venture capital in india sebi foreign vc investor regs 2000

THE GAZETTE OF INDIA EXTRAORDINARYPUBLISHED BY AUTHORITY

SECURITIES AND EXCHANGE BOARD OF INDIANOTIFICATION

MUMBAI, SEPTEMBER 15TH, 2000SECURITIES AND EXCHANGE BOARD OF INDIA

(FOREIGN VENTURE CAPITAL INVESTOR) REGULATIONS, 2000 S.O. 832(E) In exercise of the powers conferred by sub-section(1) section 30 of the Securities andExchange Board of India Act, 1992 (15 of 1992) the Securities and Exchange Board of India hereby,makes the following regulations namely:-.

CHAPTER I (Preliminary) ●

CHAPTER II (Registration Of Foreign Venture Capital Investors) ●

CHAPTER III (Investment Conditions And Restrictions) ●

CHAPTER IV (General Obligations And Responsibilities) ●

CHAPTER V (Inspection And Investigation) ●

CHAPTER VI (Procedure For Action In Case Of Default) ●

First Schedule - Form (A,B) ●

Second Schedule ●

Third Schedule●

[BACK]

Securities and Exchange Board of India - Acts, Rules & Regulations

http://www.sebi.com/acts/act22.html [12/15/2000 8:51:22 PM]

CHAPTER I

PRELIMINARY

Short title andcommencement

1. (1) These regulations may be called the Securitiesand Exchange Board of India (Foreign VentureCapital Investor) Regulations, 2000.

(2) They shall come into force on the date of theirpublication in the Official Gazette.

Definitions 2(1) In these regulations, unless the contextotherwise requires, -

(a) "Act" means the Securities and Exchange Boardof India Act, 1992 (15 of 1992);

(b) "certificate" means a certificate of registrationgranted by the Board under regulation 7.

(c) "designated bank" means any bank in India whichhas been permitted by the Reserve Bank of India toact as banker to the Foreign Venture Capital Investor.

(d) "domestic custodian" means a person registeredunder the Securities and Exchange Board of India(Custodian of Securities) Regulations, 1996.

(e) "enquiry or investigating officer" means an enquiryor investigating officer appointed by the Board, underregulation 16.

(f) "equity linked instruments" includes instrumentsconvertible into equity share or share warrants,preference shares, debentures compulsorilyconvertible into equity.

(g) "foreign venture capital investor" means aninvestor incorporated and established outside India,which proposes to make investment in venture capitalfund(s) or venture capital undertakings in India and isregistered under these Regulations.

(h) "form" means any of the forms set out in the FirstSchedule.

(i) "investible funds" means the fund committed forinvestments in India net of expenditure foradministration and management of the fund.

(j) "negative list" means a list of items as specified inThird Schedule.

(k) "Schedule" means a schedule annexed to theseregulations;

THE GAZETTE OF INDIA

http://www.sebi.com/acts/act221.html (1 of 2) [12/15/2000 8:51:27 PM]

(l) "Venture Capital Fund" means a Fund establishedin the form of a Trust, a company including a bodycorporate and registered under Securities andExchange Board of India (Venture Capital Fund)Regulations, 1996, which

(i) has a dedicated pool of capital;

(ii) raised in the manner specified under the Regulations;and

(iii)invests in venture capital undertaking in

accordance with the Regulations. (m) "venture capital undertaking" means a domestic

company:-

whose shares are not listed in a recognised stockexchange in India;

i.

(ii) which is engaged in the business ofproviding services, production ormanufacture of articles or things, but doesnot include such activities or sectorswhich are specified in the negative list bythe Board, with approval of CentralGovernment, by notification in the OfficialGazette in this behalf."

(2) Words and expressions used and not defined in theseregulations but defined in the Act or Securities andExchange Board of India (Venture Capital Funds)Regulations, 1996 shall have the same meaning as arerespectively assigned to them in the Act or the saidregulations.

[BACK]

THE GAZETTE OF INDIA


CHAPTER II

REGISTRATION OF FOREIGN VENTURE CAPITAL INVESTORSApplication for grant ofcertificate

3. For the purposes of seeking registration underthese regulations, the applicant shall make anapplication to the Board in Form A along with theapplication fee as specified in Part A of the SecondSchedule to be paid in the manner specified in Part Bthereof.

Eligibility Criteria 4. (1) For the purpose of the grant of a certificate toan applicant as a Foreign Venture Capital Investor,the Board shall consider the following conditions foreligibility, namely:-

the applicants track record, professionalcompetence, financial soundness, experience,general reputation of fairness and integrity.

a.

whether the applicant has been grantednecessary approval by the Reserve Bank ofIndia for making investments in India; or

b.

whether the applicant is an investmentcompany, investment trust, investmentpartnership, pension fund, mutual fund,endowment fund, university fund, charitableinstitution or any other entity incorporatedoutside India; or

c.

whether the applicant is an asset managementcompany, investment manager or investmentmanagement company or any other investmentvehicle incorporated outside India; or

d.

whether the applicant is authorised to invest inventure capital fund or carry on activity as aventure capital fund; or

e.

whether the applicant is regulated by anappropriate foreign regulatory authority or is anincome tax payer; or submits a certificate fromits banker of its or its promoter’s track recordwhere the applicant is neither a regulated entitynor an income tax payer.

f.

the applicant has not been refused a certificateby the Board.

g.

whether the applicant is a fit and proper person.h.

act222


Furnishing of information,clarification

5. The Board may require the applicant to furnishsuch further information, as it may considernecessary.

Consideration ofapplication

6. An application which is not complete in all respectsshall 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 ofcommunication, the objections indicated by theBoard.

Provided further that the Board may, on beingsatisfied that it is necessary to extend the periodspecified above may extend such period not beyondninety days.

Procedure for grant ofcertificate

7. (1) If the Board is satisfied that the applicant iseligible for the grant of certificate, it shall send anintimation to the applicant.

(2) On receipt of intimation, the applicant shall pay tothe Board, the registration fee specified in Part A ofthe Second Schedule in the manner specified in PartB thereof.

(3) The Board shall on receipt of the registration feegrant a certificate of registration in Form B.

Conditions of certificate 8. The certificate granted to the foreign venturecapital fund under regulation 7 shall be inter-alia,subject to the following conditions, namely:-

(a) it shall abide by the provisions of the Act, andthese regulations;

(b) it shall appoint a domestic custodian for purposeof custody of securities;

(c) it shall enter into arrangement with a designatedbank for the purpose of operating a specialnon-resident rupee or foreign currency account.

(d) it shall forthwith inform the Board in writing if anyinformation or particulars previously submitted to theBoard are found to be false or misleading in anymaterial particular or if there is any change in theinformation already submitted.

act222


Procedure wherecertificate is not granted

9. (1) On considering an application made underregulation 3, if the Board is of the opinion that acertificate should not be granted, it may reject theapplication after giving the applicant a reasonableopportunity of being heard.

(2) The decision of the Board to reject the applicationshall be communicated to the applicant.

Effect of refusal to grantcertificate

10. Any applicant whose application has beenrejected under regulation 9 shall not carry on anyactivity as a Foreign Venture Capital Investor.

[BACK]

act222


CHAPTER III

INVESTMENT CONDITIONS AND RESTRICTIONSInvestment Criteria for aForeign Venture CapitalInvestor

11. All investments to be made by a foreign venturecapital investors shall be subject to the followingconditions:-

it shall disclose to the Board its investment strategy.a.

while it can invest its total funds committed in oneventure capital fund it shall however not invest morethan 25% of the funds committed for investments toIndia in one Venture Capital Undertaking.

b.

it shall make investments in the Venture CapitalUndertaking as enumerated below:

c.

(i) atleast 75% of the investible funds shall be invested inunlisted equity shares or equity linked instruments.

(ii) not more than 25% of the investible funds may beinvested by way of:

(a) subscription to initial public offer of a venture capitalundertaking whose shares are proposed to be listed subjectto lock-in period of one year;

(b) debt or debt instrument of a venture capital undertakingin which the venture capital fund has already made aninvestment by way of equity.

[BACK]


CHAPTER IV

GENERAL OBLIGATIONS AND RESPONSIBILITIESMaintenance of books andrecords

12. (1) Every Foreign Venture Capital Investor shallmaintain for a period of eight years, books ofaccounts, records and documents which shall give atrue and fair picture of the state of affairs of theForeign Venture Capital Investor. (2) Every Foreign Venture Capital Investor shallintimate to the Board, in writing, the place where thebooks, records and documents referred to insub-regulation (1) are being maintained.

Power to call forinformation

13. (1) The Board may at any time call for anyinformation from a Foreign Venture Capital Investorwith respect to any matter relating to its activity as aForeign Venture Capital Investor.

Submission of reports tothe Board

(2) Where any information is called for undersub-regulation (1) it shall be furnished within the timespecified by the Board.

General Obligations andResponsibilities

Appointment ofdesignated bank

14 (1) Foreign Venture Capital Investor or a globalcustodian acting on behalf of the foreign venturecapital investor shall enter into an agreement with thedomestic custodian to act as a custodian of securitiesfor Foreign Venture Capital Investor.

(2) Foreign Venture Capital Investor shall ensure thatdomestic custodian takes steps for,-

(a) monitoring of investment of Foreign VentureCapital Investors in India

(b) furnishing of periodic reports to the Board

(c) furnishing such information as may be called forby the Board.

Foreign Venture Capital Investor shall appoint abranch of a bank approved by Reserve Bank of Indiaas designated bank for opening of foreign currencydenominated accounts or special non-resident rupeeaccount.

15.

[BACK]

CHAPTER IV


CHAPTER VINSPECTION AND INVESTIGATIONS

Board's right to inspect orinvestigate

The Board may, suo-moto or upon receipt ofinformation or complaint, cause an inspection orinvestigation to be made in respect of conduct andaffairs of any foreign venture capital investor by anOfficer whom the Board considers fit for any of thefollowing reasons namely:-

15.

to ensure that the books of account, records anddocuments are being maintained by the foreignventure capital investor in the manner specified inthese regulations.

a.

to inspect or investigate into complaints received frominvestors, clients or any other person, on any matterhaving a bearing on the activities of the foreignventure capital investor;

b.

to ascertain whether the provisions of the Act andthese regulations are being complied with by theforeign venture capital investor; and

c.

to inspect or investigate suo-moto into the affairs of aforeign venture capital investor in the interest of thesecurities market or in the interest of investors.

d.

Obligation of ForeignVenture Capital Investoron investigation orinspection by Board

17. (1) It shall be the duty of every Foreign Venture CapitalInvestor in respect of whom an inspection or investigationhas been ordered under Regulation 16 and any otherperson associated who is in possession of relevantinformation pertaining to conduct and affairs of suchForeign Venture Capital Investor including assetmanagement company or fund manager, to produce to theInspecting or Investigating Officer such books, accountsand other documents in his custody or control and furnishhim with such statements and information as the saidOfficer may require for the purposes of the inspection orinvestigation.(2) It shall be the duty of Foreign Venture Capital Investorand any other person associated who is in possession ofrelevant information pertaining to conduct and affairs of theForeign Venture Capital Investor to give to the Inspecting orInvestigating Officer all such assistance and shall extend allsuch co-operation as may be required in connection withthe inspections or investigations and shall furnish suchinformation sought by the Inspecting or Investigating Officerin connection with the inspections or investigations.

CHAPTER V


(3) The Inspecting or Investigating Officer shall, for thepurposes of inspection or investigation, have power toexamine on oath and record the statement of any personresponsible for or connected with activities of ForeignVenture Capital Investor or any other person associatedhaving relevant information pertaining to such ForeignVenture Capital Investor.(4) The Inspecting or Investigating Officer shall, for thepurposes of inspection or investigation, have power to getauthenticated copies of documents, books, accounts ofForeign Venture Capital Investor, from any person havingcontrol or custody of such documents, books or accounts.

Submission of the Report 18. The Inspecting or Investigating Officer shall oncompletion of inspection or investigations, submit a reportto the Board.

Board's right to issue anydirection to ForeignVenture Capital Investor

19. The Board may after consideration of the inspection orinvestigation report and after giving a reasonableopportunity of hearing to the Foreign Venture CapitalInvestor, require it to take such measure or issue suchdirections as it deems fit in the interest of capital marketand investors, including directions in the nature of:-

requiring the person concerned to dispose of thesecurities or disinvest in a manner as may bespecified in the directions;

a.

requiring the person concerned not to further investfor a particular period;

b.

prohibiting the person concerned from operating inthe capital market in India for a specified period.

c.

[BACK]

CHAPTER V


CHAPTER VIPROCEDURE FOR ACTION IN CASE OF DEFAULT

Board's right to suspendor cancel certificate ofregistration

20. Without prejudice to the appropriate directions ormeasures under regulation 19, it may after consideration ofthe investigation report, initiate action for suspension orcancellation of the registration of such Foreign VentureCapital Investor:

Provided that no such certificate of registration shall besuspended or cancelled unless the procedure specified inregulation 23 is complied with.

Suspension of certificate 21. The Board may suspend the certificate where theForeign Venture Capital Investor:

(a) contravenes any of the provisions of the Act orthese regulations;

(b) fails to furnish any information relating to itsactivity as a Foreign Venture Capital Investor asrequired by the Board;(c) furnishes to the Board information which is false ormisleading in any material particular;

(d) does not submit periodic returns or reports asrequired by the Board;

(e) does not co-operate in any enquiry or inspectionconducted by the Board;

Cancellation of certificate 22. The Board may cancel the certificate granted to aForeign Venture Capital Investor:-

(a) when the Foreign Venture Capital Investor is guiltyof fraud or has been convicted of an offence involvingmoral turpitude;

Explanation: The expression "fraud" has the samemeaning as is assigned to it in section 17 of theIndian Contract Act, 1872. (9 of 1872)

(b) the Foreign Venture Capital Investor has beenguilty of repeated defaults of the nature mentioned inthe regulation 21; or(c) Foreign Venture Capital Investor does notcontinue to meet the eligibility criteria laid down inthese regulations;


(d) contravenes any of the provisions of the Act orthese regulations.

Manner of making order ofcancellation or suspension

23. No order of penalty or cancellation of certificateshall be imposed on the Foreign Venture CapitalInvestor except after holding an enquiry inaccordance with the procedure specified in theregulation 24.

Manner of holding enquirybefore suspension orcancellation

24. (1) For the purpose of holding an enquiry underregulation 23, the Board may appoint one or moreenquiry officers.

(2) The enquiry officer shall issue to the ForeignVenture Capital Investors, at its registered office or itsprincipal place of business or its agent orrepresentative in India, a notice setting out thegrounds on which action is proposed to be takenagainst it and calling upon it to show cause againstsuch action within a period of fourteen days from thedate of receipt of the notice.(3) The Foreign Venture Capital Investor may, withinfourteen days from the date of receipt of such notice,furnish to the enquiry officer a written reply, togetherwith copies of documentary or other evidence reliedon by it or sought by the Board from the ForeignVenture Capital Investor.(4) The enquiry officer shall give a reasonableopportunity of hearing to the Foreign Venture CapitalInvestor to enable him to make submissions insupport of its reply made under sub-regulation (3).

(5) Before the enquiry officer, the Foreign VentureCapital Investor may appear through any person dulyauthorised by the Foreign Venture Capital Investor:


Provided that no lawyer or advocate shall bepermitted to represent the Foreign Venture CapitalInvestors at the enquiry:

Provided further that where a lawyer or an advocatehas been appointed by the Board as a presentingofficer under sub-regulation (6), it shall be lawful forthe Foreign Venture Capital Investor to present itscase through a lawyer or advocate.(6) The enquiry officer may, if he considers itnecessary, ask the Board to appoint a presentingofficer to present its case(7) The enquiry officer shall, after taking into accountall relevant facts and submissions made by theForeign Venture Capital Investor, submit a report tothe Board and recommend the penal action, if any, tobe taken against the Foreign Venture Capital Investoras also the grounds on which the proposed action isjustified.

Show-cause notice andorder

25. (1) On receipt of the report from the enquiryofficer, the Board shall consider the same and mayissue to the Foreign Venture Capital Investor ashow-cause notice as to why the penal action asproposed by the enquiry officer or such appropriateaction should not be taken against it.(2) The Foreign Venture Capital Investor shall, withinfourteen days of the date of the receipt of theshow-cause notice, send a reply to the Board.(3) The Board, after considering the reply, if any, ofthe Foreign Venture Capital Investor, shall, as soonas possible pass such order as it deems fit.

Effect of suspension andcancellation of certificate

26. (1) On and from the date of the suspension of thecertificate, the Foreign Venture Capital Investor shallcease to carry on any activity as a Foreign VentureCapital Investor during the period of suspension, andshall be subject to such directions of the Board withregard to any records, documents or securities thatmay be in its custody or control, relating to itsactivities as Foreign Venture Capital Investor, as theBoard may specify.


(2) On and from the date of cancellation of thecertificate, the Foreign Venture Capital Investor shall,with immediate effect, cease to carry on any activityas a Foreign Venture Capital Investor, and shall besubject to such directions of the Board with regard tothe transfer of records, documents or securities thatmay be in its custody or control, relating to itsactivities as Foreign Venture Capital Investor, as theBoard may specify.

Publication of order ofsuspension or cancellation

27. The order of suspension or cancellation ofcertificate passed under regulation 25 may bepublished by the Board in two newspapers.

Action againstintermediary

28. The Board may initiate action for suspension orcancellation of registration of an intermediary holdinga certificate of registration under section 12 of the Actwho fails to exercise due diligence in the performanceof its functions or fails to comply with its obligationsunder these regulations.

Provided that no such certificate of registration shallbe suspended or cancelled unless the procedurespecified in the regulations applicable to suchintermediary is complied with.

Appeal to Securities andExchange Board of India

29. Any person aggrieved by an order of the Boardunder these regulations may prefer an appeal to theSecurities Appellate Tribunal in accordance withsection 15T of the Act.

[F. No.SEBI/LE-19/14797/2000]

D.R. MEHTA

CHAIRMAN

SECURITIES AND EXCHANGE BOARD OF INDIA

[BACK]


FIRST SCHEDULEFORM A

SECURITIES AND EXCHANGE BOARD OF INDIA(FOREIGN VENTURE CAPITAL INVESTOR) REGULATIONS, 2000

(regulation 3)APPLICATION FORM FOR GRANT OF CERTIFICATE OF

REGISTRATION AS FOREIGN VENTURE CAPITAL INVESTOR WITHTHE SECURITIES AND EXCHANGE BOARD OF INDIA

SECURITIES AND EXCHANGE BOARD OF INDIAMittal Court `B' Wing, 1st Floor

Nariman Point, Bombay - 400 021, INDIA

1. Name, address, telephone no., telexes no. and fax no. of the applicant. In case the applicanthas a representative office in India, the particulars may also be given for that office.

2. Please indicate whether the applicant belongs to any one or more of the following categories:

Pension Fund, Mutual Fund, Investment Trust, Investment company, Investment trust,Investment partnership, Asset Management Company, Investment manager, InvestmentManagement Company, Endowment fund, University fund, Charitable institutions or any otherinvestment vehicle incorporated and established outside India

3.a) The date and place of incorporation of the applicant. (Details of statute under whichincorporated).

b) Brief description of the principal activities of the applicant and the year

of commencement of such activities.

c) Brief description of the group, if any, to which the applicant belongs.

4. Whether any of the following documents are submitted?

Copy of certificate of registration with home regulator; ori.

Copy of income tax return filed in the home country; orii.

Copy of bankers certificate fair track record of the applicantiii.

5. Please also state whether there has been any instance of violation or non-adherence to thesecurities laws, code of ethics/conduct, code of business rules, for which the applicant, or itsparent/ holding company or affiliate may have been subjected to economic, or criminal liabilityor suspended from carrying out its operations, or the registration has been revoked, temporarilyor permanently. If no, submit an undertaking.

6. Please indicate the names of the clients on whose behalf you propose to invest in India.

7. Please indicate the manner in which you propose to conduct your investments in India i.e.whether through an establishment in India or through any other office outside India. Please givedetails, and also the name of the contact person/compliance officer.

8. Name and address of the designated bank branch in India through whom investment isproposed to be made.

FIRST SCHEDULE

http://www.sebi.com/acts/act22s1.html (1 of 4) [12/15/2000 8:51:47 PM]

9. a) Name, address, telephone no., telex no., and fax no. of the domestic custodian. Please alsopresent the background information on the custodian, including volume of business handled,organisational infrastructure and the number of investment companies for which the domesticcustodian is acting, or has acted, as custodian.

Particulars of the agreement entered into with the domestic custodian.a.

We hereby agree and declare that the information supplied in the application, including the attachmentsheets, is complete and true.

AND we further agree that we will immediately notify the Securities and Exchange Board of India of anychange in the information provided in the application.

We further agree that we shall comply with the provisions of the Act, and regulations issued thereunder andall other relevant laws.

We further agree that as a condition of grant of certificate of registration, we shall abide by such operationalinstructions/ directives as may be issued by Securities and Exchange Board of India under the provisions ofthe Act from time to time.

For and on behalf of_____________________________________

( Name of the applicant )

Authorised Signatory ___________________ ___________________

( Name ) (Signature)

Date :

Place :

Note:

1. Securities and Exchange Board of India (SEBI) reserves the right to call for any furtherinformation from the applicant regarding his application.

Applications, superscribed "Application for Registration of Foreign Venture Capital Investors ",should be submitted in duplicate, in sealed envelopes, at Securities and Exchange Board of India'soffice.

2.

Documents to be enclosed with the application:

Documents to support registration or regulation by a Securities Commission and / or Self RegulatoryOrganisation, or any other appropriate regulatory/registering authority or

a.

Copy of income tax return filed in the home country; orb.

Copy of bankers certificate for fair track record of the applicantc.

FIRST SCHEDULE


FORM B

SECURITIES AND EXCHANGE BOARD OF INDIA (FOREIGN VENTURE CAPITAL INVESTORS)REGULATIONS, 2000

[see regulation 7(3)]

CERTIFICATE OF REGISTRATION AS FOREIGN VENTURE CAPITAL INVESTOR

I. In exercise of the powers conferred by sub-section (1) of section 12 of the Securities and Exchange Boardof India Act, 1992, (15 of 1992) read with the regulations made thereunder, the Board hereby grants acertificate of registration to --------------------------------------------------------------------------------------- as aForeign Venture Capital Investor subject to the conditions specified in the Act and in the regulations madethereunder.

II. The Registration Number of the foreign venture capital fund is IN/FVCI/ /

Date:

Place: MUMBAI

By order

Sd/-

Forandon

behalfof


[BACK]

FIRST SCHEDULE


FIRST SCHEDULE


SECOND SCHEDULESECURITIES AND EXCHANGE BOARD OF INDIA

(FOREIGN VENTURE CAPITAL INVESTOR) REGULATIONS, 2000.[see regulations 3 and 7(2)]

FEESPART A

Amount to be paid as fees

Application fee (US$) 1,000

Registration fee shall be payable

at the time of registration

for grant of certificate (US $) 10,000

PART BI. The fees specified above shall be payable by bank draft in favour of "The Securities andExchange Board of India" payable at Mumbai.

[BACK]

SECOND SCHEDULE

http://www.sebi.com/acts/act22s2.html [12/15/2000 8:52:19 PM]

THIRD SCHEDULE

[see regulations 2 (j)]


(FOREIGN VENTURE CAPITAL INVESTOR) REGULATIONS, 2000.

NEGATIVE LISTReal estate1.

Non-banking financial services2.

Gold financing3.

Activities not permitted under the Industrial Policy of Government of IndiaAny other activity which may be specified by the Board in consultation with the Government

of India from time to time.

[BACK]

4.

THIRD SCHEDULE

http://www.sebi.com/acts/act22s3.html [12/15/2000 8:52:19 PM]

PANKAJ SAHAI

S M O O T H R I D E T O

VENTURE CAPITAL

How to Get VC Funding for Your Business


Have you got a great business idea but not enough money to translate into a reality? Have you got a small ongoing venture that can grow truly big if only you had the money? Is your venture at too early a stage such that banks won’t fund you? In all such cases, you can grow your venture, create immense wealth and realise all your entrepreneurial dreams by using venture capital to fund your business.

This is the first comprehensive handbook of venture capital funding for Indian entrepreneurs. It deals with the whole gamut of issues related to the complex, multi-dimensional subject of venture capital in a simple and engaging manner. Using first person narrative, it explains lucidly all the concepts and intricacies of the venture capital raising process and guides the entrepreneur step-by-step,revealing the secrets of success at every stage of the process:

How is venture capital different from other sources of financing? How does the VC make money by investing in my business? How should I create my business plan to present to the VC? How will the VC value my business? How should I negotiate with the VC? How can I protect my interests once a VC funds my business? What legal agreements will I have to sign with the VC? How and when will the VC exit from my business? Would I have to pay him to do so?

This authoritative handbook is a must for ambitious entrepreneurs, business managers, management consultants, business advisers and finance professionals alike.

Rs. 495 www.visionbooksindia.com

PANKAJ SAHAI is a New Delhi based management consultant, entrepreneur coach, mentor and adviser. He is the founder of VentureAhead.com, an entrepreneur support and coaching portal, an enabling marketplace for ventures in need of strategic capital and partners. Previously, he worked, in responsible positions in India and overseas, with multinationals like Price Waterhouse, Ernst & Young, Schlumberger and Citibank, before becoming part of the core entrepreneurial team of shareholder-directors at IIS Infotech Ltd, a software services start-up, which was subsequently sold to FI Group Plc. (now Steria–Xansa). Pankaj Sahai is a Chartered Accountant (India) and a Chartered Management Accountant (United Kingdom).

SMO

OTH

RID

E TO VEN

TUR

E CAPITA

LPA

NK

AJ SA

HA

I

INVESTMENT

PANKAJ SAHAI is a management consultant, entrepreneur

coach, mentor and adviser. He is an entrepreneurial manage-

ment professional possessing the repertoire of skills to start,

grow and exit business ventures. He works through a network

of professional relationships, and uses his hands-on entrepre-

neurial experience of start-ups, financial and legal expertise,

abiding interest in HR and psychology, knowledge of venture

mechanics and understanding of the sweat and tears of entre-

preneurship, to provide professional advisory services to ven-

tures at various stages of growth.

Previously, he worked in responsible positions, in India and

overseas with multinationals like Price Waterhouse, Ernst &

Young, Schlumberger and Citibank before moving into the en-

trepreneurship domain by joining the core management team of

shareholder-directors at IIS Infotech Ltd., a software services

start-up which was subsequently sold to FI Group Plc (now

Steria-Xansa). After exiting, he founded VentureAhead.com, an

entrepreneur support and coach portal, an enabling marketplace

for ventures in need of strategic capital and partners. He is also

the founder of VentureFeedback.com, an online surveys and

tests portal which enables small businesses and others to con-

duct market and HR surveys and tests conveniently and eco-

nomically.

He is a Chartered Accountant (India) and a Chartered Man-

agement Accountant (United Kingdom). Before earning his

professional qualifications, he did his schooling from St.

Columba’s High School and then studied at Shri Ram College

of Commerce and obtained the Bachelor of Commerce (Hon’s.)

degree from Delhi University. He lives in New Delhi. He may

be contacted at [email protected] or +91 98110 21090.

www.visionbooksindia.com

Disclaimer

This book contains the author’s subjective opinion and views about the

subject matter under consideration. It is not intended to be a substitute for

professional advice. The readers are advised to seek definitive professional

advice suitable for their specific needs before acting on the views ex-

pressed in this book. The author and publisher cannot be held responsible

for any loss incurred as a result of specific investment or planning or other

decisions made by the reader as a result of reliance placed on the views

and opinions expressed in this book.

ISBN 10: 81-7094-748-0

ISBN 13: 978-81-7094- 748-6

© Pankaj Sahai, 2010

ALL RIGHTS RESERVED. No part of this publication may be reproduced,

stored in a retrieval system, or transmitted by any means, electronic,

mechanical, photocopying, recording, or otherwise, without the prior

written permission of the publisher and the copyright holder.

First Published in 2010 by

Vision Books Pvt. Ltd.

(Incorporating Orient Paperbacks and CARING Imprints)

24 Feroze Gandhi Road, Lajpat Nagar-III

New Delhi-110024, India.

Phone: (+91-11) 2983 6470

Fax: (+91-11) 2983 6490

e-mail: [email protected]

Cover Design by hutchdesign.org

Cover @ Vision Book Pvt. Ltd.

Printed at

Rashtra Rachna Printers

C-88, Ganesh Nagar, Pandav Nagar Complex

Delhi 110092, India.


PPPPANKAJ ANKAJ ANKAJ ANKAJ SSSSAHAIAHAIAHAIAHAI

This book is dedicated to my parents,

Late B. M. Sahai, “the wise one” and

Shakuntla Sahai, “the super mom”

For teaching me by example to how to navigate life happily,

carrying family and friends alongside.

Contents 5

}

Contents

Preface 7

G r o u n d Z e r o

Venture Capital Raising Plan 11

P a r t I

How the Venture Capital Industry Works How the Venture Capital Industry Works How the Venture Capital Industry Works How the Venture Capital Industry Works

1. What is Venture Capital? 19

2. How the Venture Capital Industry Operates 27

3. How VCs Make Money 33

4. Are All VCs the Same? 42

5. The VC Investment Process 51

P a r t I I

Assessing Your Readiness for Venture CapitalAssessing Your Readiness for Venture CapitalAssessing Your Readiness for Venture CapitalAssessing Your Readiness for Venture Capital

6. Do I Need Venture Capital? 59

7. Getting Over the Fear of the VC 64

8. To What Kind of Business do VCs Provide Money? 70

9. The Process of Raising Venture Capital 74

P a r t I I I

PreparPreparPreparPreparing for the VCing for the VCing for the VCing for the VC

10. Hiring Advisers 83

11. Doing an Internal Review of Your Business 92

6 Smooth Ride to Venture Capital

12. Doing a Growth Audit 105

13. Determining the Strategic Direction of Your Business 111

14. Building Your Board of Directors and Advisory Board 130

15. Understanding Ownership, Dilution and Rounds of Financing 139

16. Determining the Valuation of Your Business for VC Funding 155

17. Creating Your Funding Plan 171

18. Creating Your Business Plan 175

19. Creating the Elevator Pitch and the VC Presentation 210

P a r t I V

Negotiating and Structuring the DealNegotiating and Structuring the DealNegotiating and Structuring the DealNegotiating and Structuring the Deal

20. Selecting and Meeting the VC 219

21. Preparing to Negotiate with the VC 228

22. Negotiating the Term Sheet 235

23. Managing the Due Diligence 263

24. Closing the Deal 270

P a r t V

Managing the VC RelationshipManaging the VC RelationshipManaging the VC RelationshipManaging the VC Relationship

25. Getting Along with the VC 279

26. Exiting Profitably 291

P a r t V i

AppendicesAppendicesAppendicesAppendices

Appendix 1: History of Venture Capital in the US 301

Appendix 2: Venture Capital Industry in India 305

Appendix 3: Corporate Venture Capital 310

Appendix 4: Glossary of VC Terminology and Slang 314

Appendix 5: Recommended Reading 330

Index 334