sectorwise growth in venture capital finance in india by soumya mishra

Sector wise Growth of Venture Capital Finance in India


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Contents 1 INTRODUCTION TO VENTURE CAPITAL FINANCE ................................................................. 2

1.1 Venture Capital Financing ............................................................................................................ 2

1.2 Benefits of VC over other Funding Methods ................................................................................ 4

1.3 A Brief History ............................................................................................................................. 4

1.4 Venture capital financing process ................................................................................................. 6

1.5 What do VCs look for? ................................................................................................................. 7

2 VENTURE CAPITAL IN INDIA AND BUSINESS CONFIDENCE ................................................ 9

2.1 Industry Overview ........................................................................................................................ 9

2.2 Strengths and Challenges of India .............................................................................................. 10

2.3 Growth of Venture Capital Industry ........................................................................................... 11

3 INTRODUCTION TO THE STUDY ................................................................................................ 14

3.1 Background of the Study ............................................................................................................ 14

3.2 Need for the Study ...................................................................................................................... 15

3.3 Objectives of Study ..................................................................................................................... 15

3.4 Scope of Study ............................................................................................................................ 16

4 LITERATURE REVIEW .................................................................................................................. 17

5 RESEARCHMETHODOLOGY ........................................................................................................ 22

5.1 Data Collection ........................................................................................................................... 22

5.2 Research Design .......................................................................................................................... 23

5.3 Limitations of Study ................................................................................................................... 23

6 ANALYSIS AND INTERPRETATION ........................................................................................... 24

6.1 Analysing Growth of Venture Capital Finance in India and Forecasting VC Investments in near

future ................................................................................................................................................. 24

6.2 Analysis of Venture Capital Investments in different sectors of Economy ................................ 27

7 Findings and Conclusion .................................................................................................................... 38

7.1 Findings....................................................................................................................................... 38

7.2 Conclusion ...................................................................................................................................... 39

8 REFERENCES .................................................................................................................................. 40

8.1 Bibliographic References ............................................................................................................ 40

8.2 Web References .......................................................................................................................... 41

Appendix: 1 ........................................................................................................................................... 42

Appendix:2 ............................................................................................................................................ 43


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1 INTRODUCTION TO VENTURE CAPITAL FINANCE

1.1 Venture Capital Financing

Business requires capital, and getting it at the right time is very important.

There are several alternatives to fund the business. A brief heading to name a

few would be:

• Owner or proprietor’s capital

• Equity partner

• Debt Finance

These can further be branched to many options giving entrepreneur

several options to choose among. In this study the focus would be more on

financing by venture capital which comes under equity financing.

Venture capital is a risk financing in the form of equity or quasi-euity. It

gives the business funds based on their potential and their interest as

perceived by the investor. Funds might be required for seed stage funding,

expansion/development funding or for acquisition financing. Venture capital

is established among developed countries and is developing in third world

countries because of its impact on encouraging entrepreneurial activities

within a nation. Venture Capital firms invest funds on any business with a

professional outlook; they focus on their primary segment which varies


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among different specializations (e.g. e-commerce, Oil & Gas, Healthcare,

Manufacturing, Health/life sciences, etc.).

'Venture Capital' is an important source of finance for those small and

medium-sized firms which have very few avenues for raising funds.

Although such a business firm may possess a huge potential for earning

large profits in the future and establish itself into a larger enterprise. But the

common investors are generally unwilling to invest their funds in them due

to risk involved in these types of investments. In order to provide financial

support to such entrepreneurial talent and business skills, the concept of

venture capital emerged. In a way, venture capital is a commitment of

capital, or shareholdings, for the formation and setting up of small scale

enterprises at the early stages of their life cycle.

Venture capitalists comprise of professionals of various fields. They

provide funds (known as Venture Capital Fund) to these firms after carefully

scrutinizing the projects. Their main aim is to earn huge returns on their

investments, but their concepts are totally different from the traditional

moneylenders. They know very well that if they may suffer losses in some

project, the others will compensate the same due to high returns. They take

active participation in the management of the company as well as provide the

expertise and qualities of a good banker, technologist, planner and managers.

Thus, the venture capitalist and the entrepreneur literally act as partners.


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1.2 Benefits of VC over other Funding Methods

Venture capital has a number of advantages over other forms of finance:

It injects long term equity finance which provides a solid capital base

for future growth.

The venture capitalist is a business partner, sharing both the risks and

rewards. Venture capitalists are rewarded by business success and the

capital gain.

The venture capitalist is able to provide practical advice and assistance

to the company based on past experience with other companies which

were in similar situations.

The venture capitalist also has a network of contacts in many areas

that can add value to the company, such as in recruiting key personnel,

providing contacts in international markets, introductions to strategic

partners, and if needed co-investments with other venture capital firms

when additional rounds of financing are required.

1.3 A Brief History

One of the first steps toward a professionally-managed venture capital

industry was the passage of the Small Business Investment Act of 1958. The

1958 Act officially allowed the U.S. Small Business Administration (SBA)

to license private "Small Business Investment Companies" (SBICs) to help


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the financing and management of the small entrepreneurial businesses in the

United States. It is commonly noted that the first venture-backed startup is

Fairchild Semiconductor (which produced the first commercially practical

integrated circuit), funded in 1959 by what would later become Venrock

Associates.

During the 1960s and 1970s, venture capital firms focused their

investment activity primarily on starting and expanding companies. More

often than not, these companies were exploiting breakthroughs in electronic,

medical, or data-processing technology. As a result, venture capital came to

be almost synonymous with technology finance.

The public successes of the venture capital industry in the 1970s and

early 1980s (e.g., Digital Equipment Corporation, Apple Inc., Genentech)

gave rise to a major proliferation of venture capital investment firms. The

number of firms multiplied, and the capital managed by these firms

increased ten folds over the course of the decade.

Growth in the venture capital industry remained limited throughout the

1980s and the first half of the 1990s.The late 1990s were a boom time for

venture capital. Initial public offerings of stock for technology and other

growth companies were in abundance, and venture firms were reaping large

returns.


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The NASDAQ crash and technology slump that started in March 2000

shook virtually the entire venture capital industry as valuations for startup

technology companies collapsed. Over the next two years, many venture

firms had been forced to write-off large proportions of their investments, and

many funds were significantly "under water" (the values of the fund's

investments were below the amount of capital invested). The revival of an

Internet-driven environment in 2004 through 2007 helped to revive the

venture capital environment. Currently, Venture Capital Environment is at

all time high leading to emergence of all together new businesses.

Innovations are sprouting at fast speed and VC investments are helping them

for realizing full potential of Entrepreneurs.

1.4 Venture capital financing process

There are typically six stages of venture round financing offered in

Venture Capital that roughly correspond to these stages of a company's

development.

Seed funding: Low level financing needed to prove a new idea, often

provided by angel investors. Crowd funding is also emerging as an

option for seed funding.

Start-up: Early stage firms that need funding for expenses associated

with marketing and product development.

Growth (Series A round): Early sales and manufacturing funds.


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Second-Round: Working capital for early stage companies that are

selling product, but not yet turning a profit.

Expansion: Also called Mezzanine financing, this is expansion

money for a newly profitable company.

Exit of venture capitalist: Also called bridge financing, 4th round is

intended to finance the "going public" process.

Between the first round and the fourth round, venture-backed companies

may also seek to take venture debt.

1.5 What do VCs look for?

Venture capitalists are higher risk investors and, in accepting these risks,

they desire a higher return on their investment. The venture capitalist manages

the risk/reward ratio by only investing in businesses which fit their investment

criteria and after having completed extensive due diligence.

Venture capitalists have differing operating approaches. These

differences may relate to location of the business, the size of the investment, the

stage of the company, industry specialization, structure of the investment and

involvement of the venture capitalists in the company’s activities.

The venture capital firm will ask prospective investee companies for

information concerning the product or service, the market analysis, how the


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company operates, the investment required and how it is to be used, financial

projections, and importantly questions about the management team.

All the above questions should be answered in the Business Plan.

Assuming the venture capitalist expresses interest in the investment opportunity,

a good business plan is a pre-requisite.


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2 VENTURE CAPITAL IN INDIA AND BUSINESS

CONFIDENCE

2.1 Industry Overview

India currently has more than about 400 Venture capital firms. The

Venture Capital industry has shown an exponential upward curve from

investments of about USD 57 billion in 2008 to USD 140 billion in 2013.

Unlike before as observed in the early stages of the industry’s growth the

investments were inclined largely towards the Real Estate and IT sector, but

within 7 years of success stories now in 2016 venture capital firms are now

interested in nearly all sectors.

With developing Indian entrepreneurship standards, government support,

policies and globalization policies there are vast opportunities for private equity

investors to capitalize on. Again the government campaigns like “Startup

India”, “Make in India” and “Digital India” making new path for startups and

thus Venture Capitalist are encouraged to fund new endeavors.

Among cities, companies headquartered in Bangalore and Mumbai were

the favourite among VC investors during 2013 attracting 49 investments each,

followed by Delhi-based companies that accounted for 24 investments and

Chennai-based companies with 21 investments. Gurgaon and Hyderabad

followed with 15 deals and 8 deals respectively.


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Preferred regions for VC investments are Mumbai, Delhi & NCR, and

Bangalore, followed by Chennai and Hyderabad. Tier-2 cities like Lucknow and

Chandigarh are slowly catching up in attracting VC Investments.

2.2 Strengths and Challenges of India

India is an attractive market with a challenging business environment. Its

appeal lies in its competitive labor costs, lucrative domestic market, and its

skilled workforce. Foreign investors also applaud its strong management and

business education system, as well as its improving telecommunications

infrastructure. However, the country’s weaknesses are its under-developed

infrastructure and a restrictive operative environment.

Key Strengths

Local Labor Costs

Domestic Market

Business and Management Education

Skilled Services Workforce

Telecommunications Infrastructure

Key Challenges

Legislative and administrative environment

Transport and logistics infrastructure


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Corporate Taxation

Ease of doing business

2.3 Growth of Venture Capital Industry

Up to 1996-The Early Years:

Funds that were mobilized for venture investment were small in value.

The venture capitalists in those times were mostly from a banking

background.

Banks approached the subject of venture funding much likely they

approached debt financing of a project.

The accent was on the asset-side of the balance sheet. And the focus on

innovation and business building was low.

Value creation as a focus had not yet been fully discovered, and exit

strategies were being thought more around the life-term of the fund.

Valuations were low.

No competition between VCs.

Indian entrepreneurs had not yet discovered the venture capital route to

funding and growth and it reflected in the small amounts that were

invested.

There was little or no active participation of venture capitalists in

entrepreneurial activities such as financial structuring, business strategy.


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Business enhancement through networks.

1997 to 2000-The Rock ‘n’ Roll Years:

The SEBI guidelines of 1996 acted as huge incentive for domestic and

foreign venture capital companies to focus their attention on India.

The range of venture capitalists now spanned incubators, angel investors,

classic venture capitalists and even private equity players. And the lines

between them had begun to blur.

Venture capitalists were instrumental in introducing risk taking too many,

members of the professional class.

2001 Onwards-The Reality Years:

The number of people who had got in to venture capital game was truly

impressive.

In addition to the seasoned players, there were finance and noon finance

professionals of different hues entering the industry and people with little

or no experience running the companies.

Venture capital community is finally recognizing that the evolution and

business is an on-going process. This added to the return of the business

maturation cycle of five to seven years, portends a less frenetic and more

sustained pace of venture activity.


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Domestic Venture Capital firms have realised the potential of Indian

Entrepreneurs.

Legislative support has seen tremendous reforms.

According to surveys by International agencies like Deloitte, EY; Foreign

Investors attractiveness among India is increasing.


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3 INTRODUCTION TO THE STUDY

3.1 Background of the Study

Today due to the economic crisis and the change in job market,

Entrepreneurship has gained interest. A number of young people in India today,

plans to setup their own ventures and capitalize this opportunities. In today’s

highly dynamic economic climate with regular technological inventions, few

traditional business models may survive but margin lies more towards more

innovative business ideas. Now, along with conglomerates that fuel economic

growth SMEs and other innovative businesses have gained the momentum

towards contribution in it.

Starting and expanding an enterprise has its own risk and is never easy.

There are number of parameters that contribute to its success or downfall. Some

of these include:

Should one choose Venture Capital or any other mode of finance?

Which sector one should start its venture in?

What array of businesses are points of attraction among Venture

Capitalists?


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What is possible near future growth in sector of one’s choice? The study

helps in providing answers to these questions by analysing status of Venture

Capital in India, which sectors are on rise, what is the confidence level of Indian

and Foreign investors.

3.2 Need for the Study

The need of study has following facets:

The study has been conducted for gaining the practical knowledge

about Venture Capital Finance in India

There is a limited Academic Literature available regarding Venture

Capital Finance in India.

3.3 Objectives of Study

As we know Venture Capital Finance is no more in the dormant stage in

India. But there is a dearth of academic research on the topic. In order to fill the

gap the study has been undertaken. The main objectives of study are:

To know the current scenario of venture capital finance in India

To predict the future rate of growth of Venture Capital Finance


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To lookout for market share of different economic sectors in terms

of Venture Capital Investments

To analyse growth of venture capital investment in different sectors

of economy

3.4 Scope of Study

The study is about Venture capital Finance in India. So any kind of

financing other than Venture Capital is out of scope. Also, data of any

country other than India is out of scope of this study.

Only studies of Venture Capital Investments are in scope. Factors

responsible for such investments are out of scope.


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4 LITERATURE REVIEW

Although there is limited literature available for Venture Capital Finance

in Indian context, there are extensive texts available on Venture capital all over

the world. Following are some insightful work done by different academicians

and researchers in the same line.

I M Panday “The process of developing venture capital in India” -

Technovation, Volume 18, Issue 4, April 1998

This study investigates the process of developing venture capital in a

developing country — India. The discussion documents the experiences of the

largest venture capital firm in India (TDICI) in initiating and developing the

concept of venture capital as well as learning the venture capital business. The

history of modern venture capital in India is of recent origin; it only goes back

to the mid-eighties. In the initial years, venture capital firms (VCFs) in India

encountered a number of problems in developing their businesses. From the in-

depth case study of TDICI, it is found that the firm went through the initial

constraint of not knowing the venture capital business well, and learnt through

experience. It faced problems in raising funds and evaluating prospective

ventures. It initially focused its investment in the high-technology business, but

gradually shifted the focus towards other potentially high-growth, high-


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profitable businesses, not just high-tech businesses. It is also noticed that TDICI

undertook a number of business development initiatives to popularize the

venture capital business in India. It introduced a simple organisational structure

for facilitating quick decision- making, and developed innovative funding and

financing mechanisms.

Dossani, R. and Kenney “Creating an Environment for Venture Capital in

India”- M. World Development, 30 (2) 227–253 (2002)

The institution of venture capitalism is a difficult one to initiate through

policy intervention, particularly in developing countries with unstable

macroeconomic environments and histories of state involvement in the use of

national capital and in the composition of production. India has all these

constraints. The emergence of a thriving software services industry after 1985

created the raw material that venture capital could finance, thus achieving a

critical precondition for venture capital's growth. It was followed by efforts to

create a venture capital industry. After several setbacks, some success has been

achieved largely due to a slow process of moulding the environment of rules

and permissible institutions. The process was assisted by the role of overseas

Indians in Silicon Valley's success in the 1990s. Yet, in terms of what is needed,

most of the work remains to be done. Inevitably, this will be the result of joint

work by policymakers and practitioners.


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Asim Mishra “Indian Venture Capitalists (VCs): Investment Evaluation

Criteria” - ICFAI Journal of Applied Finance, Vol. 10, No. 7, pp. 71-93, July

2004

This paper analyses the validity of venture evaluation model in India by

directly comparing the relative importance of evaluation criteria on the funding

decision with the relative importance to factors influencing venture's empirical

performance. In the light of the differences in investment opportunities around

India, and the nature of industrial development in South East Asia in general,

the author anticipated that the investment criteria employed by Venture Capital

Firms (VCFs) in India would differ. A questionnaire was administered to

venture capitalists (regular members of Indian Venture Capital Association) to

determine the criteria they use to decide on funding new ventures. The response

rate was 100%. A list of forty two criteria was developed on previously

developed lists. The criteria fell into six groups: the entrepreneur's personality,

the entrepreneur's experience, characteristics of the product or service,

characteristics of the market, financial consideration and characteristics of

venture management team. Answers were given on a four point rating scales.

The results reveal that criteria adopted by Indian VCs are different from those

adopted by VCs in other countries including US. The results also confirm that

the following.


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Sayed Ahmed Naqi and Samanthala Hettihewa “Venture capital or private

equity? The Asian experience”- Business Horizons Volume 50, Issue 4, July–

August 2007

Venture capital in Asia has exhibited remarkable growth over the last two

decades. Researchers and practitioners have, however, expressed doubts as to

whether what is being reported as venture capital in Asia can really be classified

as such. Authors of scholarly studies often avoid this debate and, consequently,

fail to caution readers about the applicability of their research findings. Through

an exploration of the history, development, and composition of venture capital

in Asia, this article not only confirms significant differences between Asian and

traditional venture capital, but also finds that venture capital in Asia differs little

from what is commonly called private equity. As such, a need exists within the

venture capital literature to recognize this peculiarity of the Asian venture

capital market. Moreover, venture capitalists considering expansion into Asia

must comprehend the nature of the Asian market in order to avoid

disillusionment and frustrations which may result from inadequate

understanding.

A. Thillai Rajan “Venture capital and efficiency of portfolio companies” -

IIMB Management Review, Volume 22, Issue 4, December 2010

Venture Capital (VC) has emerged as the dominant source of finance for

entrepreneurial and early stage businesses, and the Indian VC industry in


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particular has clocked the fastest growth rate globally. Academic literature

reveals that VC funded companies show superior performance to non VC

funded companies. However, given that venture capitalists (VCs) select and

fund only the best companies, how much credit can they take for the

performance of the companies they fund? Do the inherent characteristics of the

firm result in superior performance or do VCs contribute to the performance of

the portfolio company after they have entered the firm? A panel that comprised

VCs, an entrepreneur and an academic debated these and other research

questions on the inter-relationships between VC funding and portfolio firm

performance. Most empirical literature indicates that the value addition effect

dominates the selection effect in accounting for the superior performance of VC

funded companies. The panel discussion indicates that the context as well as the

experience of the General Partners in the VC firms can influence the way VCs

contribute to the efficiency of their portfolio companies.


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5 RESEARCHMETHODOLOGY

Research Methodology is a way to systematically solve the research

problem. In it, step-by-step methods are followed to solve a particular problem.

It refers to a search for knowledge. It can also be defined as a scientific and

systematic search for pertinent information on a specific topic. The study is

carried out around different sources of data regarding Venture Capital Finance

in India. The data is analysed using different functions of Microsoft Office

Excel 2010 and Microsoft Office Word 2010. The main statistical tools used are

Trend and Linear Forecast.

5.1 Data Collection

The study is based on secondary data on Venture Capital Investments.

The data is collected from different publications and online resources including

SEBI’s Handbook of Statistics on Indian Securities Markets

SEBI’s website

Indian Venture Capital Association reports

Bain & Company’s reports


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Deloitte and E&Y survey results

Trading Economics website

and many other books, publications, reports and articles.

5.2 Research Design

Research Design is the way in which the research is carried out. It works

as a blue print. Research Design is the arrangement of conditions for the

collection and analysis of data in a manner that aims to combine relevance to

the research purpose with economy in procedure.

The Research design for the study is descriptive in nature. The research

is done with analog observations. Predictive analysis is done in order to know

pattern of near future investment patterns.

5.3 Limitations of Study

The Study is based on the data provided by different sources, any

incorrectness or biasness in same might also have been resulted in same for this

study.


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6 ANALYSIS AND INTERPRETATION

6.1 Analysing Growth of Venture Capital Finance in India and

Forecasting VC Investments in near future

To understand the scenario of venture capital investments in India, firstly

we looked at the Total Investment Details of SEBI Registered Venture Capital

Funds (VCF) and Foreign Venture Capital Investors (FVCI) as of Dec 31 of

each year starting 2007.

Year Total VC Investment (in Rs. Crores)

2007 28260

2008 33939

2009 42059

2010 47859

2011 56868

2012 55542

2013 69520

2014 71061

2015 72849

(Table 1: Cumulative Total Investment Details of SEBI Registered Venture Capital Funds

(VCF) and Foreign Capital Investors (FVCI) as of Dec 31 of each year)


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With the help MS Word Excel, Growth Rate is determined for given

values from year 2007-2013 and prediction for next two years is made using

following TREND function:

TREND(known_Ys, known_ Xs, New_Xs, constant)

Here, Ys = Known Values of Total Investments

Xs = Year corresponding to known Ys (2007-2015)

New Xs = Year for which Value to be forecasted (2016), (2017)

Constant = None

Following are the Forecasted Values of Total Investment in 2016 and 2017

using TREND function.

Year Forecasted Total VC Investment (in Rs. Crores)

2016 82466.92

2017 88339.03

(Table 2: Forecasted values of Total Investments by Venture Capital Funds as of Dec 31 of

2016and 2017)

When values of Venture Capital Investments in India from 2007 to 2015

and their forecasted values for 2016and 2017 are plotted on a Line Graph,

following curve is obtained.


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(Fig 1. : Line Graph of Total Venture Capital (VC) investments from year 2007 to 2015 along

with forecasted values for year 2016 and 2017)

Interpretation: Fig. 1 shows the Line Graph of Total Venture Capital (VC)

investments from year 2007 to 2015 along with forecasted values for year 2016

and 2017. The black curve shows Trend curve for same. We can infer that

Venture Capital Investments in India have grown linearly but has the potential

to grow exponentially. If same trend continues, the investments by VC in India

will be increasing in near future. Also, Investments have been slow in one year

dropping from Rs. 56868 crores in 2011 to Rs. 55542 crores in 2012 but they

have gained their momentum back in 2013 by increasing more that 25%.Again

in 2015 the investment had been under the trend line with investment of


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72849crores. The Value of Investments in 2016 and 2017 is predicted to be near

Rupees 82 and 88 thousand crores respectively.

6.2 Analysis of Venture Capital Investments in different sectors of

Economy

Now we look at the different sectors of Economy details Venture Capital

Investments of SEBI Registered Venture Capital Funds (VCF) and Foreign

Capital Investors (FVCI) as of Dec 31 of each year (FVCFs) .

Year

------------ Sectors of

Economy

2007 2008 2009 2010 2011 2012 2013 2014 2015

IT 2169 2520 2864 3319 4322 4481 5325 5868 6412

Telecom 990 1076 4268 7469 7516 7086 7798 7549 7301

Pharmaceut

icals

1076 1229 1478 1325 1132 1151 1006 874 743

Biotechnology 385 634 461 289 283 278 326 337 348

Media/Entert

ainment

470 906 1434 1006 1124 739 1406 1381 1356

Service

Sector

2475 2976 3529 2677 2973 2809 3697 4180 4664

Industrial

Product

2047 1951 2344 1355 2014 2107 2377 2020 1663

Real Estates 6348 6311 8185 9783 10831 9987 12048 11315 10583

Others 16749 24413 27158 20637 26673 26903 35535 37656 39778

(Table 3: Cumulative Total Investment (in Rs. Crores) Details of SEBI Registered Venture

Capital Funds (VCF) and Foreign Capital Investors (FVCI) as of Dec 31 of each year)


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Table 3 shows Annual Venture Capital Investments data for different

sectors of economy. Different sectors of economy for which data has been

obtained are Information Technology, Telecommunications, Pharmaceuticals,

Biotechnology, Media/Entertainment, Services Sector, Industrial Products and

Real Estate. Now in order to analyse percent share of Venture Capital

Investment in 2015 for each different sector following pie chart is obtained.

(Fig 2. Total VC Investment Share of different sector of Economy in India)


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Interpretation In 2015, Real Estate is the biggest sector of Venture Capital

Investments, followed by Telecommunications and Information Technology.

Services Sector stands at 4th position followed by Industrial Products sector and

Media/Entertainment sector. Pharmaceutical and Biotechnology sector has least

share of Venture Capital Funds among 8 sectors.

To understand the scenario of growth in each sector, line graphs have been

obtained using values from Table 3. In each graph, a black coloured trend line is

obtained which shows forecasted linear trend of respective sector.

(Fig 3. Total Venture Capital (VC) investments in Rs.Crores curve from year 2007 to 2015

in Information Technology Sector. It also shows forecasted linear trend line. )

Information Technology (IT) has been high growth factor all these years.

According to Bain India Private Equity report 2014, IT is expected to be one of

the most attractive sectors for PE and VC investments in the next two years.


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This is evident from rise in investment in this area in 2015. We can infer that IT

is going to be one of the high growth sectors attracting large amount of Venture

Capital in year 2016 and 2017.

(Fig 4. Total Venture Capital (VC) investments (in Rs. Crores) curve from year 2007 to 2015

in Real Estate Sector. It also shows forecasted linear trend line.)

As India is developing country and Real Estate is an utmost important

need of any developing nation. Real Estate sector has always seen reasonable

growth and is still attracting investment. In 2015 this sector has performed

below the line. But looking into the trend line it will be improving in 2016 and

2017 in terms of Venture Capital Investment.


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(Fig 5: Total Venture Capital (VC) investments in Rs. Crores curve from year 2007 to 2015

in Telecommunication Sector. It also shows forecasted linear trend line. )

Telecommunication sector has seen some of the biggest investments in

2009 and 2010 making it Hot Favorite sector of Venture Capital Investment in

those years. Following bad news of scams and cancelation of 2G licenses the

sector has not attracted much investment from year 2010. Although Forecasted

Linear 7 year trend line projects it as high growth sectors but when we look at

data from last 4 years, Telecommunications has been laggard leading to very

slow growth in upcoming years.


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(Fig 6: Total Venture Capital (VC) investments in Rs. Crores curve from year

2007 to 2015 in Media and Entertainment Sector. It also shows forecasted linear

trend line. )

Media/Entertainment Sector has seen moderate growth in past years. In

2013, Venture Capitalists have shown significant interest. Again fall is

investment in 2014 and 2015 is noticeable. There were good numbers of deals

in the sector. The sector is further going to show moderate growth depending

upon current factors affecting the sector.


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(Fig 7: Total Venture Capital (VC) investments in Rs. Crores curve from year

2007 to 2015 in Service Sector. It also shows forecasted linear trend line. )

2009 and 2015 are the only years of high growth for Services Sector.

Because of less inclined forecasted linear trend of the investments in the sector,

there will be moderate growth in venture capital investments in India in

upcoming years.


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in Industrial Product Sector. It also shows forecasted linear trend line. )

Industrial Products sector is a source of high employment opportunities

for less skilled labor. The sector has not seen much growth in terms of venture

capital investments. Because of less inclined forecasted linear trend of the

investments in the sector, there will be slow growth in venture capital

investments in India in upcoming years.


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in Pharmaceutical Sector. It also shows forecasted linear trend line. )


in Biotechnology Sector. It also shows forecasted linear trend line. )


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Fig. 9 and Fig. 10 shows Total Venture Capital (VC) investments curve

from year 2007 to 2015 and forecasted linear trend in Pharmaceutical and

Biotechnology Sector. These sectors have been sectors of declining growth

since 2009. There is not much growth expected in 2016 and 2017 from these

sectors.

Interpretation

There are different sectors of Economy in India. Out of all above

mentioned Economic Sectors, few sectors are attracting more Venture Capital

Funds than others. With analysis of each sector we can categorize them by rate

of growth of investments over 9 years.

Information Technology and Real Estate have continuously seen High

Growth and are predicted to do so in coming years. For Entrepreneurs these

sectors can be fruitful to start their venture in.

Telecommunication and Media/Entertainment have been areas of

Moderate Growth and may do better in coming years. For Entrepreneurs these

sectors can be fruitful but they must keep caution while starting their venture in.

Services Sector and Industrial Products Sector are areas of very Slow

Growth in terms of VC investments in these areas. One must have strong know

how of these sectors while starting any business.


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Pharmaceuticals and Biotechnology are Sectors of Declining Growth in

VC Investments. One may have hurdles in getting investments for ventures in

these sectors.


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7 Findings and Conclusion

7.1 Findings

There was an exponential increase in Venture capital from 2007 till date.

It is predicted that there will be good amount of Venture Capital

Investments about to occur in 2016 and 2017.

Around Rs. 82466 crores of VC investments will be made in 2016.

2017 will see VC investments of around Rs 88399 Crores.

Real Estate Sector gets maximum share of Total Venture Capital

Investments among different sectors of Economy in 2015, followed by

Telecommunications and Information Technology.

Among different sectors of economy, Information Technology and Real

Estate are sectors with high growth rate of Venture Capital Investment and

is expected to do well in comings years as well.

In terms of Venture Capital investments made Telecommunications and

Media/Entertainment sectors are growing at medium pace.

Telecommunications have seen decline only in recent years, the most

obvious reason for it is the policy paralysis and scams around this sector in

India. Yet due to adoption of 4G technology there is still a possibility for

rise in the trend.


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Services Sector and Industrial Products Sectors are not attracting much VC

investments and growing very slow.

Sectors of Pharmaceuticals and Biotechnology have been left quite far in

attracting VC investments. They have shown declining trend and there is

less hope from these sectors in upcoming years.

7.2 Conclusion

Venture capital financing has become a part of the popular business in

India. VC investments are growing at an l rate and one who is starting or

expanding his business can look it as a good option of financing its venture.

With our analysis we can infer that there will be an increase in Venture Capital

Investments in 2016 and 2017. In India, Information Technology and Real

Estate are sectors with High Growth in VC Investments whereas

Pharmaceuticals and Biotechnology are sectors with Declining Growth in VC

Investments.


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8 REFERENCES

8.1 Bibliographic References

Brigham, Eugene F. and Houston, Joel F. 2009. Fundamentals of

Financial Management. s.l. : South-Western Cengage Learning, 2009.

Pandey, Dheeraj and Rajan, Thillai A. 2011.. International Conference

on Technology and Business Management.

2014. INDIA PRIVATE EQUITY REPORT. : Bain & Company and

Indian Venture Capital Association, 2014.

Rajan, Thillai A and Deshmukh, Ashish. Venture Capital and Private

Equity in India: An Analysis of Investments and Exits. IIT Madras

Journal..


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8.2 Web References

Report of K B Chandrasekhar Committee on Venture Capital, SEBI

http://www.sebi.gov.in/commreport/sebicomm.html

Venture Capital, Business Portal of Government of India

http://business.gov.in/business_financing/venture_capital.php /

Venture Capital for MSMEs, SIDBI Ventures

http://www.sidbiventure.co.in/

Industry wise cumulative Investment Details,

http://www.sebi.gov.in/vc/investdetails.html/

Global venture capital confidence survey,

http://www2.deloitte.com/us/en/pages/technology-media-and-

telecommunications/articles/global-venture-capital-confidence-

survey.html/


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Appendix: 1


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Appendix:2

sectorwise growth in venture capital finance in india by soumya mishra

Economy & Finance