shall be entitled to get its units listed on any
recognised stock exchange till the expiry of three years from the date of
the issuance of units by the venture capital fund.

40

GENERAL OBLIGATIONS AND RESPONSIBILITIES.


Prohibition on inviting subscription from the public.
No venture capital fund can issue any document or advertisement inviting
offers from the public for the subscription or purchase of any of its units. A
venture capital fund can receive monies for investment in the venture
capital fund only through private placement of its units.
Placement memorandum or subscription agreement.
(1) The venture capital fund shall
(a) issue a placement memorandum which shall contain details of the
terms and conditions subject to which monies are proposed to be raised
from investors; or
(b) Enter into contribution or subscription agreement with the investors
41

which shall specify the terms and conditions subject to which monies are
proposed to be raised.
(2) The Venture Capital Fund shall file with the Board for information, the
copy of the placement memorandum or the copy of the contribution or
subscription agreement entered with the investors along with a report of
money actually collected from the investor.
contents of placement memorandum
a) Details of trustees or trustees company of a venture capital fund.
b) (i) The propose corpus of the fund and the minimum amount to be
raised for the fund to be operational.
(ii) The minimum amount to be raised for each scheme and the
provision for refund of monies to investor in the event of non
receipt of minimum amount.
c) Details of entitlements on the units of venture capital fund for which
subscription is being sought.
d) Tax implications that are likely to apply to investors
e) Manner of subscription to the units of the venture capital fund.
f) The period of maturity; if any of the fund.
g) The manner if any in which the fund shall ne wound up.
h) The manner in which the benefits accruing to the investors in the
units of the trust are to be distributed.
i) Details of the fund manager or asset management company.

j) The details about the performance of the fund, if any, managed by


the fund manager.
k) Investment strategy of the fund.
l) Any other information specified by the board.
Maintenance of books and records.
42

(1) Every venture capital fund shall maintain for a period of eight years
books of accounts, records and documents which shall give a true and
fair picture of the state of affairs of the venture capital fund.
(2) Every venture capital fund shall intimate the Board, in writing, the
place where the books, records and documents referred to in subregulation (1) are being maintained.
Power to call for information.
(1) The Board may at any time call for any information from a venture
capital fund with respect to any matter relating to its activity as a venture
capital fund.
(2) Where any information is called for under sub-regulation (1) it shall be
furnished within the time specified by the Board
Submission of reports to the board.
The Board may at any time call upon the venture capital fund to file such
reports as the Board may desire with regard to the activities carried on by
the venture capital fund.

Winding up
(1) A scheme of a venture capital fund set up as a trust shall be wound
up,
(a) when the period of the scheme, if any, mentioned in the placement
memorandum is over
(b) if it is the opinion of the trustees or the trustee company, as the case
may be, that the scheme shall be wound up in the interests of investors in
the units;
(c) if seventy five percent of the investors in the scheme pass a resolution
at a meeting of unit holders that the scheme be wound up; or
(d) if the Board so directs in the interests of investors
(2) A venture capital fund set up as a company shall be wound up in
accordance with the provisions of the Companies Act, 1956 (1 of 1956).
(2A) A venture capital fund set up as a body corporate shall be wound up
in accordance with the provisions of the statute under which it is
43

constituted.
(3) The trustees or trustee company of the venture capital fund set up as
a trust or the Board of Directors in the case of the venture capital fund is
set up as a company (including body corporate) shall intimate the Board
and investors of the circumstances leading to the winding up of the Fund
or Scheme under sub-regulation (1).
Effect of winding up
(1) On and from the date of intimation under sub-regulation (3) of
regulation 23, no further investments shall be made on behalf of the
scheme so wound up.
(2) Within three months from the date of intimation under sub-regulation
(3) of regulation 23, the assets of the scheme shall be liquidated, and the
proceeds accruing to investors in the scheme distributed to them after
satisfying all liabilities.

44

TOP MOST ACTIVE VENTURE CAPITAL FIRMS IN INDIA


HELION VENTURE PARTNERS
Hellion venture partners were founded in 2006. They are an early to mid-stage India
focused venture fund with over $600 under management. We invest in technology
and technology-powered businesses such as e Commerce, Online
services, Mobility, Enterprise Software and Outsourcing.
People you should know: sandeep fakun and dourvesh kumar chumun.
Investment Structure: Invests between $2 Mn to $10 Mn in
company with less than $10 Mn in revenues.
Industries: Outsourcing, Mobile, Internet, Retail Services, Healthcare, Education
and Financial Services.
Start-ups Funded: Yepme, MakemyTrip, NetAmbit, Komli, TAXI For Sure, PubMatic.
ACCEL PARTNERS
Accel Partners founded in 1983 has global presence in Palo Alto, London, New
York, China and India. Typical multi-stage investments in internet technology
companies are made by Accel partners.
People You Should Know: Subrata Mitra, Prashanth Prakash and Mahendran
Balachandran
Investment Structure: Invests between $0.5 Mn and $50 Mn in its portfolio
companies.
Industries: Internet and Consumer Services, Infrastructure, Cloud -Enabled
Services, Mobile and Software.
Start-ups Funded: Flipkart, BabyOye, Freshdesk, Book My Show, Zansaar,
Probe, Myntra, and CommonFloor.

45

BLUME VENTURES
Venture capital firm, Blume Venture Advisor funds early-stage seed, startups, preseries A, series B and late stage investments. Blume backs startups with both
funding as well as active mentoring and support.
People You Should Know: Karthik Reddy and Sanjay Nath.
Investment Structure: Provides seed funding investments between $0.05 Mn $0.3
Mn in seed stage. Also, provides follow-on investments to portfolio companies
ranging from $.5Mn to $1.5Mn.
Industries: Mobile Applications, Telecommunications Equipment, Data
Infrastructure, Internet and Software Sectors, Consumer Internet, Media, Research
and Development
Start-ups Funded: Carbon Clean Solutions, EKI Communications, Audio
Compass, Exotel, Printo.
SEQUOIA CAPITAL INDIA
Sequoia Capital India specializes in investments in startup seed, early, mid, late,
expansion, public and growth stage companies.
People You Should Know: Shailesh Lakhani and Shailendra Singh.
Investment Structure: SCI invests between $100,000 and $1 Mn in seed stage,
between $1 Mn and $10 Mn in early stage and between $10 Mn and $100 Mn in
growth stage companies.
Industries: Consumer, Energy, Financial, Healthcare, Outsourcing, Technology.
Start-ups Funded: Just Dial, Knowlarity, Practo, iYogi, bankbazaar.com

46

NEXUS CAPITAL PARTNERS


Nexus Venture Partners is a venture capital firm investing in early stage and growth
stage startups across sectors in India and US.
People You Should Know: Suvir Sujan and Anup Gupta
Investment Structure: Invests between $0.5 Mn and $10 Mn in early growth stage
companies. Also, makes investments up to $0.5 Mn in their seed program.
Industries: Mobile, Data Security, Big Data analytics, Infrastructure, Cloud, Storage,
Internet, Rural Sector, Outsourced Services, Agribusiness, Energy, Media,
Consumer and Business services, Technology.
Start-ups Funded: Snap deal, Housing, Komli, ScaleArc, PubMatic, and Delhivery.

INVENTUS CAPITAL PARTNERS


With the sole goal of making new entrepreneurs successful, Inventus is a venture
capital fund managed by entrepreneurs and industry-operating veterans.
People You Should Know: Samir Kumar and Kanwal Rekhi
Investment Structure: The firm does not invest in capital intensive companies. It
typically leads the first venture round with $1 Mn to $2 Mn and as the businesses
grow, it invests from $0.25 Mn up to $10 Mn.
Industries: Consumer, Hotels, Restaurants and Leisure, Media, Internet and Catalog
Retail, Healthcare, Information Technology, Hardware and Equipment,
Telecommunications etc.
Start-ups Funded: Poshmark, Savaari, Farfaria, Policy Bazaar.com, Insta Health
Solutions, and CBazaar.

47

IDG VENTURES
Having a global network of technology venture funds with more than $4 billion, IDG
Ventures India is a leading India-focused technology venture capital fund
specializing in startups, early stage, growth stage and expansion stage companies.
People You Should Know: Manik Arora and Sudhir Sethi
Investment Structure: Invests in India-based companies and also in companies
outside India. The firm invests between $1 Mn and $10 Mn.
Industries: Digital Consumer Internet, Mobile, Media and Technology Enabled
Consumer Services, Enterprise Software SaaS, Software Products and Enterprise
services, Engineering Medical Devices, Clean-tech and IP-led Businesses
Start-ups Funded: UNBXD, Yatra.com, Myntra.com. FirstCry, Zivame, iProf, Ozone
Media.

FIDELITY GROWTH PARTNERS


Fidelity Growth Partners India is the private equity arm of Fidelity International
Limited focused on investing in India. Since 2008, FGPI has made several
investments across sectors including Healthcare and Life Sciences, Technology,
Consumer and Manufacturing.
People You should Know: Abhinav Sinha, Harsh Jhaveri
Investment Structure: Typically, FGPI invests between $10 Mn and $50 Mn for a
minority stake in the company
Industries: Healthcare and Life Sciences, Technology, Consumer and Manufacturing
Start-ups Funded: Netmagic, Yebhi

48

NASPERS
Naspers is a leading multinational media group, incorporated in 1915 as a public
limited liability company and was listed on the Johannesburg Stock Exchange (JSE)
in September 1994. The groups principal operations are in internet platforms
(focusing on commerce, communities, content, communication and games), paytelevision and the provision of related technologies and print media (including
publishing, distribution and printing). The groups most significant operations are
located in South Africa and elsewhere in Africa, China, Central and Eastern Europe,
India, Brazil, Russia, Thailand and the Netherlands.
Industries: Ecommerce, Print Media, Pay Television
Start-ups Funded: OLX, Flipkart

STEADVIEW CAPITAL
Steadview is a leading alternative asset manager based in Hong Kong. The firm
makes concentrated long-term investments across multiple industries
People You should Know: Ravi Mehta
Investment Structure: Early Stage Venture and Later Stage Venture Investments
Industries: Ecommerce
Start-ups Funded: Olacabs, Flipkart, Saavn, Urban Ladder

ZODIUS CAPITAL
Operational since 2011, Zodius typically develops one company every six months
and works intensively with its portfolio company teams to speed up and shape up
for exceptional growth and profitability.
People You should Know: Neeraj Bhargava, Gautam Patel
Investment Structure: N/A
Industries: Big Data and Analytics, Digital Media and Commerce, Education

49

Start-ups Funded: BigBasket, Culture Machine.

WARBURG PINCUS
Warburg Pincus is a leading global private equity firm focused on growth investing.
The firm has more than $37 Bn in assets under management. Its active portfolio of
more than 120 companies is highly diversified by stage, sector and geography.
People You should Know: Hari Ravichandran
Investment Structure: It emphasizes growth investing and has successfully built
companies at all stages, from conceiving and creating venture capital opportunities,
to providing capital to meet the needs of existing businesses, to investing in laterstage buyout transactions and special situations with unique characteristics.
Industries: Consumer, Industrial and Services, Energy, Financial Services,
Healthcare, Real Estate, Tech, Media, Telecommunications
Start-ups Funded: Lemon Tree, Biba, Quikr

CANAAN PARTNERS
Global venture capital firm investing in people with visionary ideas, Canaan
Partners specializes in all stages of development, seed financings, start-ups, growth
and early stage investments, typically Series A and B financings.
People You Should Know: Wende Hutton
Investment Structure: The firm typically invests between $0.05 Mn to $80 Mn in its
portfolio company. It prefers to exit its investments within 7 to 10 years.
Industries: Technology- Advertising & Marketing, Big Data/Cloud, Consumer,
Enterprise/SaaS, FinTech, Hardware, Healthcare Biopharma, digital Health &
MedTech.
Start-ups Funded: Naaptol, Bharat Matrimony, iYogi, Happiest
minds,mCARBON, CarTrade, Surewaves.

50

SAIF PARTNERS
Investing in India since 2001, SAIF Partners specializes in private equity and
venture capital across Asia.
People You Should Know: Mukul Arora & Mukul Singhal
Investment Structure: Invests between $10 Mn and $100 Mn in one or more rounds
of financing with investments between $200,000 to $500,000 in early stage
companies and between $30 Mn and $35 Mn in more mature unlisted ventures.
Industries: IT, ITes, Industrials, Financial Services, Internet, Consumer Product,
Mobile
Start-ups Funded: Justdial.com, Paytm, Network18, HomeShop18, Book My Show.

QUALCOMM VENTURES
Qualcomm Ventures is the investment arm of Qualcomm Inc. (NASDAQ: QCOM), a
Fortune 500 company with operations across the globe.
People You should Know: Karthee Madasamy
Investment Structure: N/A
Industries: Business Software, Cloud/Enterprise, Consumer Software, Hardware,
Health Care, Infrastructure, Semi/Components
Start-ups Funded: Appsdaily, Capillary, Deck, Portea, Housing.

51

52

GROWTH OF VENTURE CAPITAL IN INDIA

Venture Capital (VC) funding in Indian start-ups has registered a phenomenal Y-O-Y
growth rate of 261% in 2014 and, scaling new heights, touched $3.86 billion,
according to research firm Privco.
With internet penetration in India improving with every passing day (though still far
short of global average) and a greater percentage of our population being active
over the internet, the investors are eyeing India as THE market to watch out for! For
a change, the huge population in the country, which was always seen as one of the
major hindrances in the way of socio-economic growth, has now become the USPattracting investors like it never has in the past. No wonder then that investors and
venture capitalists are flocking to the country and taking keen interest in the
developments here.

53

SWOT ANALYSIS ON INDIAN VENTURE CAPITAL FUND


Strengths
i.

An effort initiated from within Home grown

ii.

Increased awareness of venture capital

iii.

More capital under management byVCFs Industry crossed learningcurve.

iv.

More experienced Venture Capitalists, Intermediaries, and Entrepreneurs.

v.

Growing number of foreign trained professionals.

vi.

Global competition growing.

vii.

Moving towards international standards

viii.

Offshore funds bring strong foreign ties

ix.

Matured towards market system

x.

Electronic trading through NSE &BSE.

xi.

Valuation addition

xii.

Irreversible reform

xiii.

Regulatory framework evolving

54

Weakness
i.

Faddish

ii.

Limited exit option

iii.

Uncertainties

iv.

Policy repatriation, taxation

v.

Bureaucratic meddling and rigid official attitude

vi.

Industry fragmented and polarized- Mixed V.C culture


With illiquid investments

vii.

Domestic fund raising difficult

viii.

Smaller funds

ix.

Lack of transparency& corporate governance

x.

Accounting standards

xi.

Poor legal administration

xii.

Difficult due diligence

xiii.

Inadequate management depth

xiv.

Valuation expectations unrealistic

xv.

Technical and Market evaluation difficult

xvi.

Negligible minority protection rights

xvii.

Inadequate corporate

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Opportunities
i.

Growth capital for strong companies and Buyouts of weak companies due to
growing global competition

ii.

Financial restructuring have over leveraged companies taking place.

iii.

Acquisition of quoted small/ medium cap companies.

iv.

Pre money valuations low

v.

Vast potential exists in turn around, MBO, MBI.


Threats

i.

Change in government policies with respect to


1. Structuring
2. Taxation

ii.

Threats from within Explosive expansion and over Exuberance of investors.

iii.

Greed for very high returns.

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ISSUES FACED BY VENTURE CAPITAL IN INDIA


The Indian venture capital industry, at the present, is at crossroads. Following
are the major issues faced by this industry.1.
Limitation on structuring of Venture Capital Funds (VCFs):
VCFs in India are structured in the form of a company or trust fund and are required
to follow a three-tier mechanism-investors, trustee company and AMC. A proper taxefficient vehicle in the form of Limited Liability Partnership Act, which is popular
in USA, is not made applicable for structuring of VCFs in India. In this form of
structuring, investors liability towards the fund is limited to the extent of his
contribution in the fund and also formalities in structuring of fund are simpler.2.
Problem in raising of funds:
In USA primary sources of funds are insurance companies, pensions funds,
corporate bodies etc; while in Indian domestic financial institutions, multilateral
agencies and state government undertakings are the main sources of funds for
VCFs. Allowing Pension funds, Insurance companies to invest in the VCFs would
enlarge the possibility of setting up of domestic VCFs. Further, if Mutual Funds
are allowed to invest upto 5 percent of their corpus in VCFs by SEBI, it may lead to
increased availability of fund for VCFs.
Lack of Inventive to Investors:
Presently, high net worth individuals and corporate are not provided with any
investments in VCFs. The problem of raising funds from these sources further gets
aggravated with the differential tax treatment applicable to VCFs and mutual funds.
While the income of the Mutual funds is totally tax exempted under Section 10(23D)
of the Income Tax Act income of domestic VCFs, which provide assistance to small,
andmedium enterprise is not totally exempted from tax. Inabsence of anyinventive,
it is extremely difficult for domestic VCFs to raise money from this investor group
that has a good potential.
Absence of angel investors.
In Silicon Valley, which is a nurturing ground
for venture funds financed IT companies; initial/ seed
stage financing is provided by the angel investors till the
company becomes eligible for venture funding. There after Venture Capitalist
through financial support and value-added inputs enables the company to achieve
better growth rate and facilitates
listng on stock exchanges. Private equity investors typically invest atexpansion/
later stages of growth of the company with large investments. In contrast to this
phenomenon, Indian industry is marked by an absence of angel investors.
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TAX BENEFITS
In terms of section 10(23 F) of IT Act income by exemptions way of dividend and
long term capital gains received by approved VC Companies/Funds from
investment made by way of equity shares in a VC undertaking are exempt from tax.
IT rules amended on 18th July 1995 introduced a rule 2(D) which allowed tax
exemption under the aforementioned section provided, among others,
(1) An application is made to Director of IT (Exemptions) by the VCC or VCF
(2) VCF/VCC is registered with SEBI.
(3) Not less than 80% of the fund corpus/paid up capital is invested by year 3.
(4) The VCC/VCF does not invest more than 5% of paid up capital/fund corpus in
one VC undertaking.
(5) VCC/VCF does not invest more than 40% in equity capital of one VC
undertaking.

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MYTHS AND FACTS ABOUT VENTURE CAPITAL FINANCING.


Myth: VCs dominate the private equity market.
Fact: VCs account for less than 1%of private equity market.
Myth: VCs finance a broad range of industries on a nationwide basis.
Fact: most VC investments are in high-technology or bio-science industries.
Myth: VCs expect to earn a 700% rate of return within two or three years.
Fact: VCs aim to harvest their investments within 7 to 10 years.
Myth: governments invest in VC funds because they are a win-win situation : eye
popping rate of return and high paying jobs.
Fact: probable returns will be around 25%with less than half of the firms surviving
for more than 3 years.

OTHER MYTHS:
1. Venture Capital Is the Primary Source of Start-Up Funding
2. VCs Take a Big Risk When They Invest in Your Start-Up
3. Most VCs Offer Great Advice and Mentoring
4. VCs Generate Spectacular Returns
5. In VC, Bigger Is Better
6. VCs Are Innovators

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SOME OF THE SUCCESS STORIES BY IFCI VENTURE CAPITAL


FUNDS LTD.
Benda Amtek Ltd:
Benda is engaged in manufacturing high precision engineering
automotive components mainly fly wheel ring gears, assemblies for
application to cars, two-wheelers, LCV, HCV, and stationary engines.
Benda's flywheel ring gears production is amongst the largest in India.
Benda is also an OEM supplier for Maruti Udyog Limited, Hero Honda,
LML, ILJIN (Hyundai), Escorts, Eicher, Mahindra, Telco, Hyundai, New
Holland Tractors, L&T John Deere, Yamaha, Bajaj Auto, Simpson,
Hindustan Motors, Honda Scooters and Sumitomo Corporation etc.
Benda is also a major supplier to the replacement market.
G. surgiwear ltd.
Surgiwear manufactures over 300 types of medical devices including
implants, hydrocephalus shunt etc. It caters to various fields of medicine
including products being manufactured for neurosurgery, orthopaedics,
plastic surgery, urosurgery, burns and wound treatment, dental surgery
etc. Most of the products manufactured by the Company are exported to
more than 50 countries in the world.
Guindy machine tools ltd.
GMT is engaged in the design, manufacture and servicing of products in
the fields of work holding, work positioning, machine tools and metrology.
GMT today has a customer base of more than 3000 highly satisfied users
and this list includes all major CNC Lathe manufacturers.
Guwahati neurological research centre ltd.
GNRC is a 165 bedded multi specialty ISO-9002 certified hospital at
Guwahati. It has state-of-the-art equipments, 24-hours emergency
services and intensive care units and 7 operation theatres. The hospital
also features histopathology, immunology, biochemistry, microbiology, and
non-invasive cardiac labs. GNRC runs a Heart Institute and Institute of
Neurological Sciences, which offers diploma programs. It is accredited by
the National Board of Examination.
Ind sphinx precision ltd.
Ind-Sphinx, a leading producer of micro tools based in India, was set up
in 1987 in technical and financial collaboration with SPHINX WERKE
MULLER A.G., Switzerland. Ind-Sphinx employs the latest Swiss-made
CNC/NC high precision grinders and German vision inspection
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equipment. With manpower extensively trained in Europe, the production


processes reflect a deeply entrenched Swiss heritage.
Marck biosciences ltd.
Marck, located in Ahmedabad, India - is a versatile manufacturer &
marketer of Sterile Liquid Parenterals manufactured using Aseptic Blow Fill - Seal technology. Both Large & Small Volume Parenterals facilities
are ISO certified & cGMP compliant. Marck's Small Volume Parenterals
facility addresses advanced markets like MCC - South Africa, MHRA UK, TGA - Australia, Europe & US -FDA. Recently, Marck has got
ANVISA - Brazil approval for its small volume parenterals facility.
Ocean sparkle ltd.
OSL is engaged in the business of providing professionalized service of
Comprehensive Port Operation and Management, envisioned to fulfil the
need for qualitative and efficient Port Infrastructure Operations and
Management in India, Capitalize on the opportunities evolving from
privatization of the Port Infrastructure Sector in India.
SQL star international ltd.
SQL Star is a Global IT Solutions & Services enterprise. With 13 offices
and locations in India and wholly owned subsidiaries in Australia,
Singapore and United States of America and over 1100 professionals
deployed, SQL Star is strategically poised to deliver complete IT solutions
& Business Software Developer tools to its customers cost-effectively and
consistently.

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CASE STUDY 1
Aavishkaar, an innovator in early stage investing has committed an investment of
Rs.320 million in Connect India, a start-up organisation that is building a last mile
network of distribution points for e-commerce across the country. Aavishkar
founded in 2001 has invested across the under developed region of India and South
and South-East Asia. The objective of this investment is a focus of Aavishkars
vision which seeks to catalyse development in India's unserved regions. The
company identifies capable entrepreneurs, provides them with capital, supplements
it with a nurturing environment and helps build sustainable enterprises.

Aavishkaar is driven by the belief that an enterprise based development approach


can enhance livelihoods and reduce vulnerabilities. Companys 10-year goal is to
invest in 300 start-up companies across emerging economies and raise US$1.0
billion.
Connect India has already carried successful trials of e-Commerce deliveries in
regions of rural India that are yet un-serviced by online commerce initiatives. While
Connect India will give distribution access to e-commerce Industry in rural India, it
will also create convenience to the e-Commerce customers in urban India by being
Hyper-Local.

With aid of this funding, Connect India would launch its commercial operations in 17
States, 150 towns and cities with 1500 Connect India Centres in rural and urban
markets.

We believe that the Connect India model of developing village level entrepreneurs
to bring efficient logistics and reverse logistics to taluka- and sub-taluka-level
communities in could create substantial development and livelihood impacts in rural
India, said Aavishkaar founder Vineet Rai. At the same time, the strategy of
leveraging existing, underutilized networks of community service centres provides
the opportunity for rapid expansion with low capital investments, leading to rapid
value creation for the company.
The name of our organization Aavishkaar -means invention in Hindi. Founded in
2001, with a vision to catalyse development in Indias Unserved regions, Aavishkaar
has established a successful track record with over US$ 155 million under
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management and a diverse portfolio of high impact businesses at various levels of


growth. This spans a range of sectors, namely agriculture, dairy, education, energy,
handicrafts, health, water and sanitation, technology for development, microfinance
and financial inclusion.

SURVEY REPORT
1. Are you aware about venture capital?

No

Yes

Reasons: Very little population is aware of venture capital as this business is


a growing business and marketing of such business is very uncommon.
2. Which company of venture capital would you prefer?

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Indian

Foreign

Reasons: most of the Indian population would prefer Indian venture capital
firms as the trust level is high as compared to foreign firms.

3. Have you ever invested in Venture Capital Company?

No

Yes

Reasons: high amount of population has not invested in venture capital companies
as it is not very known to people and there exists many other instruments through
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which people can raise money.


4. According to you, venture capital is profitable or not?

Yes

No

Reasons: a large number of population said VC is profitable as the amount


provided by them does not include interest payable whereas, loan taken from
any financial institution includes interest amount.
5. Do you think there is a growth in entrepreneurship due to venture capital in
India?

Yes

No

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Reasons: entrepreneurship is surely growing in India because of availability of


venture capital funds as this gives an encouragement to young group of people
to bring their business plans into reality.

CONCLUSION
It is essential that Venture Capital Funding agencies play a major
role in providing capital to industrial enterprises especially theSMEs if the Indian
economy has to grow rapidly.
There is a strongcase for Venture Capital Funding for SMEs. Judging from the
success in the IT, Biotechnology, Retail and Pharma sectors the VCF agencies can
explore possibilities of funding SMEs in manufacturing and other sectors also.
The government has brought in suitable regulations through the RBI, SEBI and
other institutions to facilitate Venture Capital Funding. VCF agencies should
aggressively promote funding and nurture promising SMEs. The PSBs and FIs in
India who were reluctant to foray into venture capital funding have now realised its
potential and are willing to partner Indian VCF agencies by providing funds.
VCF agencies should not only engage in funding but also
providemanagerial guidance and support to SME s to compete in thepresent global
environment and enable them to achieve turnovers and profits, which will ultimately
result in the enterprise going public in the shortest period.
Venture Capital supported enterprises can convert into quality initial public offerings
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(IPOs), resulting in capital from pension funds and investors flowing into VC funds.
It will also provide protection to
investors, especially small investors. Further it will result insubstantial and
Sustainable employment generation by creating related ancillary units and support
services.
Finally, research laboratories under CSIR, defence laboratories, universities and
Technical institutes are carrying out a lot of scientific and technical research. A
suitable venture capital environment can help in identifying and converting some
of this research into commercial production in the Small and Medium Scale sectors.
Thus, it is apparent that venture capital funding should be encouraged to facilitate
development in small and medium enterprise which in turn leads to overall growth in
the Indian economy.

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