a profile of venture capital in india b.v.raghunandan

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Deals with the fundamentals of venture capital and the details of venture capital in India

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  • 1. A Profile of Venture Capital in India- B.V.Raghunandan, SVS College, Bantwal-Karnataka-India Dr.Veerendra Patil College, Bangalore Karnataka-India October 21, 2011
  • 2. Definitions of Venture Capital Venture Capital is, finance for young developing firm in areas of high technology-William Davis VC is, "money put up by financial institutions or wealthy individuals to back risky commercial venture. This can be at the beginning of the ventures life, or it can be later in its life -Tim Hindle
  • 3. Definitions of VCcontinued VC is, an equity or equity- featured capital seeking investment in new companies, new products, new processes, or new service, that offer the potential of high return on investment -I F C VC is, an equity related investment in a high growth business in return for a minority shareholding in the business or the irrevocable right to acquire it
  • 4. Features of Venture Capital1. Form of Investment2. New Companies3. Turn-around Cos4. High Risk-Return5. Long-term Asscn6. Exit Schedule7. Participation in Mgt8. Benchmarks9. Taking Control10.Technocrat Customers
  • 5. Form of Investment Equity Form of Financing Gestation Period Avoiding Debt Trap Mega Projects Risky Projects Ownership cum Management cum Consultancy Finance with Responsibility
  • 6. New Companies Companies Operating in Technology Content High Growth Industry New Graduates Sunrise Industry Industry Requiring Service Industry Professionalism
  • 7. Turn Around Companies Sick Companies Failed Companies Poorly Managed Companies Restructured Companies Changed Product Profile
  • 8. High Risk-Return Ventures Expectation of a High Level of Returns A High Risk Profile of Ventures Conventional Cost Curves are Avoided Projects of Blue Ocean Strategies Aiming at First Mover Advantage Ability in Timely Project Completion Evaluation of Project Completion
  • 9. Long Term Association Relation Lasting for a Period of around 7 years or more Intimate Association Creation of a Data Base Basis for Promoting other Projects Creation of a Database
  • 10. Exit Schedule Target Period-5 to 7 years Makes the Company Profitable Makes the Company to Issue an IPO VC sells off all the Shares & Gets out Makes the VC highly liquid
  • 11. Participation in Management Close Watch of Project Implementation Technical and Business Consultancy Helps the VC to understand the behind-the schedule implementation Finance cum Entrepreneur Draws the Collaboration from other Projects financed in the present and in the past
  • 12. Benchmarks of Performance Benchmarks are established Close Supervision of project implementation Analysis of Causes for Project Delays Entrepreneurial Qualities of the VC make the analysis more understandable and realistic
  • 13. Taking Control of VC Unit VC can take-over the VC Unit Happens in case of consistent under-performance Bring in another management team through MBI Finances the other Group to buy the stake from the Original Promoter
  • 14. Technocrat Customers Professional Promoters Techno-Savvy Promoters Avoiding Family Owned Business Promoting the Projects of Fresh Graduates
  • 15. Factors leading to VC Financing Free Licensing Policy Well Developed Capital Market New Projects Taxation Policy Professional Promoters Surplus Funds High Risk Funding Enterprise Culture
  • 16. Venture Capital Vs Private Equity Venture Capital Private Equity New Projects Existing Projects Manage Initial Problems No need to manage initial problems Investment Horizon-5 to 7 Investment Horizon is 3 to 5 years years Longer Gestation Shorter Gestation Period
  • 17. Investment Process1) Seed Financing 7) Bridge Financing2) Start-up Financing 8) Management Buyouts3) First Stage Financing 9) Management Buyin4) Second Stage Financing5) Mezzanine Financing 10) Turn-around Finance
  • 18. VC Financing in India Term Lending Private Sector Institutions Foreign Funds Commercial Banks
  • 19. Term Lending Institutions Venture Finance without participation in management or exit schedule ICICI set up Technology Development & Information India Limited in 88-89 IFCI set up Risk Capital and Technology Finance corporation Ltd IDBI set up IDBI-VCF IL&FS set up IL&FS Venture Corporation
  • 20. Since April 1999, C banks are allowed to enter VC sector o Maximum m investment in m corporate er securities limited to 5%, but stands ci enhanced to the al extent VC finance B Many banks a entered on their own or as a joint n venture k s
  • 21. Private Sector Not many until 2000 Many IT Companies are entering the VC sector through their surplus funds Indus Venture Capital Fund, Credit Capital Venture Fund, Marigold Capital Management Limited Most of the IT Professionals like Narayana Murthy (Catamaran) and Azim Premji are entering VC Financing
  • 22. Foreign Funds HSBC Pvt Equity India Ltd Temasek Draper International Underbridge Overbridge General Atlantic Partners New Vernon
  • 23. Emerging Trends Avoiding Exits VCs forming Limited Liability Partnership Funded Units become the Limited Companies under the control of the LLP In India, more attention to SME Sector More Attention towards fresh Graduates
  • 24. THANK YOU