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VENTURE CAPITAL INDUSTRY IN INDIA

PROJECT REPORT

ON

VENTURE CAPITAL INDUSTRY IN INDIA

FOR

SUBMISSION IN THE PARTIAL FULFILLMENT OF THE REQUIREMENT OF FULL TIME MBA PROGRAMME

2002-04

Submitted by:

Submitted to:

Name: Amrita Hazra

Ms Ankita Chopra

Roll No.: 19/MBA/RDIAS/02

Project Guide

RUKMINI DEVI INSTITUTE OF ADVANCED STUDIES (Affiliated to GGSIPU, Delhi) Madhuban Chowk, Rohini, Delhi-85.

AcknowledgementI am deeply indebted to my Project Coordinator Ms Ankita Chopra. for her valuable suggestion, able guidance and constant encouragement throughout the Project.

I would also like to thank all others who helped me directly and indirectly during this project.

Amrita Hazra

CERTIFICATE

This is to certify that Ms. AMRITA HAZRA of M.B.A (FT)-4th Semester, Batch 2002-2004, Roll No 19/RDMB/2002, has undertaken a project on VENTURE CAPITAL INDUSTRY IN INDIA and completed the work under my supervision. I am satisfied with the project submitted.

ANKITA CHOPRA

Faculty-RDIAS EXECUTIVE SUMMARY

The project covers various aspects of the Indian Venture Capital Industry, such as what is venture capital , the investment philosophy , what are its process, the various modes to access the venture capital, options to finance a venture which includes both equity and debt, a brief history of the venture capital industry and its overview. It also includes the current Indian scenario with a brief profile of the major players in this industry such as State Finance Corporations, Small Industrial Development Bank of India (SIDBI), Unit Trust of India (UTI) etc.

The theoretical foundations cover the stages in the investment cycle of Venture capital process such as, making a deal, Due diligence, Investment valuation, Pricing and structuring the deal, Value Addition and monitoring and the exit routes.This project also includes the various contributors to this industry and their industry wise investments such as those of Public sector, Private Sector, Nationalized Banks, Mutual Funds etc. And the categorization venture capital funds such as incubators, angel investors, private equity players and venture capitalists.

Various factors on which the success of venture capital firms depends such as abandoning the losers, manage portfolios, as well as focus on industry specific niches are also discussed in the project.

It also includes a brief summary on the Committee on Development of Small and Medium Entrepreneurs under the chairmanship of R.S. Bhatt which first highlighted venture capital financing in India in 1972. And the first origin of modern day Venture Capital in India which can be traced to the setting up of a Technology Development Fund (TDF) in the year 1987-88, through the levy of a cess on all technology import payments.

Several companies were financed with this mode of funding which included SQL Star of Hyderabad, Satyam Infoway to name a few.However there are several problems faced by the Venture Capitalists in India which include:

Venture Capital Financing is still not regarded as commercial activity.

Investors feel that they would like to retain control and also to ensure that the business must pass onto their family.

Returns, Taxes and Regulations

Limitations on structuring of Venture Capital Funds(VCFs) Problem in raising of funds, etc.The various regulatory issues for Venture Capital The Indian Trust Act 1882, The Central Board of Direct Taxation (CBDT), Securities and Exchange Board of India,The Foreign Investment Promotion Board (FIPB) and the Reserve Bank of India (RBI).

However there are several measure which have been provided:

Social Awareness

Deregulated Economic Environment

Fiscal Incentives

Encouragement to Entrepreneurship and Innovation

A vigorous marketing thrust, promotional efforts and development strategy employing new concepts such as venture fairs, venture clubs venture networks, business incubators etc.

A Statutory Co-ordination Body Encouragement and funding of R&D by private and public sector companies and the government for ensuring technological competitiveness.

Training and Development of Venture Capital Managers

Broad Knowledge Base

Hence the project report analyses and throws a spotlight over the current scenario regarding the Venture Capital Funds in India and regulations of Securities Exchange Board of India providing the guidelines for such ventures in India.

VENTURE CAPITAL INDUSTRY IN INDIA

CHAPTER SCHEME:

IINTRODUCTION

WHAT IS VENTURE CAPITAL

INVESTMENT PHILOSOPHY

OBJECTIVE OF THE STUDY

DATA SOURCES

LIMITATIONS

OVERVIEW OF THE STUDY

IIBRIEF HISTORY OF VENTURE CAPITAL INDUSTRY

IIITHEORETICAL FOUNDATIONS OF VENTURE CAPITAL

VENTURE CAPITAL PROCESS

ACCESSING THE VENTURE CAPITAL

CATEGORIZATION OF VENTURE CAPITALISTS

ANGEL INVESTORS

HOW VENTURE CAPITAL IS DIFFERENT FROM COMMERCIAL LENDING FOR A PROJECT

IVINDIAN SCENARIO

OVERVIEW OF INDIAN VENTURE CAPITAL INDUSTRY

OBJECTIVE AND VISION FOR VENTURE CAPITAL IN INDIA. EXPERIENCE OF US MARKET

INDIA IS ATTRACTIVE FOR RISK CAPITAL

VENTURE CAPITAL AT A TAKE-OFF STAGE IN INDIA

THE INDIAN GOVERNMENT SETS UP A VENTURE CAPITAL FUND

INDIAN SCENARIO

OPTIONS TO FINANCE A VENTURE

STRUCTURE OF VENTURE CAPITAL INDUSTRY

BRIEF PROFILE OF MAJOR PLAYERS

CONTRIBUTIONS TO VENTURE CAPITAL FUNDS

CONTRIBUTORS TO VENTURE CAPITAL FUNDS

INVESTMENT BY INDUSTRY

FACTORS FOR THE SUCCESS OF VENTURE CAPITAL FIRMS

PROBLEMS WITH VENTURE CAPITAL IN INDIA

REGULATORY ISSUES

VCONCLUSIONS

VIBIBLIOGRAPHY

APPENDIX

1. SEBI GUIDELINES FOR VENTURE CAPITAL

PRELIMINARY

REGISTRATION OF VENTURE CAPITAL FUND INVESTMENT CONDITIONS AND RESTRICTIONS GENERAL OBLIGATIONS AND RESPONSIBILITIES

INSPECTION AND INVESTIGATION

PROCEDURE FOR ACTION IN CASE OF DEFAULT

2. LIST OF VENTURE CAPITAL COMPANIES IN INDIA

3. INTERVIEW OF PRAMOD HAQUE

VENTURE CAPITAL

INTRODUCTION

Venture capital, a financial innovation of the twentieth century, is a long-term liquid investment, which can be in the form of equity, quasi-equity and some times debt in new and high-risk ventures. Venture capital became better known after the famous legend of Apple Computers, which started out in the US in 1977 with the capital firm, Arthur Rock & Co. Apple Computers then made it to the Fortune 500 and Arthur Rock & Co. attained height in Venture capital industry. However the success of Venture Capital in USA stimulated world countries to practice on Venture capital.

A number of technocrats are seeking to set up shop on their own and capitalize on opportunities. In the highly dynamic economic climate that surrounds us today, few traditional business models may survive. Countries across the globe are realizing that it is not the conglomerates and the gigantic corporations that fuel economic growth any more. The essence of any economy, today is the small and medium enterprises.

This growing trend can be attributed to rapid advances in technology in the last decade. Knowledge driven industries like infotech, health-care, entertainment and services have become the cynosure of bourses worldwide. In these sectors, it is innovation and technical capability that are big business-drivers. This is a paradigm shift from the earlier physical production and economies of scale model.

However, starting an enterprise is never easy. There are a number of parameters that contribute to its success or downfall. Experience, integrity, prudence and a clear understanding of the market are among the sought after qualities of a promoter. However, there are other factors, which lie beyond the control of the entrepreneur. Prominent among these is the timely infusion of funds. This is where the venture capitalist comes in, with money, business sense and a lot more.

WHAT IS VENTURE CAPITAL????

Venture Capital is money provided by professionals who invest alongside management in rapidly growing companies; viz.: Sun, Intel, Microsoft, Mastek, Satyam Infoway, Rediff, Pizza Corner.

Venture Capital derives its value from the brand equity, professional image, constructive criticism, domain knowledge, industry contacts, they bring to table at a significantly lower management agency cost.

Professionally managed venture capital firms generally are private partnerships or closely-held corporations funded by private and public pension funds, endowment funds, foundations, corporations, wealthy individuals, foreign investors, and the venture capitalists themselves.

A Venture Capitalists 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.

Venture Capitalists generally: Finance new and rapidly growing companies

Typically knowledge-based, sustainable, up scaleable companies

Purchase equity / quasi-equity securities

Assist in the development of new products or services

Add value to the company through active participation

Take higher risks with the expectation of higher rewards

Have a long-term orientation

When considering an investment, venture capitalists carefully screen the technical and business merits of the proposed company. Venture capitalists only

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