Escolar Documentos
Profissional Documentos
Cultura Documentos
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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.
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25-31
32-41
42-48
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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.
For start-ups and growing companies, as well as those facing a major change,
financing is one of the key major issues
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.
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.
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.
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.
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.
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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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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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.
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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.
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PRIVATE EQUITY
Target companies
Mature companies-often
under-performing or
under-valued.
Target industries
Rate of interest
expectation.
Investment size
Share acquired by
investor/fund
Liquidity horizon
6 to 10 years
4 to 7 years
Funding structure
Investor-active/passive?
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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.
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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.
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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.
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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
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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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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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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).
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.
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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.
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(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.
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.
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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.
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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.
(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
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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.
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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
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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.
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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
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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.
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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.
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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.
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ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
Valuation addition
xii.
Irreversible reform
xiii.
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Weakness
i.
Faddish
ii.
iii.
Uncertainties
iv.
v.
vi.
vii.
viii.
Smaller funds
ix.
x.
Accounting standards
xi.
xii.
xiii.
xiv.
xv.
xvi.
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.
iii.
iv.
v.
i.
ii.
iii.
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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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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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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.
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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SURVEY REPORT
1. Are you aware about venture capital?
No
Yes
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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.
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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Yes
No
Yes
No
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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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