 Introduction:

• 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 resources to
start an enterprise.
 Features of Venture Capital:
• High Risk:
Venture capital financing is highly risky and chances of failure are
high as it provides long term start up capital to high risk-high reward
ventures. Venture capital assumes four types of risks, these are:

Management risk – Inability of management teams to work together.

Market risk – Product may fail in the market.
Product risk – Product may not be commercially viable.
Operation risk – Operations may not be cost effective resulting in
increased cost decreased gross margins.
 High Tech:
• As opportunities in the low technology area tend to be few of lower
order, and hi-tech projects generally offer higher returns than
projects in more traditional areas, venture capital investments are
made in high tech areas using new technologies or producing
innovative goods by using new technology.

• Not just high technology, any high risk ventures where the
entrepreneur has conviction but little capital gets venture finance.
• Participation In Management:
• Venture capital provides value addition by managerial support, monitoring and
follow up assistance. It monitors physical and financial progress as well as
market development initiative.

• It helps by identifying key resource person. They want one seat on the
company’s board of directors and involvement, for better or worse, in the major
decision affecting the direction of company.

• Based upon the experience other companies, a venture capitalist advise the
promoters on project planning, monitoring, financial management, including
working capital and public issue.

• Venture capital investor cannot interfere in day today management of the

enterprise but keeps a close contact with the promoters or entrepreneurs to
protect his investment.
 Length of Investment:
• Venture capitalist help companies grow, but they eventually seek to
exit the investment in three to seven years.

• An early stage investment may take seven to ten years to mature,

while most of the later stage investment takes only a few years.
 Illiquid Investment:
• Venture-capital investments are illiquid, that is, not subject to repayment on
demand or following a repayment schedule. Investors seek to return ultimately by
means of capital gains when the investment is sold at the market place.

• The investment is realized only on enlistment of security or it is lost if the

enterprise is liquidated for unsuccessful working.
Top 25 Active Venture Capital Firms in India:
• Accel Partners.
• Nexus Venture Partners.
• Kalari Capital.
• Venture East.
• Ankur Capital Fund.
• Blume Ventures.
• Omnivore Partners.
• Chiratec Ventures.
• Helion Venture Partners.
• Intel Capital.
• Sequoia Capital.
• Inventus Capital Partners.
• SAIF Partners.
• Naspers.
• Indian Angel Network.
• 500 Start ups.
• Y Combinator.
• Your Nest.
• Unicorn India.
• Jungle Ventures.
• Kae Capital.
• Infuse Ventures.
• Saama Capital.
• SIDBI Venture Capital.
• Khosla Ventures.
Venture Capital Fund Meaning:

• A pooled investment that uses the money from third-party

investors, such as investment banks or wealthy investors, to
invest in business projects.

• A pool of funds from investors that exists to provide funding

for a start-up.
SEBI (Venture Capital Funds) Regulations, 1996:
It took effect from 4th december,1996
Venture Capital Funds under the regulations means –
A fund established in the form of a trust or a company including a body
corporate and registered under the regulations which-
• Has a dedicated pool of capital,
• Raised in manner specified in the regulations, and
• Invests in venture capital undertaking in accordance with the
regulations.
Registration of Venture Capital Funds (VCF):
• Make an application to the SEBI.
• If fails to make an application with in the period specified
should cease to carry on any of its activity as a VCF.

Eligibility Criteria:
Registration as VCF should fulfil the following conditions –
• If applications is made by a company.
• If applications is made by a trust.
• If applications is made by a body corporate.
• The applicant has not been refused a certificate by SEBI or its
certificate has not been cancelled or suspended under the
Regulations 30.
Consideration of Application:
If application is not complete in all respects, the same is liable to be
rejected by SEBI.
 Before rejecting, the applicant should be given an opportunity to
remove (with in 30 days) the objections Indicated by SEBI.
SEBI can extend such period by such further time not exceeding
ninety days.
Placement Memorandum:
Before issuing any units / before making an offer inviting any subscription VCF should file with
SEBI a Placement Memorandum which shall give details of the terms subject to which amounts
are proposed to be raised from the investors.

• Details of the securities that are being offered

• Details of investments that are proposed to be made.
• Details of directors of the company
• Tax implications that are likely to apply to investors.
• Manner of subscription to the securities that are to be issued.
• Manner in which the benefits accruing to investors in the securities are to be distributed.
• Details of the asset management company, if any, and of fees to be paid to such a company.
• Placement memorandum is to be issued for private circulation only after the expiry of Twenty
one days of its submission to SEBI.
 Investment Conditions:
• No VC fund set up as a company or any scheme of a venture capital fund shall
accept any investment from any investor which is less than five lakh rupees.
• Venture capital fund shall have firm commitment from the investors for
contribution of an amount of at least five crore rupees.
• Venture capital fund shall disclose the investment strategy at the time of
application for registration.
• Venture capital fund shall not invest more than 25% corpus of the fund in one
venture capital undertaking.

Investment type:-
• Shall not invest in the associated companies.
• At least 66.67% of the investible funds shall be invested in unlisted equity
shares.
• Not more than 33.33% of the investible funds may be invested in IPO or in debt
instrument of a venture capital undertaking.
Angel Investors
• Angel Investors are the individuals, usually wealthy, who
invest their money in a high-growth potential budding
company, in return for an ownership stake.
• Angel investors invest in a business in their initial stage,
i.e. pre-revenue stage.
• Angel investors are well-off individuals, who invest their
own surplus money in new and high growth potential
businesses.
• Amount invested in the business is less.
• When it comes to screening, angel investors undertake
screening procedure as per their knowledge and
experience.
• Angel investor plays an active role in the company in
which they invest their money in.
• Angel Investors mainly focuses on investment criteria
concerning ex-post involvement.
Venture Capitalist
• Venture Capitalist refers to a person or firm so created to
provide funds, by pooling investment funds from a number
of sources to invest in new and emerging firms and
entrepreneurs to help them grow and expand in the
market, generate good returns to the investors.
• Venture capitalists invest in a business which is passed
through their initial stage, i.e. pre-profitability stage.
• Venture capitalist pools money from a variety of sources
such as insurance companies, funds, foundations, and
corporations, to invest the same into businesses which are
rapidly growing and seeking financial support.
• Amount invested in the business is more.
• Screening in case of venture capitalists is performed by a
team of experts or by an outside firm, which specializes in
this regard.
• Venture capitalists play a strategic role in the company
after they make an investment in a company.
• The primary focus of venture capitalists is on initial
screening of investment opportunities.