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A

PROJECT REPORT
ON

A STUDY OF VENTURE CAPITAL IN INDIA


A detailed study done in

FINANCE
Submitted in partial fulfillment of the requirement for the award of degree of
Bachelor of Business Administration (BBA) under Bharati Vidyapeeth Deemed
University, Pune.
Submitted by
ARUN RANA
BBA SEM V
ROLL NO: 41
BATCH: 2011-2014
Under the guidance of
PROF.SONALI ATHAWALE

Bharati Vidyapeeths

Institute of Management & Entrepreneurship Development


Navi Mumbai
(i)

DECLARATION
I, ARUN RANA student of BHARATI VIDYAPEETH UNIVERSITY
Studying in B.B.A (Semester V) hereby declares that I have completed this project report on
VENTURE CAPITAL IN INDIA And has Not been submitted to any other University or
institutes for the award of any Degree, diploma etc. The information is submitted to me is true
and original to the best of my knowledge.

(ii)

ACKNOWLEDGEMENT
I would like to express my gratitude to all those who gave me the possibility to complete this
project.
I would like to thank my guide PROF.SONALI ATHAWALE for her continuous guidance.
I am thankful to our Director, Dr. DY Patil, for providing me a platform and supporting me
towards the successful completion of this project. I also want to thank my class mates who have
helped me in getting acquainted with various aspects during the project.
In the end, I express my gratitude to my family who inspired me in doing this work. Without
their inspirations the completion of this work was almost impossible.

Signature of the student


ARUN RANA

(iv)

EXECUTIVE SUMMARY
Venture capital is money provided by professionals who invest alongside management in young,
rapidly growing companies that have the potential to develop into significant economic
contributors.
The project states the origin of venture capital and their geographical differences in the world.
This project is mainly focused on the Indian Venture Capital and the rules and regulation in India
under which venture capital industry works. SEBI has the main regulatory authority which
controls the working of the Venture Capital in India. Various Venture capital firms and funds
have also been explained in this project.
The scenario of venture capital in India and its future has been discussed in the project and also
states the Suggestions for the growth of venture capital Funds in India. The Indian venture
capital industry, at the present, is at crossroads. There are some major issues faced by this
industry which are as follows, like Limitations on structuring of venture capital funds, Problem
in raising of funds, Absence of angel investors, 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 fillip it is
important to develop related infrastructure as has been successfully done internationally specially
in US, Taiwan and Israel. Following areas need due attention. The Venture Capital market in
its nascent stage so, there is a good scope for the venture capitalist in India in near
future.

The Indian government has been highly supportive of growth in technology and knowledge
based sectors. All VC funds registered with SEBI are exempted from income tax. The benefits
received by contributors to the VC funds are also tax exempt. 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.

(v)
TABLE OF CONTENTS
PARTICULARS

PAGE NO:

Declaration

(i)

Acknowledgement

(ii)

Certificates

(iii)

Executive Summary

(iv)

Table of Contents

(v)

Chapter 1: Introduction of the Project

1.1: Concept & Significance of the Study

1.2: Objective of the Study

1.3: Scope and Limitations

1.4: Literature Review

Chapter 2: Venture Capital

2.1: Meaning & definition

2.2: Origin.

2.3: Stages Of Venture Capital

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2.4: Feature.

12

2.5:Function Of Venture Capitalist.

13

2.6: VC Investment Process.

15

2.7:How does VC Industry Work

18

2.8What does a venture capitalist look for

20

2.9Geographically differences

21

2.10Advantages & Disadvantages

23

Chapter 3: Venture Capital In International Area

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3.1: Present state of venture in International area

26

3.2: VC in developing countries

28

Chapter 4: Venture Capital in India

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4.1 Introduction

31

4.2: Initiative in India

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4.3 Method of Venture Financing in India.

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4.4 Regulatory frame work of venture capital in India

36

4.5 SEBI Regulation

38

4.6 VC Industry wise segmentation

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4.7Future of VC In India

42

4.8 Prerequisites to success of VC in India

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Chapter 5: Research Methodology

44

5.1 Research Design

45

5.2: Data Collection Techniques and Tools

46

5.3: Sample Design

47

Chapter 6: Data Analysis and Interpretation

48

Chapter 7: SWOT Analysis Of Indian VC

56

Chapter 8: Finding, Suggestions, Conclusion

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Annexure
Bibliography

Chapter1
Introduction Of The Project

1.1 Concept Of Venture Capital


The term venture capital comprises of two words that is, Venture and Capital.. Venture is a
course of processing, the outcome of which is uncertain but to which is attended the risk or
danger of loss. Capital means recourses to start an enterprise. To connote the risk and
adventure of such a fund, the generic name Venture Capital was coined Venture capital is
considered as financing of high and new technology based enterprises. It is said that Venture
capital involves investment in new or relatively untried technology, initiated by relatively new
and professionally or technically qualified entrepreneurs with inadequate funds. The
conventional financiers, unlike Venture capitals, mainly finance proven technologies and
established markets. However, high technology need not be pre-requisite for venture capital
Venture capital has also been described as unsecured risk financing. The relatively high risk of
venture capital is compensated by the possibility of high returns usually through substantial
capital gains in the medium term. Venture capital in broader sense is not solely an injection of
funds into a new firm, it is also an input of skills needed to set up the firm, design its marketing
strategy, organize and manage it. Thus it is a long term association with successive stages of
companys development under highly risky investment conditions, with distinctive type of
financing appropriate to each stage of development. Investors join the entrepreneurs as copartners and support the project with finance and business skills to exploit the market
opportunities. Venture capital is not a passive finance. It may be at any stage of
business/production cycle, that is, start up, expansion or to improve a product or process, which
are associated with both risk and reward. The Venture capital makes higher capital gains through
appreciation in the value of such investments when the new technology succeeds.

Significance of Study
This research project will provide help to those people who are investing in venture capital firms.
It also provides help to the investors to know the current scenario of venture capital firms.
As we all know that Venture capital is long-term risk capital to finance high technology projects
which involve risk but at the same time has strong potential for growth.
Venture capital is money provided by professionals who invest alongside management. In young,
rapidly growing companies that have the potential to develop into significant economic
contributors.

1.2 Objective of the study :

The objective of this work is to outline the present status of the venture capital industry in
India and to find the changes that could be effected in the present environment to enable venture
capital grow at a fast pace and accelerating the economic growth.

1. To understand the concept of venture capital.


2. To identify the major players in the Indian Venture capital Industry.
3. To study and examine the present status of venture capital financing in India.
4. To study the awareness of venture capital in India.
5. To identify the problems faced by the Indian venture Capitalists.
6. To study the future of venture capital in India
7. To suggest various measures for proper growth of venture capital financing in India.

1.3 Scope Of The Study

The scope of the research includes information about venture capital firms in India and Venture
capital companies and funds irrespective of the fact that they are registered with SEBI of India
or not are part of this study. The study will be conducted within the area of Navi Mumbai.

Limitation of the Study


1. The biggest limitation was time because the time was not sufficient as there was lot of
information to be got & to have it interpretation.

1.4 Literature Review


According to Chary, (September 2005)
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There has been a plethora of literature on venture capital finance, which is helping the
practitioners viz., venture capital finance companies and fund manage for better understanding
the role of venture capital in economic development. There are number of studies on the venture
capital and activities of venture capitalists in developed countries.
According to Vijaya lakshman& Dalvi,((Jan., 2006)
Whenever Indian policy makers have to encourage any industry. The usual practice is to grant
that the industry tax breaks for a limited period. This definitely acts as a positive incentive for
that industry. However, what is required is a through hunderstanding of the industry requirement
framing and implementation of aggregative strategy for its development. VC funds are not even
registered with SEBI in spite of all the benefit available. VC industry is one, which will today
prepare abase for a strong tomorrow. What is need for the development of VC industry is not
only tax breaks but simpler procedures legislation for simplified exit form investment,more
transparency and legal backing to participate in business amongs to other things.
According to Kumar, (July, 2005)
One of the integral aspects of venture funding is venture capitalist's involve ment with the
entrepreneurial team. The relationship through broad interaction was explored by Rosenstein
(1988). A comparison was drawn between small and large firms with regard to board interaction.
While it is important in large firms the relative power of small conventional firms, board
interaction generally is undermined. Rosenstein et. a.(1993) studied the finer aspects of boards in
the venture funded companies in the USA. From 98 candidates in the sample, the study
attempted to bring out t37he changes in the board size, board composition and control and their
relation to value added to the funded unit. The empirical analysis yielded results wherein the size
of the board increased after venture funding, indicating more transparency in board operations.
Through a case based approach Lloyd et. al. (1995) explored the aspect of deal structuring and
post investment staging of venture capitalists through venture.

Chapter : 2
Venture Capital

2.1 Meaning Of Venture Capital

Venture capital is money provided by professionals who invest along side management in
young, rapidly growing companies that have the potential to develop into significant economic
contributors. Venture capital is an important source of equity for start-up companies.
Professionally managed venture capital firms generally are private partnerships or closely-held
corporations funded by private and public pension funds, endowment funds, foundations,
corporations, wealthy individuals, foreign investors, and the venture capitalists themselves.

Venture capital is long-term risk capital to finance high technology projects which involve risk
but at the same time has strong potential for growth. Venture capitalist pools their resources
including managerial abilities to assist new entrepreneur in the early years of the project. Once
the project reaches the stage of profitability, they sell their equity holdings at high premium.

VENTURE CAPITALISTS
A venture capitalist (VC) is a person who makes such investments, these include wealthy
investors, investment banks, other financial institutions other partnerships.

Definition of Venture capital


Venture capital is the investment of long term equity finance where the venture capitalist earns
his return primarily in the form of capital gain

2.2 The Origin of Venture Capital


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The origin of venture capital can be traced to USA in 19th century. After the second world
war in 1946. the American Research and Development was formed as first venture organization
which financed over 900 companies. Venture capital had been a major contributor in
development of the advanced countries like UK, Japan and several European countries.
In USA, the venture capital funds got a boost after the creation of Small Business
Investment Company under the Small Business Investment Act in 1958. Venture Capital funds
are privately owned and constitute the largest source of equity capital. There are a number of
venture capital firms in Greater Boston, San Francisco, New York, Chicago and Dallas. The
electronic units in these areas got a start from these firms. The ventures financed were risky but
carried more than proportionate promise of high return. The venture capital funds take a good
deal of interest in the units financed by them and assist the companies with several financial,
managerial and technical services.
The sources of venture capital in the USA are several. Individuals make venture capital
investments directly or indirectly. In direct investment individual or partnership of the
individuals appraises the proposal. In the indirect approach, venture capitalist appraises the
proposal and presents his evaluation to the investors.
Actually venture capitalist developers venture situations in which to invest. For his
trouble, venture capitalist receive 20 to 25 percent of the ultimate profits of the partnership know
as carried interest. He also collects an annual fee of 2 percent (of capital lent or invested in
equity) to cover costs. Apart from individuals, investors include institutions such as pension
funds, life insurance companies and even universities. The institutional investors invest about 10
percent of their portfolio in the venture proposals. Specialist venture capital funds in U.S.A.,
have about $30 billions on an annual basis to seek-out promising start-ups and take in them. In
Japan there are about 55 active venture firms with funds amounting to $ 7 billions (1993).
Venture capital funds are also extant in U.K., France and Korea..

2.3 STAGES OF Venture Capital financing

Venture capital can be provided to companies at different stages. These include:


I.

Early- stage Financing

Seed Financing: Seed financing is provided for product development & research
and to build a management team that primarily develops the business plan.

Startup Financing: After initial product development and research is

through,

startup financing is provided to companies to organize their business, before the


commercial launch of their products.

First Stage Financing: Is provided to those companies that have exhausted their
initial capital and require funds to commence large-scale manufacturing and sales.

II.

Expansion Financing

Second Stage Financing: This type of financing is available to provide working


capital for initial expansion of companies, that are experiencing growth in accounts
receivable and inventories, and is on the path of profitability.

Mezzanine Financing: When sales volumes increase tremendously, the company,


through mezzanine financing is provided with funds for further plant expansion,
marketing, working capital or for development of an improved product.

Bridge Financing: Bridge financing is provided to companies that plan to go


public within six to twelve months. Bridge financing is repaid from underwriting
proceeds.

III.

Acquisition Financing
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As the term denotes, this type of funding is provided to companies to acquire


another company. This type of financing is also known as buyout financing. It is
normally advisable to approach more than one venture capital firm simultaneously
for funding, as there is a possibility of delay due to the various queries put by the
VC. If the application for funding were finally rejected then approaching another VC
at that point and going through the same process would cause delay. If more than
one VC reviews the business plan this delay can be avoided, as the probability of
acceptance will be much higher. The only problem with the above strategy is the
processing fee required by a VC along with the business plan. If you were applying
to more than one VC then there would be a cost escalation for processing the
application. Hence a cost benefit analysis should be gone into before using the above
strategy.
Normally the review of the business plan would take a maximum of one month and
disbursal for the funds to reach the entrepreneur it would take a minimum of 3
months to a maximum of 6 months. Once the initial screening and evaluation is
over, it is advisable to have a person with finance background like a finance
consultant to take care of details like negotiating the pricing and structuring of the
deal. Of course alternatively one can involve a financial consultant right from the
beginning particularly when the entrepreneur does not have a management
background.

2.4 FEATURES OF VENTURE CAPITAL

1. Long-time horizon: In general, venture capital undertakings take a longer time say, 5-10
years at a minimum to come out commercially successful; one should, thus, be able to
wait patiently for the outcome of the venture.

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2. Lack of liquidity: Since the project is expected to run at start-up stage for several years,
liquidity may be a greater problem.
3. High risk: The risk of the project is associated with management, product and
operations .Unlike other projects, the ones that run under the venture finance may be
subject to a higher degree of risk, as their result is uncertain or, at best, probable in
nature.
4. High-tech: Venture capital finance caters largely to the needs of first generation
entrepreneurs who are technocrats, with innovative technological business ideas that have
not so far been tapped in the industrial field. However, a venture capitalist looks not only
for high-technology but the innovativeness through which the project can succeed.
5. Equity participation and capital gains: A venture capitalist invests his money in terms
of equity or quasi-equity. He does not look for any dividend or other benefits, but when
the project commercially succeeds, then he can enjoy the capital gain which is his main
benefit. Otherwise, he will be losing his entire investment.
6. Participation in management: Unlike the traditional financier or banker,the venture
capitalist can provide managerial expertise to entrepreneurs besides money. Since many
innovations and inventions cannot be commercialized due to lack of finance, venture
capital finance acts as a strong impetus for entrepreneurs to develop products involving
newer technologies and to commercialize them

2.5 FUNCTIONS OF VENTURE CAPITALIST


Venture capital is growingly becoming popular in different parts of the world because of
the crucial role it plays in fostering industrial development by exploring vast and untapped
potentialities and overcoming threats. Venture capitalist plays this role with the help of following
major functions:

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1. Venture capitalist provides finance as well as skills to new enterprises and new ventures
of existing ones based on high technology innovations. It provides seed capital funds to
finance innovations even in the pre-start stage. In the development stage that follows the
conceptual stage venture capitalist develops a business plan (in partnership with the
entrepreneur) which will detail the market opportunity, the product, the development and
financial needs. In this crucial stage, the venture capitalist has to assess the intrinsic
merits of the technological innovation, ensure that the innovation is directed at a clearly
defined market opportunity and satisfied himself that the management team at the helm
of affairs is competent enough to achieve the targets of the business plan. Therefore,
venture capitalist helps the firm t move to the exploitation stage, i.e., launching of the
innovation. While launching the innovation the venture capitalist will seek to establish a
time frame for achieving the predetermined development marketing, sales and profit
targets.
2. In each investment, as the venture capitalist assumes absolute risk, his role is not
restricted to that of mere suppliers of funds but that of an active partner with total
investment in the assisted projects. Thus, venture capitalist is expected to perform not
only the role of a financier but also a skilled faceted intermediary supplying a broad
spectrum of specialist services technical, commercial, managerial, financial and
entrepreneurial.

3. Venture capitalist fills the gap in the owners funds in relation to the quantum of equity
required to support the successful launching of a new business or the optimum scale of
operations of an existing business. It acts as a trigger in launching new business and as a
catalyst in stimulating existing firms to achieve optimum performance.

4. Venture capitalist job extends even as far as to see that the firm has proper and adequate
commercial banking receivable financing.
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5. Venture capitalist assists the entrepreneurs in locating, interviewing and employing


outstanding corporate achievers to professionalism the firm.

2.6Venture Capital Investment Process


1. Deal origination
2. Screening
3. Due Diligence
4. Deal Structuring
5. Post Investment Activities

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6. Exit
(1) Deal origination:
In generating a deal flow, the VC investor creates a pipeline of deals or investment opportunities
that he would consider for investing in. Deal may originate in various ways.referral system,
active search system, and intermediaries. Referral system is an important source of deals. Deals
may be referred to VCFs by their parent organizations, trade partners, industry associations,
friends etc. Another deal flow is active search through networks, trade fairs, conferences,
seminars, foreign visits etc. Intermediaries is used by venture capitalists in developed countries
like USA, is certain intermediaries who match VCFs and the potential entrepreneurs.

(2) Screening:
VCFs, before going for an in-depth analysis, carry out initial screening of all projects on the
basis of some broad criteria. For example, the screening process may limit projects to areas in
which the venture capitalist is familiar in terms of technology, or product, or market scope. The
size of investment, geographical location and stage of financing could also be used as the broad
screening criteria.

(3) Due Diligence:


Due diligence is the industry jargon for all the activities that are associated with evaluating an
investment proposal. The venture capitalists evaluate the quality of entrepreneur before
appraising the characteristics of the product, market or technology. Most venture capitalists ask
for a business plan to make an assessment of the possible risk and return on the venture. Business
plan contains detailed information about the proposed venture. The evaluation of ventures by
VCFs in India includes; Preliminary evaluation: The applicant required to provide a brief profile
of the proposed venture to establish prima facie eligibility. Detailed evaluation: Once the
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preliminary evaluation is over, the proposal is evaluated in greater detail. VCFs in India expect
the entrepreneur to have:- Integrity, long-term vision, urge to grow, managerial skills,
commercial orientation. VCF in India also make the risk analysis of the proposed projects which
includes :Product risk, Market risk, Technological risk and Entrepreneurial risk. The final
decision is taken in terms of the expected risk-return trade-off as shown in
(4) Deal Structuring:
In this process, the venture capitalist and the venture company negotiate the terms of the deals,
that is, the amount, form and price of the investment. This process is termed as deal structuring.
The agreement also include the venture capitalist's right to control the venture company and to
change its management if needed, buyback arrangements, acquisition, making initial public
offerings (IPOs), etc. Earned out arrangements specify the entrepreneur's equity share and the
objectives to be achieved.

(5) Post Investment Activities:


Once the deal has been structured and agreement finalised, the venture capitalist generally
assumes the role of a partner and collaborator. He also gets involved in shaping of the direction
of the venture. The degree of the venture capitalist's involvement depends on his policy. It may
not, however, be desirable for a venture capitalist to get involved in the day-to-day operation of
the venture. If a financial or managerial crisis occurs, the venture capitalist may intervene, and
even install a new management team.
(6) Exit:
Venture capitalists generally want to cash-out their gains in five to ten years after the initial
investment. They play a positive role in directing the company towards particular exit routes. A
venture may exit in one of the following ways: There are four ways for a venture capitalist to exit
its investment:

Initial Public Offer (IPO)


Acquisition by another company
Re-purchase of venture capitalists share by the investee company
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Purchase of venture capitalists share by a promote.

2.7 Geographical Differences


Venture capital, as an industry, originated in the United States and American firms have
traditionally been the largest participants in venture deals and the bulk of venture capital has
been deployed in American companies. However, increasingly, non-US venture investment is
growing and the number and size of non-US venture capitalists have been expanding.
Venture capital has been used as a tool for economic development in a variety of
developing regions. In many of these regions, with less developed financial sectors, venture
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capital plays a role in facilitating access to finance for small and medium enterprises (SMEs),
which in most cases would not qualify for receiving bank loans.
United States
Venture capitalists invested some $6.6 billion in 797 deals in U.S. during the third quarter
of 2006, according to the MoneyTree Report by PricewaterhouseCoopers and the National
Venture Capital Association based on data by Thomson Financial.
A recent National Venture Capital Association survey found that majority (69%) of
venture capitalists predict that venture investments in U.S. will level between $20-29 billion in
2007.
Canada
Canadian technology companies have attracted interest from the global venture capital
community as a result, in part, of generous tax incentive through the Scientific Research and
Experimental Development (SR&ED) investment tax credit program. The basic incentive
available to any Canadian corporation performing R&D is a non-refundable tax credit that is
equal to 20% of "qualifying" R&D expenditures (labour, material, R&D contracts, and R&D
equipment). An enhanced 35% refundable tax credit of available to certain (i.e. small) Canadiancontrolled private corporations (CCPCs). Because the CCPC rules require a minimum of 50%
Canadian ownership in the company performing R&D, foreign investors who would like to
benefit from the larger 35% tax credit must accept minority position in the company - which
might not be desirable. The SR&ED program does not restrict the export of any technology or
intellectual property that may have been developed with the benefit of SR&ED tax incentives.
Canada also has a fairly unique form of venture capital generation in its Labour
Sponsored Venture Capital Corporations (LSVCC). These funds, also known as Retail Venture
Capital or Labour Sponsored Investment Funds (LSIF), are generally sponsored by labor unions
and offer tax breaks from government to encourage retail investors to purchase the funds.
Generally, these Retail Venture Capital funds only invest in companies where the majority of
employees are in Canada. However, innovative structures have been developed to permit

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LSVCCs to direct in Canadian subsidiaries of corporations incorporated in jurisdictions outside


of Canada.

Europe
Europe has a large and growing number of active venture firms. Capital raised in the
region in 2005, including buy-out funds, exceeded 60mn, of which 12.6mn was specifically
for venture investment. The European Venture Capital Association includes a list of active firms
and other statistics. In 2006 the top three countries receiving the most venture capital
investments were the United Kingdom (515 minority stakes sold for 1.78bn), France (195 deals
worth 875m), and Germany (207 deals worth 428m) according to data gathered by Library
House.
European venture capital investment in the second quarter of 2007 rose 5% to 1.14 billion
Euros from the first quarter. However, due to bigger sized deals in early stage investments, the
number of deals was down 20% to 213. The second quarter venture capital investment results
were significant in terms of early-round investment, where as much as 600 million Euros (about
42.8% of the total capital) were invested in 126 early round deals (which comprised more than
half of the total number of deals).

India
The investment of capitalists in Indian industries in the first half of 2006 is $3 billion and
is expected to reach $6.5 billion at the end of the year. Most VC firms in India are either
divisions or subsidiaries of Silicon Valley funds. They are primarily centered in Bangalore and
Mumbai. Some VCs also operate from Delhi and other parts of the National Capital Region.

2.8 How does the VC industry work?


Venture capital firms typically source the majority of their funding from large investment
institutions such as fund of funds, financial institutions, endowments, pension funds and banks.
These institutions typically invest in a venture capital fund for a period of up to ten years.
To compensate for the long term commitment and lack of both security and liquidity,
investment institutions expect to receive very high returns on their investment. Therefore venture
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capitalists invest in either companies with high growth potential where they are able to exit
through either an IPO or a merger/acquisition. Although the venture capitalist may receive some
return through dividends, their primary return on investment comes from capital gains when they
eventually sell their shares in the company, typically between three to five years after the
investment.
Venture capitalists are therefore in the business of promoting growth in the companies
they invest in and managing the associated risk to protect and enhance their investors' capital.

2.9 What does a Venture Capitalist look for ?


Venture capitalists are higher risk investors and, in accepting these higher risks, all they
desire is a higher return on their investment. The venture capitalist manages the risk/reward ratio
by only investing in businesses that fit their investment criteria.

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Different Venture Capitalists have differing operating approaches. These differences may
relate to the location of the business, the size of the investment, the stage of the company,
industry specialization, and structure of the investment and involvement of the venture capitalists
in the company's activities. The entrepreneur should not be discouraged if one venture capitalist
does not wish to proceed with an investment in the company. The rejection may not be a
reflection of the quality of the business, but rather a matter of the business not fitting with the
venture capitalist's particular investment criteria.
Venture capital is not suitable for all businesses, as a venture capitalist typically seeks:
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.
Quality and Depth of Management
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.

Corporate Governance and Structure


Venture capitalists are put off by complex corporate structures without a clear
ownership and where personal and business assets are merged.

Appropriate Investment Structure


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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).
An Exit Plan
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.
Once a short list of appropriate venture capitalists has been selected, the
entrepreneur can proceed to identify which investors match their funding requirements.
At this point, the entrepreneur should contact the venture capital firm and identify an
investment manager as an initial contact point. The venture capital firm will ask
prospective investee companies for information concerning the product or service, the
market analysis, how the company operates, the investment required and how it is to be
used, financial projections, and importantly questions about the management team.
In reality, all of the above questions should be answered in the Business Plan. Assuming
the venture capitalist expresses interest in the investment opportunity, a good business
plan is a pre-requisite.

2.10 Advantages Of Venture Capital

It injects long term equity finance which provides a solid capital base for future growth.

The venture capitalist is a business partner, sharing both the risks and rewards.
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The venture capitalist also has a network of contacts in many areas that can add value to
the company.

The venture capitalist may be capable of providing additional rounds of funding should it
be required to finance growth.

Disadvantages OF Venture Capital


Your investor may insist on putting a representative on your board (or having power to do
so if financial targets are not met). For VCs, this is usually a non-executive director who

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will only take an active part if things go wrong. A business angel will usually want to be
on the board himself, and will play a more active part.
You are under greater scrutiny generally, particularly in relation to your compliance with
your duties and responsibilities as a director, e.g.: to act in the company's best interests,
and disclose personal interests in your company's affairs.
Your investor will expect regular information and consultation to check how things are
progressing. For example, monthly management accounts and minutes of board meetings.

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Chapter : 3
Venture Capital In
International Area

3.1 Present State of Venture Capital In International Area


The natural birth place of venture capital is in the U.S.A. The development of the venture
capital industry there has taken place over quite a long period. Venture capital industry in its
present form started in 1949 the year of the formation in Boston of the American Research and
25

Development Corporation. The legislation used to spur venture capital was Small Business
Investment Companies with tax advantage and government loan money. By 1962, there were
585 such companies with 205 millions in capital between them. However, these companies ran
into difficulties due to lack of understanding of venture capital principles on the part of the
management land their inexperience. In the appropriate government legislation also contributed
to the failures.
Learning from the experience of 60s new venture capital companies were formed which
were better structured and organized in 70s. These were the years when venture capitalist
became more involved in development financing both for their portfolios and for new
investment. The pool of capital employed which stood at Rs.2.5 billions in 1975 surged
significantly to $ 7.6 billions by the end of 1982 due to the tax reduction in 1978. In 1988 there
were 587 active capital firms, of which 200 formed the core of the industry. There were $24.1
billion in funds under the management. The buoyancy in American venture capital activity was
due to abundant technological opportunities for the creation and commercialization of new goods
and services, freedom of foreign investment in the U.S.A. large potential gains associated with
equity and management participation in high technology ventures and tax relief.
The most important features of American venture capitalist is that they are totally
involved with firms based on high technological innovation right from the stage of conception of
business ideas to the final stage of their establishment. They provide, in addition to risk capital,
managerial, commercial, technical, financial and entrepreneurial services so as to enable the firm
to achieve optimum performance. They are almost a full-fledged partner in the business along
with the entrepreneur, sharing the risk and added value created in the process.
In the U.K., venture capital activity flourished in the years, since 1980. There were only
10 companies in the market supplying venture capital. In 1987 Britain had 140 such companies
with total investments of 800 million. The major factors contributing to this phenomenal
growth in venture capital activity in Britain were strengthening of the enterprise culture,
Both these factors were the outcome of strong government support, the government loan
guarantee scheme and business expansion scheme to render fiscal and financial incentives to
26

venture capitalists.
The British venture capital funds have certain special characteristics. They have come
into existence to fill a potential gap in the market unfilled by the banks or the various
government schemes. That potential is for close involvement in the management of the Company
being backed and in the panning and ownership of the company over a period of perhaps 5 to 7
years. Some venture capitalist provide funds even right from the research stage.

3.2 Venture Capital in Developing Countries


Venture capital as such as has not been a popular source of financing in developing
countries. Only a few Asian countries made serious efforts to establish venture capital
organization. These VC organizations were usually set up by development banks as subsidiaries
or separately managed funds. Besides in some developing counties such as Philippines and
Argentina, commercial banks constituted VCs organizations.

27

However, it is interesting to observe that private sector organizations did not take much
interest in setting up venture capital firms until recently. In some countries, VC firm came into
existing with the support of International Finance Corporation (IFC) since 1978. For example,
IFC played crucial role in setting up SOFINNOVA in Spain, VIBES in Philippines, Brasilpai in
Brazil, IPS in Kenya, KDIC in Korea and SEA VI in South East Africa.
In recent years few VC firms have come up in countries such as Korea, Taiwan and
Malaysia on the initiative of some private sector institution. In Korea, for example, number of
VC firms have been established with the help of Korea Technology Advancement Corporation
(KTAC). KTAC is a venture Capital group set up in 1974 with the sole objective of investing in
high tech business, especially by commercializing the R&D results from the Korean Advanced
instituted for Services and Technology.
Foreign venture Capital firms have not been in existence in developing counties
excepting Taiwan which has been able to attract foreign VC firms since the initiation of the
venture capital in 1983.
Venture capital organizations in these countries have not been made much headway
because of several factors. One such factor is dearth of funds available for funding high risk
technology ventures. Another factor contributing to slow growth of VC firms is absence of
entrepreneurial approach among development banks and commercial banks. These institutions
have also been found lacking flexibility, drive and managerial skills needed for venture
financing. Further, inefficient performance of the government, and sponsored VCFs have
retarded the growth of venture capital companies. Absence of tax incentives is another crucial
factor responsible for slow growth of the companies.
In a number of developing countries including India tax laws favour debt against equity.
Finally, disinvestments factor has hindered the progress of VC firms in developing countries.
Investors are attracted towards equity investment only they are assured of making capital games
by disposing off equity shares. Unfortunately financial markets in most of the developing
countries are not properly developed to provide scope for sales of shares as and when desired by
their holders.
28

29

Chapter : 4
Venture Capital In India

4.1 VENTURE CAPITAL IN INDIA


Venture capital as a source of the launch capital either of the American type or the
slightly variant (in scope) British type is, by and large, conspicuous by its absence in India. There
are, of course, some institutional venture capital funds/ schemes in operation in India. For
instance, Industrial Finance Corporation of India set up the Risk Capital Foundation in 1975 with
a view to providing special assistance to new entrepreneurs, particularly technologists and
professionals for promoting medium-sized industrial projects. Further, with a view to assisting
30

entrepreneurs who have skills but lack finance to bring in the requisite promoters contribution,
Industrial Development Bank of India (IDBI) introduced two seed capital schemes, viz.,
State financial corporations special share capital schemes under which SFCs extend
special share capital assistance to projects in the small-scale sector from their special class of
share capital contributed jointly by the concerned state Government and IDBI.
IDBIs own scheme for such assistance (operated mainly through State Industrial
Development Corporation / State Financial corporation)_ in respect of medium-sized projects
costing upto Rs.2 crores. In 1985 the IDBI introduced venture capital fund scheme to assist
industrys efforts for technological advancements. Most of the ventures assisted by the Bank
have been sponsored by professionally qualified entrepreneurs and the process/technology
involved a wide range of new and indigenously developed ones.
In 1986, Industrial Credit and Investment Corporation of India (ICICI) also launched a
venture capital scheme to encourage new techno crafts in the private sector in new fields of high
technology with inherent risk. Under this scheme ICICI assists projects, with initial investment
not exceeding Rs.2 crores, in the form of equity or conditional loan with flexible charges and
repayment period or conventional loan. Two new fund were launched recently.
The first one called India fund floated by the International Division of Merrill Lynch
with subscription by non-resident Indians living mainly in the UK and Western Europe is
managed by the UTI.
The second one is the venture capital fund with an initial capital of Rs.10 crores
established in December 1986 by IDBI to provide equity capital for pilot plants attempting
commercial applications of indigenous technology and to adapt previously imported technology
to wider domestic application.
To undertake the task on a continuous and systematic basis, the Industrial Credit and
Investment Corporation set up with the UTI The Technology Development and Information
Company of India Ltd. (TDICI) in 1989. TDICT has started providing venture capital, R & D
31

funds and technical and managerial services including Technology and Information. The ICICI
also established in 1988 with UTI venture capital fund with Rs.20 crores, subscribed equally by
ICICI and UTI. The fund is being used for providing assistance mainly in the form of equity,
conditional loans and convertible debenture, to set up technological ventures which have
potential for fast growth.
In January, 1990 ICICI and UTI have jointly launched their second venture fund for
Rs.100 crores. It is interesting to note that the commonwealth Development Corporation of the
U.K. will also be participating in this fund. Among commercial banks, State Bank of India,
Canara Bank and Grind lays Bank have shown interest in this area. SBIs merchant banking
subsidiary, SBI capital markets invests in the equity shares of new and unknown companies.
Canara Bank has also set up a venture capital fund through its subsidiary, viz., (as bank financial
Services) Grind lays Bank launched India investment fund to provide venture capital assistance
to high risk projects.
In July, 1990 The Gujarat Industrial Corporation Ltd., launched a venture capital finance
scheme through a newly registered subsidiary with the help of the Capital Trust Fund worth
Rs.24 crores to cater to projects which will enhance the growth of the national economy. The
new subsidiary Gujarat Venture Finance Ltd. would financially support the entrepreneur
having both indigenous and imported technologies not tried before in the country. This
organization would finance venture capital entirely through equity participation.
In private sector a few venture capital funds have been established. One such fund is
Indus Venture Capital Fund (IVCF). This venture capital has been set up with a capital of Rs. 21
crore contributed by several Indian and international institutions. The fund provides both equity
capital as well as managerial support to entrepreneurs.
The other private venture capital firms set up in India are Credit Capital Venture Fund,
Twentieth Century Finance Company and Infrastructure Leasing and Financial Services Ltd.

32

The above venture capital funds / schemes are essential in the nature of equity assistance
funds/schemes. There are no full- fledged individual corporate or institutional venture capitalist
in India offering a broad spectrum of multi-faced specialist services like the venture capitalist in
the U.S. or U.K. Further, having regards to the mammoth task to be performed by venture capital
finance in India, the size of the fund would appear to be too small.
The venture capital investment in India till the year 2001 was continuously increased and
thereby drastically reduced. Following Chart shows that there was a tremendous growth by
almost 327 percent in 1998-99, 132 percent in 1999-00, and 40 percent in 2000-01 there after
venture capital investors slow down their investment. Surprisingly, there was a negative growth
of 4 percent in 2001-02 it was continued and a 54 percent drastic reduction was recorded in the
year 2002-2003.

4.2 INITIATIVE IN INDIA


Indian tradition for VC for industry goes back more than 150 years when many of the
managing agency houses acted as venture capitalist providing both finance and management skill
to risky projects. It was the managing agency system through which Tata Iron and Steels and era
press mills were able to raise equity capital from the investing public. The Tata also initiated a
managing agency house, named Investment Corporation of India in 1937 which by acting as

33

venture capitalist, successfully promoted bi-tech enterprises such as enterprises such as CEAT
Tyres.
Associated Bearings National Rayon' the early form of venture capital enables the
entrepreneurs to raise large amount of funds and yet retain management control. After the
mobilizing of managing agency system, the public sector term lending institutions s meet a part
of venture capital requirements through seed capital and risk capital for hi-tech industries which
were not able to meet promoters contribution. However all these institutions supported only
proven and sound technology while technology development remanded largely confirmed to
government labs and academic institutions . Many hi-tech industries, thus found it impossible to
obtain financial assistance from banks and other financial institutions due to unproven
technology conservative attitude, risk awareness and rigid security parameters.
Venture capital's growth in India passed through various stages. In 2973m R.S. Bhatt
Committee recommended formation of Rs. 100 crore venture capital fund, the Seventh Five Year
Plan emphasis need for developing a system of funding venture capita. The Research and
Development Cess Act was enacted in May 1986 which introduced a cess of 5% on all payments
made for purchase of technology from abroad. The levy provided the source for the venture
capital fund.
United Nations development Programme in 1987 on behalf of Government examined the
possibility of developing venture capital in private sector. Technology Policy Implementation
Committee in the same year also recommended the same provisions. Formalised venture capita
book roots when venture capital guidelines were by Comptroller of Capital Issues in November.

4.3 Methods of Venture Financing In India


Venture capital is available in three forms in India
1. Equity Participation.
2. Conventional Loan.
3. Conditional Loan .

34

1. Equity Participation: Venture Capital firms participate in equity through direct purchase
of shares but their stake does not exceed 49% .These shares are retained by them till the
assisted projects making profit. These shares are sole either to the promoter at negotiated
price under by back agreement or the public in the secondary market at a profit.

2. Conventional Loan: Under this form of assistance, a lower fixed rate of interest is
charged till the assisted units become commercially operational, after which the loan
carries normal or higher rate of interest. The loan has to be repaid according to a
predetermined schedule of repayment as per terms of loan agreement.

3. Conditional Loan : Under this form of finance, an interest free loan is provided during
the implementation period but it has to pay royalty on sales. The loan has to be repaid
according to the a pre determined schedule as soon as the company is able to generate
sales and income.

4.4 Regulatory Framework for VC in India


The following are the guidelines issued by the Government of India.
1. The public sector financial institutions, State Bank of India, scheduled banks, foreign
banks and their subsidiaries are eligible for setting the venture capital funds with a
minimum size of Rs.10 crore and a debt equity ratio of 1:15 they desire to raise funds
35

from the public, promoters will be required to contribute a minimum of 40 percent of


capital. Foreign equity upto 25 percent subject to certain conditions would be permitted.

The guideline provided for Non-Resident Indians investment upto 74 percent on a


reportorial basis and 25 percent to 40 percent on non repatriable basis. It should invest 60
percent of its funds in venture capital activity. The balance amount can be invested in
new issue of any existing or new company in equity, cumulative convertible performance
shares, debenture bonds or any other security approved by controller of Capital issues.

2. The venture capital companies and venture capital funds can be set up as joint venture
between stipulated agencies and non institutional promoters but the equity holding of
such programmes should not exceed 20 percent and should not be largest single holder.

3. The venture capital assistance should go to enterprises with a total investment of not
more than Rs. 10 crore.
4. The venture capital company (VCC) /Venture Capital Fund (VCF) should be managed by
professionals and should be independent of the parent organization.
5. The VCC/VCF will not be allowed to undertake activities such trading, brooking money
market, bills discounting, inter corporate lending. They will be allowed to invest in
leasing to the extent 15 percent of the total funds development. The investment on revival
of risk units will be treated as a part of venture capital activity.
6. Listing of VCCs/VCF can be according to the prescribed norms and underwriting of
issues at the promoter's discretion.
7. A person holding a position of full time chairman/president, chief executive, managing
director or executive director/whole time director in a company will not be allowed to

36

hold the same position simultaneously in the VCC/VCF.

8. The venture Capital assistance should be extended to


The enterprise having investment upto Rs. 10 crores in the project.
The technology involved should be new and untried or it should incorporate
significant improvement over the existing technology in India.,
The promoters should be new, professional or technically qualified with
inadequate resources.
The enterprise should be established in the company form employing
professionally qualified person for maintenance accounts.
9. Share practicing at the time of disinvestments by a public issue or general sale offer by
the company or fund may be done subject to this being calculated an objective criteria
and the basis disclosed adequately to the public.

4.5 SEBI Regulations (Venture Capital Funds) (Amendment), 2000.


Following are the salient features of SEBI (Venture Capital Funds) (Amendment)
Regulations, 2000 :

37

1.1 Definition of Venture Capital Fund :

The Venture Capital Fund is now defined as a fund established in the form of a
Trust, a company including a body corporate and registered with SEBI which:
A. has a dedicated pool of capital;
B. raised in the manner specified under the Regulations; and
C. to invest in Venture Capital Undertakings in accordance with the Regulations."
1.2 Definition of Venture Capital Undertaking:

Venture Capital Undertaking means a domestic company :a. Whose shares are not listed on a recognised stock exchange in India
b. Which is engaged in business including providing services, production or
manufacture of articles 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. The
negative list includes real estate, non-banking financial services, gold financing,
activities not permitted under the Industrial Policy of the Government of India.
1.3 Minimum contribution and fund size :
The minimum investment in a Venture Capital Fund from any investor
will not be less than Rs. 5 lacs and the minimum corpus of the fund before
the fund can start activities shall be atleast Rs. 5 crores.

1.4 Investment Criteria :


The earlier investment criteria has been substituted by a new investment criteria
which has the following requirements :
38

Disclosure of investment strategy;

Maximum investment in single venture capital undertaking not to


exceed 25% of the corpus of the fund;

Investment in the associated companies not permitted;

Atleast 75% of the investible funds to be invested in unlisted equity


shares or equity linked instruments.

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.
It has also been provided that Venture Capital Fund seeking to avail

benefit under the relevant provisions of the Income Tax Act will be required to
divest from the investment within a period of one year from the listing of the
Venture Capital Undertaking.
1.5 Disclosure and Information to Investors:
In order to simplify and expedite the process of fund raising, the
requirement of filing the Placement memorandum with SEBI is dispensed with
and instead the fund will be required to submit a copy of Placement
Memorandum/ copy of contribution agreement entered with the investors
along with the details of the fund raised for information to SEBI. Further, the
contents of the Placement Memorandum are strengthened to provide
adequate disclosure and information to investors. SEBI will also prescribe
suitable reporting requirement from the fund on their investment activity.

39

2. QIB status for Venture Capital Funds :


The venture capital funds will be eligible to participate in the IPO through
book building route as Qualified Institutional Buyer subject to compliance with the
SEBI (Venture Capital Fund) Regulations.

3. Relaxation in Takeover Code:


The acquisition of shares by the company or any of the promoters from the Venture
Capital Fund under the terms of agreement shall be treated on the same footing as that of
acquisition of shares by promoters/companies from the state level financial institutions and shall
be exempt from making an open offer to other shareholders.
4. Investments by Mutual Funds in Venture Capital Funds:
In order to increase the resources for domestic venture capital funds, mutual funds are
permitted to invest upto 5% of its corpus in the case of open ended schemes and upto 10% of its
corpus in the case of close ended schemes. Apart from raising the resources for Venture Capital
Funds this would provide an opportunity to small investors to participate in Venture Capital
activities through mutual funds.
5. Government of India Guidelines:
The Government of India (MOF) Guidelines for Overseas Venture Capital Investment in India
dated September 20, 1995 will be repealed by the MOF on notification of SEBI Venture Capital
Fund Regulations.

40

4.6 Venture Capital Industry Wise Segmentation

41

4.7 Future Prospects Of Venture Capital

VC helps in the rehabilitation of sick units.

VC can assist small ancillary unit to upgrade their technologies.

VC plays a significant role in developing countries in the service sector including


tourism, publishing health care etc.

They can provide financial assistance to coming out of Universities, Technical institutes,
thus promoting entrepreneurial spirits.

42

4.8 Prerequisites To Success Of VC In India


The success of venture capital in India requires the following;
1. An entrepreneurial tradition must be more broad based and less family based.
2. Attractive customer opportunities of high-technology type should be created.
3. Tax policies need to be carefully scrutinized to eliminate those provisions which work
heavily against the emergence of risk capital.
4. These has to be some institutional changes which offer the venture capitalist the
opportunity to off load the investment.
5. Disinvestments avenue have to be positively encouraged and in this both the government
and the securities markets have to play a positive role.
6. The association of venture capital with high technological and investment opportunities
must be declined.
There is need for venture capital for development of many products and services which
are relevant to our country and which can be produced with less domestic technological
innovation and smaller domestic markets.

43

Chapter : 5
Research Methodology

44

5.1 Research Methodology


REDMEN & MORY defines, Research as a systematized effort to gain now knowledge.
It is a careful investigation for search of new facts in any branch of knowledge. The purpose of
research methodology section is to describe the procedure for conduction the study. It includes
research design, sample size, data collection and procedure of analysis of research instrument.
Research always starts with a question or a problem. Its purpose is to find answers to questions
through the application of the scientific method. It is a systematic and
Intensive study directed towards a more complete knowledge of the subject studied.

RESEARCH DESIGN :
Acc. to Kerlinger, Research design is the plan structure & strategy of investigation conceived
so as to obtain answers to research questions and to control variance.
Acc. to Green and Tull, A research design is the specification of methods and procedures for
acquiring the information needed. It is the overall operational pattern or framework of the project
that stipulates what information is to be collected from which sources by what procedures.
Its found that research design is purely and simply the framework for a study that
guides the collection and analysis of required data.
Research design is broadly classified into
Exploratory research design
Descriptive research design
Casual research design
This research is a Exploratory research . The major purpose of this research is
description of state of affairs as it exists at present.

45

5.2 DATA COLLECTION

Primary data :
To collect primary data from investors Questionnaires were used. Questionnaire was prepared
very carefully so that it may prove to be effective in collecting the right information which
fulfills my study

Tools for collecting primary data:


(A) QUESTIONNAIRE METHOD
The major motive of taking this method was that it covers large population at a time. One can
have direct contact with the respondents. The questionnaire was distributed to the customers
taking sample size 50.

Secondary data
Secondary data is the data which is already collected by someone and complied for different
purposes which are used in research for this study. It includes:Internet
Magazine
Newspaper
METHOD OF DATA COLLECTION:
Information was collected by personally contacting customers through interviews.

46

5.3 Sample design:


The way of selecting a sample is popularly known as sample design is a definite plan
determined before any are actually collected for obtaining a sample from a given population.
A brief mention of the important sample design is as follows.
1

Deliberate sampling:
Deliberate sampling is also known as purposive or non-probability sampling. This
sampling method involves deliberate selection of particular units of the universe for
constituting a sample which represent universe.

Simple random sampling:


This type of sampling is also known as chance sampling or probability sampling where
each and every item in the population has an equal chance of inclusion in the sample and
each one of the possible samples, in case of finite universe, has the same probability of
being selected.

Systematic sampling:
In some instance the most practical way of sampling is to every 15th name on a list,
every 10th house on one side of a street and so on.

Stratified sampling:
In this technique, the population is stratified into number of non-overpopulation sub
population or strata and sample item are selected from each stratum.

Cluster sampling:
Cluster sampling involves grouping the population and then selecting the group of
cluster rather than individual elements for inclusion in the sample.

47

Chapter : 6
Data Analysis and
Interpretation

Q1 Are you aware about venture capital?


Particulars

No. Of Respondents

Percentage

Yes
No

35
15

70%
30%
48

No; 30%

Yes ; 70%

70% of the respondent said yes, 20% said no .

(Q2) Have you ever invested in any venture capital company?


Particulars
Yes
NO

No. Of Respondents
30
20

49

Percentage
60%
40%

No; 40%
Yes ; 60%

60% of the people have invested in the venture capital

(Q3) Which company of venture capital would you prefer ?


Particulars
Indian
Foreign

No. Of Respondents
45
5

50

Percentage
90%
10%

Foreign; 10%

Indian; 90%

90 % People prefer Indian company over foreign company.

(Q4) If yes, how did you know about Venture capital?


Particulars
Advertisement
Peer group

No. Of Respondents
15
5

Percentage
30%
10%

Banks

10

20%

Financial advisors

20

40%

51

Advertisement; 30%
Financial Advisors; 40%

Peer Group

; 10%

Banks; 20%

(Q5) According to you, venture capital is profitable or not ?


Particulars
Yes
No

No. Of Respondents
30
20

52

Percentage
60%
40%

No; 40%
Yes ; 60%

(Q6) Do you think the procedure of venture capital is?


Particulars
Lengthy
Convenient

No. Of Respondents
20
30

53

Percentage
40%
60%

Lengthy; 40%
Convenient; 60%

(Q7) Do you think after the establishment of venture capital in India, there is
growth in entrepreneurship?
Particulars
Yes
No

No. Of Respondents
30
20

54

Percentage
60%
40%

No; 40%
Yes ; 60%

55

Chapter : 7
SWOT Analysis Of Venture
Capital In India

7.1 SWOT ANALYSIS OF INDIAN VENTURE CAPITAL

56

STRENGTHS
Increased awareness of venture capital
Growing number of foreign trained professionals.
Global competition growing.
Matured towards market system
Electronic trading through NSE & BSE.
Irreversible reform
Regulatory framework evolving

WEAKNESS

Limited exit option

Uncertainties

Policy repatriation, taxation

Smaller funds with illiquid investments

Domestic fund raising difficult

Lack of transparency & corporate governance

Poor legal administration

OPPORTUNITIES

57

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

global competition
Change in government policies with respect to
Financial restructuring have over leveraged companies taking place.
Structuring
Acquisition of quoted small/ medium cap companies.
Taxation
Pre money valuations low
o Threats from within Explosive expansion and over Exuberance

of investor.
THREATS

58

Chapter : 8 Finding
Suggestions,Conclusion

8.1Findings
During the preparation of my report I have analyzed many things which are following:1. A number of people in India feel that financial institution are not only conservatives but
they also have a bias for foreign technology & they do not Trust on the abilities of
entrepreneurs.
2. Venture Capital Financing is still not regarded as commercial activity.
3. Ambiguous government policy towards inter-corporate investment and issue of shares to
the entrepreneurs at below per value or in the form of a guest equity.

59

4. It was fond that most of the respondent are aware about venture capital
5. Most of the respondent have invested in venture capital
6. Almost all of them prefer to invest in Indian venture capital and only few of them prefer
to invest in foreign venture capital
7. According to those 30 investors venture capital is a profitable mode of making money.

8.2Suggestions
1. There should be a greater role for the venture capitalists in the promotion of
entrepreneurship, the Venture capitalists should promote entrepreneur forums, clubs and
institutions of learning to enhance the quality of entrepreneurship.
2. The government allow or encourage pension fund and insurance company to make
investment in the venture capital.
3. The entry of private sector should be encourage.
4. Tax concession and exemption should be given to the investor

60

8.3 Conclusion
Venture capital can play a more innovation and development role in a developing country like
India. It could help the rehabilitation of sick unit through people with ideas and turnaround
management skill. A large number of small enterprises in India because sick unit even before the
commencement of production of production. Venture capitalist could also be in line with the
developments taking place in their parent companies.

61

ANNEXURE

PART A
(1) Name: Mrs/Ms/Mr _______________________________________
(2) Age
(a) Between 20 30 years
(b) Between 30 40 years
(c) Between 40 50 Years
(d) More than 50 years
(3) Contact No: _______________________________
62

Part B
(4) Qualification
a) Graduation
b)
Under Graduate
c) Others

(5) Occupation
a) Business
b) Govt. sec
c) Other

(6) Are you aware about venture capital?


a) Yes
b) No

63

(7) Have you ever invested in any venture capital company?


a) Yes
b) No
(8) Which company of venture capital would you prefer?
a) Indian
b) Foreign

(9) If yes, how did you know about Venture capital?


a)
b)
c)
d)

Advertisement
Peer Group
Banks
Financial Advisors

(10)According to you, venture capital is profitable or not?


a) Yes
b) No
(11) Do you think the procedure of venture capital is?
a) Convenient
b) Lengthy
(12) Do you think after the establishment of venture capital in India, there is
growth in entrepreneurship?
a) YES
b) No
64

Bibliography
Books: Financial Services - MC Graw - Hill Publishing Ltd. - 3rd Edition By M.Y. Khan
I M Pandey Venture Capital Development Process in India, Technovation,Vol.18, 1998

Merchant Banking - Principle and Practice - 3rd Edition By H.R. Machhiraju.


Websites: http://www.indiavca.org
http://economyreview.blogspot.com
www.sebi.gov.in
http://www.businessgyan.com
www.venture-capital.co.in/
http://www.managementparadise.com
http://www.reedexpo-venturecapital.com
http://www.nexusindiacap.com

65

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