12/12/2012

VENTURE CAPITAL-
INTRODUCTION

1
VENTURE CAPITAL
 Long term risk capital to finance high technology projects
which involve risk but at the same time as high potential
for growth.

Definition (VCC) –
 “A financing institution which joins an entrepreneur as a
co-promoter in a project and share the risks and rewards of
the enterprise”
 Fills the cash gap between cash needs to finance high
growth and cash available from earnings and conventional
financing
CONTD..
Venture capital is a form of equity financing especially
designed for funding high risk and high reward projects with
the objective of earning a high rate of return.
1.It promoted by technically or professionally qualified but
unproven entrepreneur
2. It seeking to harness commercially unproven technology
3. High risk venture
FEATURES OF VENTURE CAPITAL
FINANCING
 Form of equity participation, convertible debt
or long term loan
 Long term stake in the business of the investee
firm.
 High risk but high growth projects
 Commercialization of new ideas or
technologies. (not for trading, agency, etc.)
 Joins as a co-promoter and shares profits and
losses
CONTD..
 Continuous guidance
 VC disinvests his holdings
 Inputs needed during the setting up of the
business
 Small and medium scale industries
 Main aim is to create value for enterprise but
not to control it.
SCOPE OF VENTURE CAPITAL
 Venture capital take different forms at different stages
of the project
 Banks and other financial institutions provide finance
facilities only from 2nd or 3rd stage
 Financing of Venture capital
 Development of an idea (seed finance)
 Implementation stage (start up finance)
 Fledging stage (additional finance)
 Establishment stage (establishment finance)
FACTORS AFFECTING INVESTMENT DECISION

 Strong mgt team

 A Viable Idea

 Business Plan

 Project Cost and Return

 Future Market Prospect

 Existing Technology

 Miscellaneous Factors
 VENTURE CAPITAL FINANCING
STAGES
There are typically six stages of financing offered in
Venture Capital:
A. SEED CAPITAL STAGE
 Involves R&D Activities
 Idea Generation & Screening
 Concept development & testing
 Marketing Strategies
B. START UP STAGE FINANCING
 Business Analysis
 Product Development
 Test Marketing & Commercialization
 Funding is also known as First round investment/ Follow up
investment
CONTD
C. EXPANSION STAGE FINANCING
 Activities related to production & marketing of the
product/service

D. LATER STAGE FINANCING

 Project has established itself and business is set to expand
further
 Creation of additional production capacity & expansion of
markets
 Other activities includes merger & acquisition, turnarounds,
buyouts, diversifications
ADVANTAGES OF VENTURE
CAPITAL
Advantages to Investing Public
 Reduce risk significantly against unscrupulous
management
 VCC representing directors will ensure that the
affairs of the business are conducted prudently

Advantages to Promoters
 Convincing only officials of the venture fund
 Efforts required are less compared to those of
entrepreneurs choosing to raise capital through
public issue
ADVANTAGES (CONTD..)
General advantages
 Intermediary between investors (high returns) and
entrepreneurs

 Development of economy

 Acts as a cushion to support business borrowings

 New products/process
EXIT ROUTES
 Promoter’s buy back
 Public issue
 Sale to other venture capital funds
 Management buy outs
 Liquidation of the project
VENTURE CAPITAL IN INDIA
It can be divided into following categories:-

 Specialized financial institution and their financing

schemes
 Risk Capital Schemes of IFCI
 Technology Development & information company of India
(TDICI) of ICICI
 SEED Capital Scheme of IDBI
 Funds Promoted by State Level Institutions
(a) Andhra Pradesh Industrial Development
Corporation Ltd. (APIDC)- VCs Ltd.
(b) Gujrat Venture Finance Ltd. (GVFL)
 Funds Promoted by Public Sector Banks Such as

Canara Bank VC Fund

Private Agencies:- It includes as the:
1. Credit Capital Venture fund
2. 20th Century VC fund
3. India Investment fund
4. Indus VC fund
5. SBI Capital Venture Capital fund
 Overseas Venture Capital fund: It look for investment
in areas ensuring high and guaranteed returns such as
tourism, hospitals, air transport, IT, Comm., etc.
 Difficulties in India:

1.The restrictive legal and financial framework is one of

the main reason for the lack of development of venture
capital.
2. There are no private pool of capital of finance risk
venture in India.
Small companies have no access to share capital or long
term debenture capital.

 Need for growth:- India process a pool of young

educated and technically qualified entrepreneurs with
real innovative mind. Vast potential of our country need
to be properly tapped for continuous development.
SEBI(VENTURE CAPITAL FUND)
REGULATIONS, 1996

I). Registration of venture capital funds:

1. Application of grant of Certificate

2. Eligibility Criteria:
(i) if the application made by the
Company
(ii) if the application by the trust
(iii) if the application made by the
body corporate
SEBI REGULATIONS (CONTD..)
II) Investment conditions and restrictions:
Minimum investment in a VC fund:
1.) A Venture Capital fund may raise
monies from any investor whether
Indian, foreign, or non-resident
Indian.
2.) No Venture Capital fund set up as a
company.
SEBI REGULATIONS (CONTD..)
III) General Obligation and responsibilities:-
Prohibition on investing subscription from
the public.
Private Placement
Maintenance of Books and Records
Submission of Reports to the Board
Winding Up
SEBI REGULATIONS (CONTD..)
IV) Inspection and Investigation:-

1. To ensure that the books of account, records and

documents are being maintained by the venture capital
2. Investigate into complaints received from investors.

V) Liability for action in Case of Default

1. Contravenes any of the provisions of the act
2. Fails to furnish any information relating to its activity
as a venture capital.
THANK
YOU
*_*