group b_ vc for sme
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7/27/2019 Group B_ VC for SME
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Venture Capital for
Sick Units and SMEs
₹ Rucha Asolkar
₹ Devika Bharadwaj
₹ Rahul Chawla
₹ Sanket Dave₹ Ankita Chandan
₹ Jayashree Iyer
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“It is a great source of frustration for me, okay, when I see the unwillingness of
the donor community and other players in development to support SMEs
[small and medium-sized enterprises]. Why? Because small and medium-sizedenterprises are a critical part in the development process.”
-Malik Fal, Managing Director, Omidyar Network Africa
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Scope of Presentation
₹ SMEs
₹ Sick Units
₹ VC for Sick Units and SMEs
₹ Case Studies
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SME’s (Small and Medium Scale
Enterprises
Companies whose personnel numbers fall
below certain limits.
SME’s significance
Responsible for driving innovation and
competition in many economic sector
Unemployment can be significantly
reduced with the help of SME’s
Contributes 9% of GDP and most crucial
link between India's economic growth and
socio-economic progress
India’s most successful SME’s
* Vadodara-based Ankur Scientific
Energy Technologies (revenue below Rs
50 crore) small-scale category
*Delhi based-DFM Foods-(Rs 50- Rs 200
crore) medium-scale category.
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Definition of SME’s
Manufacturing Enterprises –
Investment in Plant & Machinery
Description INR
MicroEnterprises
upto Rs. 25Lakh
Small
Enterprises
above Rs. 25 Lakh &
upto Rs. 5 Crore
Medium
Enterprises
above Rs. 5 Crore &
upto Rs. 10 Crore
Service Enterprises – Investment in
Equipments
Description INR
MicroEnterprises
upto Rs. 10Lakh
Small
Enterprises
above Rs. 10 Lakh &
upto Rs. 2 Crore
Medium
Enterprises
above Rs. 2 Crore &
upto Rs. 5 Crore
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SME Overview
29.8 Million MSME’s in India
Provide employment to 69 million people
MSME Sector accounts for 45% of the Indian Industrial Output
MSME Sector accounts for 40% of the Exports
94% of MSME’s are unregistered
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Challenges to SME Sector
₹ SMEs face a number of problems
– absence of adequate and timely banking finance,
– limited capital and knowledge
– non-availability of suitable technology – low production capacity
– ineffective marketing strategy
– identification of new markets
–
constraints on modernisation & expansions – non availability of highly skilled labour at affordable cost
– Follow up with various government agencies to resolve problems
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Sick Units
₹ A SME unit is considered sick when:
a) If any of the borrowal accounts of the unit remains substandard for more than six
months i.e. principal or interest, in respect of any of its borrowal accounts has
remained overdue for a period exceeding 1 year. The requirement of overdue
period exceeding one year will remain unchanged even if the present period for
classification of an account as sub‐standard is reduced in due course;
b) There is erosion in the net worth due to accumulated cash losses to the extent of 50
per cent of its net worth during the previous accounting year; and
c) The unit has been in commercial production for at least 2 years.
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₹ Viability
The decision on viability of the unit should be taken at the earliest but not
later than 3 months of becoming sick under any circumstances.
₹ Procedure to be adopted by the banks before declaring any unit as
unviable:
– viability status is evidenced by a viability study.
– not feasible to conduct viability study in very small units
– For micro (manufacturing) enterprises, having investment in plant and
machinery up to Rs.5 lakh and micro (service) enterprises having investment in
equipment up to Rs. 2 lakh, the Branch Manager may take a decision.
Applicability of Sick unit definition
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Guidelines for Rehabilitation of Sick
Micro & Small Enterprises
₹ Approval of the next higher authority/ present sanctioning authority for both micro and
small units is necessary.
₹ Opportunity should be given to the unit to present the case before the next higher
authority.
₹ Decision should be taken only after giving an opportunity to the promoters of the unit to
present their case.
₹ A committee approach comprising of senior officials of the bank is needed for sick units
declared unviable, with credit facilities of Rs.1 crore and above.
₹ The above process should be completed in a time bound manner not later than 3 months.
₹ The banks are subjected to exception in cases of malfeasance or fraud
₹ Banks may decide on the reliefs and concessions for rehabilitation of viable/potentially
viable units
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VC for Sick Units, SMEs
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Emergence of VC
• SMEs dependence on Bank finance for expansion and working capital
requirements.
• Bankers curtailed lending to SMEs due to the greater risk of non-
performing assets (NPAs)
•
Difficulty in getting finance for their projects• Concept of venture capital emerged to provide financial support
• Venture capital is a means of equity financing for rapidly-growing private
companies.
• Venture capitalists comprise of professionals.
• Funds are provided after careful scrutiny
• Main aim is to earn higher returns on their investments
• Active part in the management of the company
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Venture Capital for MSME in India
• Venture Capitalists reluctant to invest in MSE’s
• Change in VC scenario
• Expansion in reach in sectors such as clean energy,
healthcare, pharmaceuticals, retail, media.
• Induct fund at low cost, share the risk and provide
management and technology upgradation support
• The Small Industries Development Bank of India - main public
financial institution in VC funding
• SIDBI Venture Capital Limited
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What do VCs look for
• Higher return on their investment. Business must fit theirinvestment criteria
• Differing operating approaches - location , size , stage of the
company, specialization , structure and involvement
• Information concerning the product or service, the marketanalysis, company operations, the investment required and
financial projections and management team
• A good business plan is a pre-requisite.
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VC funding SME’s- scenario in India
Popular Venture capitalists funding SME’s in India
• SIDBI Venture Capital Limited (SVCL)
• Helion Venture Partners
• Erasmic Venture Fund(Accel India Venture Fund),
•
SeedFund• Upstream Ventures
Benefits of Venture Capital to SME’s
• Injection of Long Term equity Finance
•
VC-a business partner, sharing risks and rewards• VC-provides assistance and practical advice to the company
• VC-leverages his networks and contacts to add value to thecompany
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How Does it all work………????
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How does an SME approach a VC
for funding?
SME submits the business plan in a format given in the
website and Management Profile to the VC’s email id. Based
on a preliminary assessment of the business plan, the VCgets in touch with the SME
Expectations of the VC of an SME? • The Company should have high growth potential -scale
up sufficiently within 3 - 5 years of investment
• Provide a profitable exit to investors by way an IPO,
Strategic Sale, Mergers & Acquisition, etc
• The Company at the time of investment should beunlisted.
What are the key investment
criteria for VC?
• A strong committed management team, established
performance record and a high degree on integrity
• Sustainable competitive advantage
• Scalability of operations
•Potential for above average profitability leading toattractive returns on investment
• Subscription to equity/ equity type instruments
• Unlisted companies preferably in small scale/ small scale
graduating to medium scale
• Availability of exit route for Venture Capital investment
SIDBI-Funds Issue Process
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What is the project
evaluation process
followed by VC?
• Scrutiny of business plan
• Detailed due diligence including visit to existing facilities/
operation site
• Reference check
• Feedback form clients etc.
• All proposals are reviewed by an Investment Committee (IC)
which also involves a presentation by the promoters.
How long does it take
VC to make an
investment or
participation decision?
On an average it should be possible to complete the full cycle
of processing of the proposal including due diligence, sanction,
documentation etc. between 8 - 12 weeks.
What are the
instruments of finance
by which VC investmentis made?
Investment is made by way of equity and equity type
instruments. A VC also co-invests with other VC funds.
What is VC’s role after
an investment is made?
• Provides networking and management support
• Assists investee companies to attract investment from other
venture capitalists in subsequent rounds of financing.
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Strategies Adopted by the Units for
Revival
₹ Diversification
− Some units change the product line since demand for the existing product
was inadequate. For this kind of diversification, existing resources
(machineries, materials and workforce) are often utilized.
− The other type of diversification is of shifting from manufacturing activities
to job-work. This need is felt necessary when, the manufacturing as an
activity, is found uneconomical.
− Units can diversify their attention from exports market to local market or
vice versa if they feel that the demand for either is declining.
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₹ Technical Aspects
- Rejection of finished goods was on the higher side. It was decided to
modernise machineries.
- The required machinery was not made available in time. Consequently, the
unit became sick but the entrepreneur decided to go in for a second hand
machinery.
- In one unit, cost of production was on the higher side. With the
introduction of improved technology, the cost reduced.
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₹ Change of Management
- Change of management as well as ownership is inevitable on the death of
an entrepreneur.
- Often, family members taking the entrepreneur's place can help revive the
units, if the incoming entrepreneur is highly competent and adopted
modern methods of management.
Or, professionals can be introduced to revive the units.
- In one case, a newly inducted management decided not to accept anyremuneration from it until bank loans were fully repaid.
- Bank filed the court case for the recovery since the management was not
competent. But, when the management was changed, bank withdrew the
case from the court and rehabilitated the same. There was a positive
response to the efforts put in by the new management. Thus, the unit wasrevived.
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₹ Labour
- Workers went on strike for a long time due to unsatisfactory attitude of the
entrepreneur. His son adopted a different approach.
- Productivity of the workers was very low. The entrepreneur rightly decided
to offer incentives on the basis of output. Consequently, the productivity of
workers improved significantly.
- In the same case, the concerned court authorities granted retrenchment of
workers which also proved to be a useful remedy for revival.
- Eg. Revival of Hindustan Antibiotics Ltd.
₹ Finance
- Borrowal of funds from friends and relatives to overcome sickness due to
shortage of funds.
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Examples/ Cases
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Case Study: Aavishkar
• Aims to harness the entrepreneurial spirit at the bottom of the
pyramid to create inclusive economic development
• Moto: Micro equity investments to create scalable small
entrepreneurs with significant social impact
• Objectives
–
Impact on local communities through boosting local production
– Creating livelihood opportunities
– Attractive commercial returns
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Case: Shree Kamdhenu Electronics
Private Limited
• Location: Vallabh, Vidyanagar, Gujarat
• Established in 1996
•
Develops products and systems that helpbridge the technology gap in the dairy
industry
• Helps in improvement of effectiveness and
efficiency of milk collection and processing
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• Problems: Saturation, Debt Ridden
• AAVISHKAAR’S ROLE
–
April 2003 invested of 18 lakhs to gain 26.62% equity
– Improving financial discipline and cost control
– Improvement of Management, Systems and processes
•
Outcome: Akashganga Process, Reduction in Risk, OverallGrowth
Case: Shree Kamdhenu Electronics
Private Limited (cont'd)
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Conclusion
₹ Mere introduction of rehabilitation scheme / package of concessions will not
assure successful revival of a sick unit
₹ Sick companies should look at rehabilitation as ‘one time opportunity’ and, a high
degree of commitment and professional approach is needed to regain loststrength.
₹ When these expectations are fulfilled, the present rate of success in rehabilitation
can be enhanced effectively.
₹ There are already many success stories in this regard.
₹ Strive to revive each eligible sick unit as early as possible to make our industrial
economy more healthy.
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Thank you!
Questions?
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