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Institutions & Intermediaries

in Securities Market

Venture Funding in I ndia



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Idea + VC=Fortune Formula
Most investors offer three tips for start up
entrepreneurs:
Have solid business plan,
A competent team
Understand the expectations of venture capitalist
clearly

Some of the well known fortune formulas are:-
Hotmail,Amazon.com,Google,eBay
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Alternative Methods to Fund
Growth

Proprietors own capital
Arranging debt finance
Seeking an equity partner(PE & VC alternative
Angel Investors)


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Stages of a business
Early stage
Growth stage
Late stage
PIPE
Buyout

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Indian Investment in 2006

Stage of
Company No. of Deals
Amount
(US$M)
Early Stage 59 236
Growth Stage 42 393
Late Stage 104 3663
PIPE 61 1314
Buyout 11 1125
Others 22 769
Source: Venture Capital Association
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Private Equity

Non-public ownership equity securities that are
not listed on a public exchange.
Encompasses both
-Early Stage(Seed & growth capital)
-Later Stage(Buy-out expansion)
Can include Mezzanine,FOFs,Secondary
Investing

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PE Investment

Venture Capital
Buy Out
Special Situation
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Venture Capital Fund

A venture capital fund is a pooled investment
vehicle that primarily invests the financial
capital of third-party investors in enterprises that
are too risky for the standard capital markets or
bank loans.
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Venture capital is a type of PE capital
typically provided by professional, outside investors to
new, growth businesses.
-high risk
-above average returns.

It may be for
-early stage
-development/expansion
-purchase of a company



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The Origin
1920s &30s-Start up money by wealthy
investors & individuals (Eastern Airlines,
Xerox)
1946-ARD by General Doriot(MIT)
1950-Venrock by Rockfeller family
1957-Digital Equipment Corporation
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Venture Capital in India

ICICI, IDBI,State Financial Corporations ,Pvt
Sector,Debt funding
7
th
five year plan
Recognition for VC 1988
TDICI promoted by ICICI & UTI
1
st
Pvt VC Fund-Credit Capital Venture Fund
(BOI,ADB & CDC)

State Financial Institutions
1. GVFL
2. APIDC

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Goals of VC
(High quick return)


Build companies
Liquidity of shares
Return to the investors

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Lifecycle
Fund raising
Investing
Divesting and
Distribution
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Lifecycle
Concept/Inc
eption stage
Growth
stage
Maturity
Period/Time
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Advantages

Long-Term Equity Finance
Business Partner
Practical Advice & Assistance
Network of Contacts
Additional Funds
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Structure
Limited Partnership
General Partners(1%)
Limited Partners(100%-General Partners
Investment)
Fixed Maturity(10 yrs extendable upto 3
more yrs)
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Structure in India
As defined in Regulation 2(m) of
SEBI(Venture Capital Funds) Regulation,
1996 venture capital fund means a fund
established in the form of a company or
trust which raises money through
loans,donations issue of securities or units
as the case may be, and makes or proposes
to make investments in accordance with
these regulations.
Management
Venture Capitalist
Active
Investors
Limited voting rights


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Types
Seed/Expansion Stage
Particular Industry/Sector Focused
Organised
-Angel(HNI)
-VC Subsidiaries
-Pvt VC Firms
On the basis of promoters
-Central Govt controlled
-State Govt controlled
-Public Sector Banks
-Foreign Banks or Pvt Sector companies
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Fund Managers(General
Partners)
Hired-help Middlemen
Compensation
Fixed Management Fee(2/3% of Funds
Invested)
Carried Interest(20% of Funds Profits)

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Investors in VF(Institutional
investors and Wealthy individuals)

Pension Funds
Insurance Companies
University Endowments
Foundations
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Methods of Venture
Financing

Equity
Conditional Loan
Income Note
Participatory Debentures
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The Venture Capital Investment
Process

1. Deal origination
2. Screening
3. Due diligence (Evaluation)
4. Deal structuring
5. Post-investment activity
6. Exit

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Exit

1. Initial Public Offerings (IPOs)
2. Acquisition by another company
3. Purchase of the venture capitalist's
shares by the promoter, or
4. Purchase of the venture capitalist's share
by an outsider
5. Winding up/Liquidation
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Regulation-SEBI Venture Capital
Funds Regulations, 1996

Registration
Application fee-Rs.25000
Registration fee-Rs.500000 for grant of
certificate
90 Funds registered with SEBI at present
(APIDC,SICOM,Canbank,GVCL)

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Some Issues
Entrepreneurs apprehension
-Management control
-Sidelining the idea
-Change of leadership team
Change of VCs itself
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VC major investment sectors
in India

Information Technology
Retail Industry
Food(Yo China by Matrix VF)
Alternative Energy
Education & Health Services
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VC & Banks

Screening
Consultants
Active Governance
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1160
937
591
470
1650
2200
7500
5648
0
1000
2000
3000
4000
5000
6000
7000
8000
2000 2001 2002 2003 2004 2005 2006 2007(1st
half)
Trend of VC in India
Value(US$ millions)
280
110
78
56
71
146
299
161
0
50
100
150
200
250
300
350
No. of Deals
Source: Venture Capital Association

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Source: Venture Capital Association
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