venture capital

MRP on “venture capital industry in India”

CHAPTER 1

INTRODUCTION TO PROJECT

S.V .Institute Of Management, Kadi 1


1.1 Research objective:

To understand concept of Venture Capital.

To understand Venture Capital industry in global scenario.

To study the evolution and need of Venture Capital Industry in India.

To understand the legal framework formulated by SEBI to encourage Venture capital activity in Indian Economy.

To find out opportunity and threats those hinder and encourage Venture Capital Industry in India.

To know the impact of political and economical factors on Venture Capital investment.

1.2 Limitation of project

Limitations:

A study of this type cannot be without limitations. It has been observed that venture capitals are very secretive about their performance as well as about their investments. This attitude has been a major hurdle in data collection. However venture capital funds/companies that are members of Indian venture capital association are included in the study. Financial analysis has been restricted by and large to members of IVCA.

1.3 Research Design & Instruments

In India neither venture capital theory has been developed nor are there many comprehensive books on the subject. Even the number of research papers available is very limited. The research design used is descriptive in nature. (The attempt has been made to collect maximum facts and figures available on the availability of venture capital in India, nature of assistance granted, future projected demand for this financing, analysis of the problems faced by the entrepreneurs in getting venture capital, analysis of the venture capitalists and social and environmental impact on the existing framework.)

The research is based on secondary data collected from the published material. The data was also collected from the publications and press releases of venture capital associations in India.

Scanning the business papers filled the gaps in information. The Economic times, Financial Express and Business Standards were scanned for any article or news item



related to venture capital. Sufficient amount of data about the venture capital has been derived from these reports.

Scope:

The scope of the research includes all type of venture capital firms whether setup as a company or a trust fund. Venture capital companies and funds irrespective of the fact that they are registered with SEBI of India or not are part of this study. Angel investors have been kept out of the study as it was not feasible to collect authenticated information about them.



CHAPTER 2

CONCEPTUAL FRAMEWORK



2.1 Concept of Venture Capital

The term venture capital comprises of two words that is, “Venture” and “Capital”. Venture is a course of processing, the outcome of which is uncertain but to which is attended the risk or danger of “loss”. “Capital” means recourses to start an enterprise. To connote the risk and adventure of such a fund, the generic name Venture Capital was coined.

Venture capital is considered as financing of high and new technology based enterprises. It is said that Venture capital involves investment in new or relatively untried technology, initiated by relatively new and professionally or technically qualified entrepreneurs with inadequate funds. The conventional financiers, unlike Venture capitals, mainly finance proven technologies and established markets. However, high technology need not be pre-requisite for venture capital.

Venture capital has also been described as ‘unsecured risk financing’. The relatively high risk of venture capital is compensated by the possibility of high returns usually through substantial capital gains in the medium term. Venture capital in broader sense is not solely an injection of funds into a new firm, it is also an input of skills needed to set up the firm, design its marketing strategy, organize and manage it. Thus it is a long term association with successive stages of company’s development under highly risk investment conditions, with distinctive type of financing appropriate to each stage of development. Investors join the entrepreneurs as co-partners and support the project with finance and business skills to exploit the market opportunities.

Venture capital is not a passive finance. It may be at any stage of business/production cycle, that is, start up, expansion or to improve a product or process, which are associated with both risk and reward. The Venture capital makes higher capital gains through appreciation in the value of such investments when the new technology succeeds. Thus the primary return sought by the investor is essentially capital gain rather than steady interest income or dividend yield.

The most flexible definition of Venture capital is-

“The support by investors of entrepreneurial talent with finance and business skills to exploit market opportunities and thus obtain capital gains.”

Venture capital commonly describes not only the provision of start up finance or ‘seed corn’ capital but also development capital for later stages of business. A long term commitment of funds is involved in the form of equity investments, with the aim of eventual capital gains rather than income and active involvement in the management of customer’s business.



2.2 Features of Venture Capital

2.2.1 High Risk

By definition the Venture capital financing is highly risky and chances of failure are high as it provides long term start up capital to high risk-high reward ventures. Venture capital assumes four types of risks, these are:

Management risk - Inability of management teams to work together.

Market risk - Product may fail in the market.

Product risk - Product may not be commercially viable.

Operation risk - Operations may not be cost effective resulting in increased cost decreased gross margins.

2.2.2 High Tech

As opportunities in the low technology area tend to be few of lower order, and hi-tech projects generally offer higher returns than projects in more traditional areas, venture capital investments are made in high tech. areas using new technologies or producing innovative goods by using new technology. Not just high technology, any high risk ventures where the entrepreneur has conviction but little capital gets venture finance. Venture capital is available for expansion of existing business or diversification to a high risk area. Thus technology financing had never been the primary objective but incidental to venture capital.

2.2.3 Equity Participation & Capital Gains

Investments are generally in equity and quasi equity participation through direct purchase of shares, options, convertible debentures where the debt holder has the option to convert the loan instruments into stock of the borrower or a debt with warrants to equity investment. The funds in the form of equity help to raise term loans that are cheaper source of funds. In the early stage of business, because dividends can be delayed, equity investment implies that investors bear the risk of venture and would earn a return commensurate with success in the form of capital gains.

2.2.4 Participation In Management

Venture capital provides value addition by managerial support, monitoring and follow up assistance. It monitors physical and financial progress as well as market development



initiative. It helps by identifying key resource person. They want one seat on the company’s board of directors and involvement, for better or worse, in the major decision affecting the direction of company. This is a unique philosophy of “hands on management” where Venture capitalist acts as complementary to the entrepreneurs. Based upon the experience other companies, a venture capitalist advise the promoters on project planning, monitoring, financial management, including working capital and public issue. Venture capital investor cannot interfere in day today management of the enterprise but keeps a close contact with the promoters or entrepreneurs to protect his investment.

2.2.5 Length of Investment

Venture capitalist help companies grow, but they eventually seek to exit the investment in three to seven years. An early stage investment may take seven to ten years to mature, while most of the later stage investment takes only a few years. The process of having significant returns takes several years and calls on the capacity and talent of venture capitalist and entrepreneurs to reach fruition.

2.2.6 Illiquid Investment

Venture capital investments are illiquid, that is, not subject to repayment on demand or following a repayment schedule. Investors seek return ultimately by means of capital gains when the investment is sold at market place. The investment is realized only on enlistment of security or it is lost if enterprise is liquidated for unsuccessful working. It may take several years before the first investment starts to locked for seven to ten years. Venture capitalist understands this illiquidity and factors this in his investment decisions.

2.3 Difference between Venture Capital & Other Funds

2.3.1 Venture Capital Vs Development Funds

Venture capital differs from Development funds as latter means putting up of industries without much consideration of use of new technology or new entrepreneurial venture but having a focus on underdeveloped areas (locations). In majority of cases it is in the form of loan capital and proportion of equity is very thin. Development finance is security oriented and liquidity prone. The criteria for investment are proven track record of company and its promoters, and sufficient cash generation to provide for returns (principal and interest). The development bank safeguards its interest through collateral.

They have no say in working of the enterprise except safeguarding their interest by having a nominee director. They do not play any active role in the enterprise except ensuring flow of information and proper management information system, regular board meetings, adherence to statutory requirements for effective management control where as Venture capitalist remain interested if the overall management of the project o account of high risk involved I the project till its completion, entering into production and making available proper exit route for liquidation of the investment. As against this fixed payments in the form of installment of principal and interest are to be made to development banks.

2.3.2 Venture Capital Vs Seed Capital & Risk Capital



It is difficult to make a distinction between venture capital, seed capital, and risk capital as the latter two form part of broader meaning of Venture capital. Difference between them arises on account of application of funds and terms and conditions applicable. The seed capital and risk funds in India are being provided basically to arrange promoter’s contribution to the project. The objective is to provide finance and encourage professionals to become promoters of industrial projects. The seed capital is provided to conventional projects on the consideration of low risk and security and use conventional techniques for appraisal. Seed capital is normally in the form of low interest deferred loan as against equity investment by Venture capital. Unlike Venture capital, Seed capital providers neither provide any value addition nor participate in the management of the project. Unlike Venture capital Seed capital provider is satisfied with low risk-normal returns and lacks any flexibility in its approach.

Risk capital is also provided to established companies for adapting new technologies. Herein the approach is not business oriented but developmental. As a result on one hand the success rate of units assisted by Seed capital/Risk Finance has been lower than those provided with venture capital. On the other hand the return to the seed/risk capital financier had been very low as compared to venture capitalist.

Seed Capital Scheme Venture capital SchemeBasis Income or aid Commercial viabilityBeneficiaries Very small entrepreneurs Medium and large

entrepreneurs are also covered

Size of assistance Rs. 15 Lac (Max) Up to 40 percent of promoters’ equity

Appraisal process Normal Skilled and specializedEstimates returns 20 percent 30 percent plusFlexibility Nil Highly flexibleValue addition Nil Multiple waysExit option Sell back to promoters Several ,including Public

offerFunding sources Owner funds Outside contribution

allowedSyndication Not done PossibleTax concession Nil ExemptedSuccess rate Not good Very satisfactory

Table 2.1: Difference between Seed Capital Scheme and Venture capital Scheme

2.3.3 Venture Capital Vs Bought Out Deals

The important difference between the Venture capital and bought out deals is that bought-outs are not based upon high risk- high reward principal. Further unlike Venture capital they do not provide equity finance at different stages of the enterprise. However both



have a common expectation of capital gains yet their objectives and intents are totally different.

2.4 The Venture Capital Spectrum

The growth of an enterprise follows a life cycle as shown in the diagram below. The requirements of funds vary with the life cycle stage of the enterprise. Even before a business plan is prepared the entrepreneur invests his time and resources in surveying the market, finding and understanding the target customers and their needs. At the seed stage the entrepreneur continue to fund the venture with his own or family funds. At this stage the funds are needed to solicit the consultant’s services in formulation of business plans, meeting potential customers and technology partners. Next the funds would be required for development of the product/process and producing prototypes, hiring key people and building up the managerial team. This is followed by funds for assembling the manufacturing and marketing facilities in that order. Finally the funds are needed to expand the business and attaint the critical mass for profit generation. Venture capitalists cater to the needs of the entrepreneurs at different stages of their enterprises. Depending upon the stage they finance, venture capitalists are called angel investors, venture capitalist or private equity supplier/investor.

Figure 2.1: Venture Capital Spectrum


FamilyPartners

IPO

Start up

PersonalAngelInvestor

VentureCapital

Private Equity

Public Equity

Public Equity forRestructuring Buyouts

TimeConcept

ProductDevelopment

Expansion

Building a sustainable business

BusinessPlan

Seed Capital


Venture capital was started as early stage financing of relatively small but rapidly growing companies. However various reasons forced venture capitalists to be more and more involved in expansion financing to support the development of existing portfolio companies. With increasing demand of capital from newer business, Venture capitalists began to operate across a broader spectrum of investment interest. This diversity of opportunities enabled Venture capitalists to balance their activities in term of time involvement, risk acceptance and reward potential, while providing on going assistance to developing business.

Different venture capital firms have different attributes and aptitudes for different types of Venture capital investments. Hence there are different stages of entry for different Venture capitalists and they can identify and differentiate between types of Venture capital investments, each appropriate for the given stage of the investee company, These are:-

1. Early Stage Finance

Seed Capital Start up Capital Early/First Stage Capital Later/Third Stage Capital

2. Later Stage Finance Expansion/Development Stage Capital Replacement Finance Management Buy Out and Buy ins Turnarounds Mezzanine/Bridge Finance

Not all business firms pass through each of these stages in a sequential manner. For instance seed capital is normally not required by service based ventures. It applies largely to manufacturing or research based activities. Similarly second round finance does not always follow early stage finance. If the business grows successfully it is likely to develop sufficient cash to fund its own growth, so does not require venture capital for growth.

The table below shows risk perception and time orientation for different stages of venture capital financing.

Financing Stage Period (funds

locked in years)Risk perception Activity to be financed

Early stage finance Seed

7-10 Extreme For supporting a concept or idea or R & D for product development

Start up 5-9 Very high Initializing operations or developing prototypes

First stage 3-7 High Start commercial production



and marketingSecond stage 3-5 Sufficiently

highExpand market & growing working capital need

Later stage finance 1-3 Medium Market expansion, acquisition & product development for profit making company

Buy out-in 1-3 Medium Acquisition financing

Turnaround 3-5 Medium to high Turning around a sick company

Mezzanine 1-3 Low Facilitating public issue

Table 2.2: Venture Capital- Financing Stages

2.4.1 Seed Capital

It is an idea or concept as opposed to a business. European Venture capital association defines seed capital as “The financing of the initial product development or capital provided to an entrepreneur to prove the feasibility of a project and to qualify for start up capital”.

The characteristics of the seed capital may be enumerated as follows:

Absence of ready product market Absence of complete management team Product/ process still in R & D stage Initial period / licensing stage of technology transfer

Broadly speaking seed capital investment may take 7 to 10 years to achieve realization. It is the earliest and therefore riskiest stage of Venture capital investment. The new technology and innovations being attempted have equal chance of success and failure. Such projects, particularly hi-tech, projects sink a lot of cash and need a strong financial support for their adaptation, commencement and eventual success. However, while the earliest stage of financing is fraught with risk, it also provides greater potential for realizing significant gains in long term. Typically seed enterprises lack asset base or track record to obtain finance from conventional sources and are largely dependent upon entrepreneur’s personal resources. Seed capital is provided after being satisfied that the entrepreneur has used up his own resources and carried out his idea to a stage of acceptance and has initiated research. The asset underlying the seed capital is often technology or an idea as opposed to human assets (a good management team) so often sought by venture capitalists.

Volume of Investment Activity

It has been observed that Venture capitalist seldom make seed capital investment and these are relatively small by comparison to other forms of venture finance. The absence of interest in providing a significant amount of seed capital can be attributed to the following three factors: -



a) Seed capital projects by their very nature require a relatively small amount of capital. The success or failure of an individual seed capital investment will have little impact on the performance of all but the smallest venture capitalist’s portfolio. Larger venture capitalists avoid seed capital investments. This is because the small investments are seen to be cost inefficient in terms of time required to analyze, structure and manage them.

b) The time horizon to realization for most seed capital investments is typically 7-10 years which is longer than all but most long-term oriented investors will desire.

c) The risk of product and technology obsolescence increases as the time to realization is extended. These types of obsolescence are particularly likely to occur with high technology investments particularly in the fields related to Information Technology.

2.4.2 Start up Capital

It is stage 2 in the venture capital cycle and is distinguishable from seed capital investments. An entrepreneur often needs finance when the business is just starting. The start up stage involves starting a new business. Here in the entrepreneur has moved closer towards establishment of a going concern. Here in the business concept has been fully investigated and the business risk now becomes that of turning the concept into product.

Start up capital is defined as: “Capital needed to finance the product development, initial marketing and establishment of product facility. “

The characteristics of start-up capital are:-

i. Establishment of company or business. The company is either being organized or is established recently. New business activity could be based on experts, experience or a spin-off from R & D.

ii. Establishment of most but not all the members of the team. The skills and fitness to the job and situation of the entrepreneur’s team is an important factor for start up finance.

iii. Development of business plan or idea. The business plan should be fully developed yet the acceptability of the product by the market is uncertain. The company has not yet started trading.

In the start up preposition venture capitalists’ investment criteria shifts from idea to people involved in the venture and the market opportunity. Before committing any finance at this stage, Venture capitalist however, assesses the managerial ability and the capacity of the entrepreneur, besides the skills, suitability and competence of the managerial team are also evaluated. If required they supply managerial skills and supervision for implementation. The time horizon for start up capital will be typically 6 or 8 years. Failure rate for start up is 2 out of 3. Start up needs funds by way of both first round investment and subsequent follow-up investments. The risk tends t be lower relative to seed capital situation. The risk is controlled by initially investing a smaller amount of capital in start-ups. The decision on additional financing is based upon the successful performance of the company. However, the term to realization of a start up



investment remains longer than the term of finance normally provided by the majority of financial institutions. Longer time scale for using exit route demands continued watch on start up projects.

Volume of Investment Activity

Despite potential for specular returns most venture firms avoid investing in start-ups. One reason for the paucity of start up financing may be high discount rate that venture capitalist applies to venture proposals at this level of risk and maturity. They often prefer to spread their risk by sharing the financing. Thus syndicates of investor’s often participate in start up finance.

2.4.3 Early Stage Finance

It is also called first stage capital is provided to entrepreneur who has a proven product, to start commercial production and marketing, not covering market expansion, de-risking and acquisition costs.

At this stage the company passed into early success stage of its life cycle. A proven management team is put into this stage, a product is established and an identifiable market is being targeted.

British Venture Capital Association has vividly defined early stage finance as: “Finance provided to companies that have completed the product development stage and require further funds to initiate commercial manufacturing and sales but may not be generating profits.”

The characteristics of early stage finance may be: -

Little or no sales revenue. Cash flow and profit still negative. A small but enthusiastic management team which consists of people with technical

and specialist background and with little experience in the management of growing business.

Short term prospective for dramatic growth in revenue and profits.

The early stage finance usually takes 4 to 6 years time horizon to realization. Early stage finance is the earliest in which two of the fundamentals of business are in place i.e. fully assembled management team and a marketable product. A company needs this round of finance because of any of the following reasons: -

Project overruns on product development. Initial loss after start up phase.

The firm needs additional equity funds, which are not available from other sources thus prompting venture capitalist that, have financed the start up stage to provide further financing. The management risk is shifted from factors internal to the firm (lack of management, lack of product etc.) to factors external to the firm (competitive pressures,



in sufficient will of financial institutions to provide adequate capital, risk of product obsolescence etc.)

At this stage, capital needs, both fixed and working capital needs are greatest. Further, since firms do not have foundation of a trading record, finance will be difficult to obtain and so Venture capital particularly equity investment without associated debt burden is key to survival of the business.

The following risks are normally associated to firms at this stage: -

a) The early stage firms may have drawn the attention of and incurred the challenge of a larger competition.

b) There is a risk of product obsolescence. This is more so when the firm is involved in high-tech business like computer, information technology etc.

2.4.4 Second Stage Finance

It is the capital provided for marketing and meeting the growing working capital needs of an enterprise that has commenced the production but does not have positive cash flows sufficient to take care of its growing needs. Second stage finance, the second trench of Early State Finance is also referred to as follow on finance and can be defined as the provision of capital to the firm which has previously been in receipt of external capital but whose financial needs have subsequently exploded. This may be second or even third injection of capital.

The characteristics of a second stage finance are:

A developed product on the market A full management team in place Sales revenue being generated from one or more products There are losses in the firm or at best there may be a break even but the surplus

generated is insufficient to meet the firm’s needs.

Second round financing typically comes in after start up and early stage funding and so have shorter time to maturity, generally ranging from 3 to 7 years. This stage of financing has both positive and negative reasons.

Negative reasons include:

I Cost overruns in market development.II Failure of new product to live up to sales forecast.III Need to re-position products through a new marketing

campaign.IV Need to re-define the product in the market place once the

product deficiency is revealed.

Positive reasons include:



I Sales appear to be exceeding forecasts and the enterprise needs to acquire assets to gear up for production volumes greater than forecasts.

II High growth enterprises expand faster than their working capital permit, thus needing additional finance. Aim is to provide working capital for initial expansion of an enterprise to meet needs of increasing stocks and receivables.

It is additional injection of funds and is an acceptable part of venture capital. Often provision for such additional finance can be included in the original financing package as an option, subject to certain management performance targets.

2.4.5 Later Stage Finance

It is called third stage capital is provided to an enterprise that has established commercial production and basic marketing set-up, typically for market expansion, acquisition, product development etc. It is provided for market expansion of the enterprise. The enterprises eligible for this round of finance have following characteristics.

I. Established business, having already passed the risky early stage.II. Expanding high yield, capital growth and good profitability.III. Reputed market position and an established formal organization structure.

“Funds are utilized for further plant expansion, marketing, working capital or development of improved products.” Third stage financing is a mix of equity with debt or subordinate debt. As it is half way between equity and debt in US it is called “mezzanine” finance. It is also called last round of finance in run up to the trade sale or public offer.

Venture capitalist s prefer later stage investment vis a vis early stage investments, as the rate of failure in later stage financing is low. It is because firms at this stage have a past performance data, track record of management, established procedures of financial control. The time horizon for realization is shorter, ranging from 3 to 5 years. This helps the venture capitalists to balance their own portfolio of investment as it provides a running yield to venture capitalists. Further the loan component in third stage finance provides tax advantage and superior return to the investors.

There are four sub divisions of later stage finance.

Expansion / Development Finance Replacement Finance Buyout Financing Turnaround Finance

Expansion / Development Finance

An enterprise established in a given market increases its profits exponentially by achieving the economies of scale. This expansion can be achieved either through an organic growth, that is by expanding production capacity and setting up proper distribution system or by way of acquisitions. Anyhow, expansion needs finance and venture capitalists support both organic growth as well as acquisitions for expansion.



At this stage the real market feedback is used to analyze competition. It may be found that the entrepreneur needs to develop his managerial team for handling growth and managing a larger business.

Realization horizon for expansion / development investment is one to three years. It is favored by venture capitalist as it offers higher rewards in shorter period with lower risk. Funds are needed for new or larger factories and warehouses, production capacities, developing improved or new products, developing new markets or entering exports by enterprise with established business that has already achieved break even and has started making profits.

Replacement Finance

It means substituting one shareholder for another, rather than raising new capital resulting in the change of ownership pattern. Venture capitalist purchase shares from the entrepreneurs and their associates enabling them to reduce their shareholding in unlisted companies. They also buy ordinary shares from non-promoters and convert them to preference shares with fixed dividend coupon. Later, on sale of the company or its listing on stock exchange, these are re-converted to ordinary shares. Thus Venture capitalist makes a capital gain in a period of 1 to 5 years.

Buy - out / Buy - in Financing

It is a recent development and a new form of investment by venture capitalist. The funds provided to the current operating management to acquire or purchase a significant share holding in the business they manage are called management buyout.

Management Buy-in refers to the funds provided to enable a manager or a group of managers from outside the company to buy into it.

It is the most popular form of venture capital amongst later stage financing. It is less risky as venture capitalist in invests in solid, ongoing and more mature business. The funds are provided for acquiring and revitalizing an existing product line or division of a major business. MBO (Management buyout) has low risk as enterprise to be bought have existed for some time besides having positive cash flow to provide regular returns to the venture capitalist, who structure their investment by judicious combination of debt and equity. Of late there has been a gradual shift away from start up and early finance to wards MBO opportunities. This shift is because of lower risk than start up investments.

Turnaround Finance

It is rare form later stage finance which most of the venture capitalist avoid because of higher degree of risk. When an established enterprise becomes sick, it needs finance as well as management assistance foe a major restructuring to revitalize growth of profits. Unquoted company at an early stage of development often has higher debt than equity; its cash flows are slowing down due to lack of managerial skill and inability to exploit the market potential. The sick companies at the later stages of development do not normally have high debt burden but lack competent staff at various levels. Such enterprises are compelled to relinquish control to new management. The venture capitalist has to carry



out the recovery process using hands on management in 2 to 5 years. The risk profile and anticipated rewards are akin to early stage investment.

Bridge Finance

It is the pre-public offering or pre-merger/acquisition finance to a company. It is the last round of financing before the planned exit. Venture capitalist help in building a stable and experienced management team that will help the company in its initial public offer. Most of the time bridge finance helps improves the valuation of the company. Bridge finance often has a realization period of 6 months to one year and hence the risk involved is low. The bridge finance is paid back from the proceeds of the public issue.

2.5 Venture Capital Investment Process

Venture capital investment process is different from normal project financing. In order to understand the investment process a review of the available literature on venture capital finance is carried out. Tyebjee and Bruno in 1984 gave a model of venture capital investment activity which with some variations is commonly used presently.

As per this model this activity is a five step process as follows:

1. Deal Organization2. Screening3. Evaluation or due Diligence4. Deal Structuring5. Post Investment Activity and Exit



Figure 2.2: Venture Capital Investment Process



Deal origination:

In generating a deal flow, the VC investor creates a pipeline of deals or investment opportunities that he would consider for investing in. Deal may originate in various ways. referral system, active search system, and intermediaries. Referral system is an important source of deals. Deals may be referred to VCFs by their parent organisaions, trade partners, industry associations, friends etc. Another deal flow is active search through networks, trade fairs, conferences, seminars, foreign visits etc. Intermediaries is used by venture capitalists in developed countries like USA, is certain intermediaries who match VCFs and the potential entrepreneurs.

Screening:

VCFs, before going for an in-depth analysis, carry out initial screening of all projects on the basis of some broad criteria. For example, the screening process may limit projects to areas in which the venture capitalist is familiar in terms of technology, or product, or market scope. The size of investment, geographical location and stage of financing could also be used as the broad screening criteria.

Due Diligence:

Due diligence is the industry jargon for all the activities that are associated with evaluating an investment proposal. The venture capitalists evaluate the quality of entrepreneur before appraising the characteristics of the product, market or technology. Most venture capitalists ask for a business plan to make an assessment of the possible risk and return on the venture. Business plan contains detailed information about the proposed venture. The evaluation of ventures by VCFs in India includes;

Preliminary evaluation: The applicant required to provide a brief profile of the proposed venture to establish prima facie eligibility.

Detailed evaluation: Once the preliminary evaluation is over, the proposal is evaluated in greater detail. VCFs in India expect the entrepreneur to have:- Integrity, long-term vision, urge to grow, managerial skills, commercial orientation.

VCFs in India also make the risk analysis of the proposed projects which includes: Product risk, Market risk, Technological risk and Entrepreneurial risk. The final decision is taken in terms of the expected risk-return trade-off as shown in Figure.

Deal Structuring:

In this process, the venture capitalist and the venture company negotiate the terms of the deals, that is, the amount, form and price of the investment. This process is termed as deal structuring. The agreement also include the venture capitalist's right to control the venture company and to change its management if needed, buyback arrangements, acquisition, making initial public offerings (IPOs), etc. Earned out arrangements specify the entrepreneur's equity share and the objectives to be achieved.



Post Investment Activities:

Once the deal has been structured and agreement finalised, the venture capitalist generally assumes the role of a partner and collaborator. He also gets involved in shaping of the direction of the venture. The degree of the venture capitalist's involvement depends on his policy. It may not, however, be desirable for a venture capitalist to get involved in the day-to-day operation of the venture. If a financial or managerial crisis occurs, the venture capitalist may intervene, and even install a new management team.

Exit:

Venture capitalists generally want to cash-out their gains in five to ten years after the initial investment. They play a positive role in directing the company towards particular exit routes. A venture may exit in one of the following ways:

There are four ways for a venture capitalist to exit its investment:

Initial Public Offer (IPO) Acquisition by another company Re-purchase of venture capitalist’s share by the investee company Purchase of venture capitalist’s share by a third party

Promoter’s Buy-back

The most popular disinvestments route in India is promoter’s buy-back. This route is suited to Indian conditions because it keeps the ownership and control of the promoter intact. The obvious limitation, however, is that in a majority of cases the market value of the shares of the venture firm would have appreciated so much after some years that the promoter would not be in a financial position to buy them back.

In India, the promoters are invariably given the first option to buy back equity of their enterprises. For example, RCTC participates in the assisted firm’s equity with suitable agreement for the promoter to repurchase it. Similarly, Canfina-VCF offers an opportunity to the promoters to buy back the shares of the assisted firm within an agreed period at a predetermined price. If the promoter fails to buy back the shares within the stipulated period, Canfina-VCF would have the discretion to divest them in any manner it deemed appropriate. SBI capital Markets ensures through examining the personal assets of the promoters and their associates, which buy back, would be a feasible option. GVFL would make disinvestments, in consultation with the promoter, usually after the project has settled down, to a profitable level and the entrepreneur is in a position to avail of finance under conventional schemes of assistance from banks or other financial institutions. Initial Public Offers (IPOs)

The benefits of disinvestments via the public issue route are, improved marketability and liquidity, better prospects for capital gains and widely known status of the venture as well as market control through public share participation. This option has certain limitations in the Indian context. The promotion of the public issue would be difficult and expensive since the first generation entrepreneurs are not known in the capital markets. Further,



difficulties will be caused if the entrepreneur’s business is perceived to be an unattractive investment proposition by investors. Also, the emphasis by the Indian investors on short-term profits and dividends may tend to make the market price unattractive. Yet another difficulty in India until recently was that the Controller of Capital Issues (CCI) guidelines for determining the premium on shares took into account the book value and the cumulative average EPS till the date of the new issue. This formula failed to give due weight age to the expected stream of earning of the venture firm. Thus, the formula would underestimate the premium. The Government has now abolished the Capital Issues Control Act, 1947 and consequently, the office of the controller of Capital Issues. The existing companies are now free to fix the premium on their shares. The initial public issue for disinvestments of VCFs’ holding can involve high transaction costs because of the inefficiency of the secondary market in a country like India. Also, this option has become far less feasible for small ventures on account of the higher listing requirement of the stock exchanges. In February 1989, the Government of India raised the minimum capital for listing on the stock exchanges from Rs 10 million to Rs 30 million and the minimum public offer from Rs 6 million to Rs 18 million.

Sale on the OTC Market

An active secondary capital market provides the necessary impetus to the success of the venture capital. VCFs should be able to sell their holdings, and investors should be able to trade shares conveniently and freely. In the USA, there exist well-developed OTC markets where dealers trade in shares on telephone/terminal and not on an exchange floor. This mechanism enables new, small companies which are not otherwise eligible to be listed on the stock exchange, to enlist on the OTC markets and provides liquidity to investors. The National Association of Securities Dealers Automated Quotation System (NASDAQ) in the USA daily quotes over 8000 stock prices of companies backed by venture capital.

The OTC Exchange in India was established in June 1992. The Government of India had approved the creation for the Exchange under the Securities Contracts (Regulations) Act in 1989. It has been promoted jointly by UTI, ICICI, SBI Capital Markets, Can bank Financial Services, GIC, LIC and IDBI. Since this list of market-makers (who will decide daily prices and appoint dealers for trading) includes most of the public sector venture financiers, it should pick up fast, and it should be possible for investors to trade in the securities of new small and medium size enterprises.

The other disinvestments mechanisms such as the management buyouts or sale to other venture funds are not considered to be appropriate by VCFs in India.

The growth of an enterprise follows a life cycle as shown in the diagram below. The requirements of funds vary with the life cycle stage of the enterprise. Even before a business plan is prepared the entrepreneur invests his time and resources in surveying the market, finding and understanding the target customers and their needs. At the seed stage the entrepreneur continue to fund the venture with his own or family funds. At this stage the funds are needed to solicit the consultant’s services in formulation of business plans, meeting potential customers and technology partners. Next the funds would be required for development of the product/process and producing prototypes, hiring key people and building up the managerial team. This is followed by funds for assembling the manufacturing and marketing facilities in that order. Finally the funds are needed to



expand the business and attaint the critical mass for profit generation. Venture capitalists cater to the needs of the entrepreneurs at different stages of their enterprises. Depending upon the stage they finance, venture capitalists are called angel investors, venture capitalist or private equity supplier/investor.

The players:

Figure: 2.3 players in venture capital industry

2.6 The players

There are following groups of players:

· Angels and angel clubs· Venture Capital funds

- Small- Medium- Large

· Corporate venture funds· Financial service venture groups


Idea EstablishedThe company

Expansion Troubleshooting

BusinessConcept

BreakEven-point

InvestingIn

technology

IPO Turnaround

Medium venturefundsCorporate

investors

Small venturefunds

Angels

Big venture funds + Financial funds


Angels and angel clubs

Angels are wealthy individuals who invest directly into companies. They can form angel clubs to coordinate and bundle their activities. Besides the money, angels often provide their personal knowledge, experience and contacts to support their investees. With average deals sizes from USD 100,000 to USD 500,000 they finance companies in their early stages. Examples for angel clubs are · Media Club, Dinner Club ,· Angel's Forum

Small and Upstart Venture Capital Funds

These are smaller Venture Capital Companies that mostly provide seed and start-up capital. The so called "Boutique firms" are often specialised in certain industries or market segments. Their capitalization is about USD 20 to USD 50 million (is this deals size or total money under management or money under management per fund?). As for the small and medium Venture Capital funds strong competition will clear the marketplace. There will be mergers and acquisitions leading to a concentration of capital. Funds specialised in different business areas will form strategic partnerships. Only the more successful funds will be able to attract new money. Examples are:

· Artemis Comaford· Abbell Venture Fund· Acacia Venture Partners

Medium Venture FundsThe medium venture funds finance all stages after seed stage and operate in all business segments. They provide money for deals up to USD 250 million. Single funds have up to USD 5 billion under management. An example is Accel Partners

Large Venture FundsAs the medium funds, large funds operate in all business sectors and provide all types of capital for companies after seed stage. They often operate internationally and finance deals up to USD 500 million The large funds will try to improve their position by mergers and acquisitions with other funds to improve size, reputation and their financial muscle. In addition they will to diversify. Possible areas to enter are other financial services by means of M&As with financial services corporations and the consulting business. For the latter one the funds have a rich resource of expertise and contacts in house. In a declining market for their core activity and with lots of tumbling companies out there is no reason why Venture Capital funds should offer advice and consulting only to their investees.



Examples are:· AIG American International Group· Cap Vest Man· 3i

Corporate Venture FundsThese Venture Capital funds are set up and owned by technology companies. Their aim is to widen the parent company's technology base in an win-win-situation for both, the investor and the investee. In general, corporate funds invest in growing or maturing companies, often when the investee wishes to make additional investments in echnology or product development. The average deals size is between USD 2 million and USD 5 million. The large funds will try to improve their position by mergers and acquisitions with other funds to improve size, reputation and their financial muscle. In addition they will to diversify. Possible areas to enter are other financial services by means of M&As with financial services corporations and the consulting business. For the latter one the funds have a rich resource of expertise and contacts in house. In a declining market for their core activity and with lots of tumbling companies out there is no reason why Venture Capital funds should offer advice and consulting only to their investees. Examples are:· Oracle· Adobe· Dell· Kyocera

As an example, Adobe systems launched a $40m venture fund in 1994 to invest in companies strategic to its core business, such as Cascade Systems Inc and Lantana Research Corporation.- has been successfully boosting demand for its core products, so that Adobe recently launched a second $40m fund.

Financial funds:

A solution for financial funds could be a shift to a higher securisation of Venture Capital activities. That means that the parent companies shift the risk to their customers by creating new products such as stakes in an Venture Capital fund. However, the success of such products will depend on the overall climate and expectations in the economy. As long as the sownturn continues without any sign of recovery customers might prefer less risky alternatives.



CHAPTER 3

GLOBAL SCENARIO OF VENTURE CAPITAL

INDUSTRY



3.1 Overview

Over the last 18 months, the venture capital industry around the globe has experienced a welcome acceleration in the mature investment hotbeds – United States, Europe and Israel – and in the emerging venture capital hotbeds China and India. Global venture capital investment last year reached US $ 35.2 billion, the highest level since 2001, and is maintaining a robust pace in year 2007. The acceleration has been bolstered by the increasing globalization of both venture capital funds and venture backed companies and a substantial investor focus on emerging sectors.

As the dotcom market of the late 1990 has gathered the momentum, venture capital stood at the nexus of hype and hope. In 2000 , they poured nearly $95 billion into mostly young , untested companies , some no more than ideas, expecting to reap rich rewards by later selling of these outfits to public .But the bubble burst the market for the new stock issues tanked --- and by 2003 , venture capital funding had dwindled to $19 billion.

The VC showed the signs of stabilizing as the industry were bolstered by the 2005’s strong 4th quarter, the financing exceeded the $ 21.5 billion invested in venture-backed companies in 2004, reaching $22.1billion .While that was far below 2000’s peak, it represents a more sustainable pace of funding for both entrepreneurs and investors. In another sign of the industry firming, pension funds, foundations, and other investors are again getting interested to invest their money in venture funds, which provided seed money for young companies to grow on.

3.2 History & Evolution

Prior to World War Two, the source of capital for entrepreneurs everywhere was either the government, government-sponsored institutions meant to invest in such ventures, or informal investors (today, termed "angels") that usually had some prior relationship to the entrepreneur. In general, throughout history private banks, quite reasonably, have been unwilling to lend money to a newly established firm, because of the high risk and lack of collateral. After World War Two, in the U.S. a set of intermediaries emerged who specialized in investing in fledgling firms having the potential for extremely rapid growth.

From its earliest beginnings on the U.S. East Coast, venture capital gradually expanded and became an increasingly professionalized institution. During this period, the locus of the venture capital industry shifted from New York and Boston on the East Coast to Silicon Valley on the West Coast. By the mid 1980s, the ideal-typical venture capital firm was based in Silicon Valley and invested largely in electronics with lesser sums devoted to biomedical technologies. Until the present, in addition to Silicon Valley, the two other major concentrations have been Boston and New York City.



In both Europe and Asia, there are significant concentrations of venture capital in London, Israel, Hong Kong, Taiwan, and Tokyo. In the U.S., the government has played a role in the development of venture capital, though, for the most part, it was indirect. The indirect role, i.e., the general policies that also benefited the development of the venture capital industry, was probably the most significant. Some of the most important of these were:

The U.S. government generally practiced sound monetary and fiscal policies ensuring relatively low inflation with a stable financial environment and currency.

U.S. tax policy, though it evolved, has been favorable to capital gains, and a number of decreases in capital gains taxes may have had some positive effect on the availability of venture capital.

With the exception of a short period in the 1970s, U.S. pension funds have been allowed to invest prudent amounts in venture capital funds.

The NASDAQ stock market, which has been the exit strategy of choice for venture capitalists, was strictly regulated and characterized by increasing openness thus limiting investor's fears of fraud and deception.

This created a general macroeconomic environment of transparency and predictability, reducing risks for investors. Put differently, environmental risks stemming from government action were minimized -- a sharp contrast to most developing nations.

Another important policy has been a willingness to invest heavily and continuously in university research. This investment funded generations of graduate students in the sciences and engineering. From this research has come trained personnel and innovations; some of who formed firms that have been funded by venture capitalists. U.S. universities particularly, MIT, Stanford, and UC Berkeley played a particularly salient role.

The most important direct U.S. government involvement in encouraging the growth of venture capital was the passage of the Small Business Investment Act of 1958 authorizing the formation of small business investment corporations (SBICs). This legislation created a vehicle for funding small firms of all types. The legislation was complicated, but for the development of venture capital the following features were most significant:

It permitted individuals to form SBICs with private funds as paid-in capital and then they could borrow money on a two – to – one ratio initially up to $300,000, i.e., they could use up to $300,000 of SBA-guaranteed money for their investment of $150,000 in private capital.



There were also tax and other benefits, such as income and a capital gains pass-through and the allowance of a carried interest as compensation.

The SBIC program became one that many other nations either learned from or emulated. The SBIC program also provided a vehicle for banks to circumvent the Depression-Era laws prohibiting commercial banks from owning more than 5 percent of industrial firms. The banks' SBIC subsidiaries allowed them to acquire equity in small firms. This made even more capital available to fledgling firms, and was a significant source of capital in the 1960s and 1970s. The final investment format permitted SBICs to raise money in the public market. For the most part, these public SBICs failed and/or were liquidated by the mid 1970s. After the mid 1970s, with the exception of the bank SBICs, the SBIC program was no longer significant for the venture capital industry

The SBIC program experienced serious problems from its inception. One problem was that as a government agency it was very bureaucratic having many rules and regulations that were constantly changing. Despite the corruption, something valuable also occurred. Namely, and especially, in Silicon Valley, a number of individuals used their SBICs to leverage their personal capital, and some were so successful that they were able to reimburse the program and raise institutional money to become formal venture capitalists. The SBIC program accelerated their capital accumulation, and as important, government regulations made these new venture capitalists professionalize their investment activity, which had been informal prior to entering the program. Now-illustrious firms such as Sutter Hill Ventures, Institutional Venture Partners, Bank of America Ventures, and Menlo Ventures began as SBICs

The historical record also indicates that government action can harm venture capital. The most salient example came in 1973 when the U.S. Congress, in response to widespread corruption in pension funds, changed Federal pension fund regulations. In their haste to prohibit pension fund abuses, Congress passed the Employment Retirement Income Security Act (ERISA) making pension fund managers criminally liable for losses incurred in high-risk investments. This was interpreted to include venture capital funds; as a result pension managers shunned venture capital nearly destroying the entire industry.

This was only reversed after active lobbying by the newly created National Venture Capital Association (NVCA). In 1977, it succeeded in starting a gradual loosening process that was completed in 1982. The new interpretation of these pension fund guidelines contributed to first a trickle then a flood of new money into venture capital funds. The most successful case of the export of Silicon Valley-style venture capital practice is Israel where the government played an important role in encouraging the growth of venture capital.



The government has a relatively good economic record; there is a minimum of corruption, massive investment in military and, particularly, electronics research, and the excellent higher educational system. The importance of the relationships between Israelis and Jewish individuals in U.S. high-technology industry and the creation of the Israeli venture capital system should not be underestimated.

For example, the well-known U.S. venture capitalist, Fred Adler, began investing in Israeli startups in the early 1970s, and in 1985 was involved in forming the first Israeli venture capital fund. Still, the creation of an Israeli venture capital industry would wait until the 1990s, when the government funded an organization, Yozma, to encourage venture capital in Israel.

Yozma received $100 million from the Israeli government. It invested $8 million in ten funds that were required to raise another $12 million each from "a significant foreign partner," presumably an overseas venture capital firm. Yozma also retained $20 million to invest itself. These “sibling” funds were the backbone of a now vibrant community that invested in excess of $1 billion in Israel in 1999 (Pricewaterhouse 2000). In the U.S., venture capital emerged through an organic trial-and-error process, and the role of the government was limited and contradictory. In Israel the government played a vital role in a supportive environment in which private-sector venture capital had already emerged. The role of government differs. In the U.S. the most important role of the government was indirect, in Israel it was largely positive in assisting the growth of venture capital, in India the role of the government has had to be proactive in removing barriers (Dossani and Kenney 2001).

In every nation, the state has played some role in the development of venture capital. Venture capital is a very sensitive institutional form due to the high-risk nature of its investments, so the state must be careful to ensure its policies do not adversely affect its venture capitalists. Put differently, capricious governmental action injects extra risk into the investment equation. However, judicious, well-planned government policies to create incentives for private sector involvement have in the appropriate lead to the establishment of what became an independent self-sustaining venture capital industry.

3.3 Current Industry Trends

Round Class Distribution

The distribution of financing rounds by round class in mature markets is typically 30-40% in the early stage rounds, 20-25% in second round, and 35-40% in later rounds. In emerging market like China, the round distribution is very different as 68% in early stage round and 25% in second round. In mature countries, the investments are made at early start up or product development phase.



Industry shifts

It is perhaps no surprise that the contraction is mostly concentrated in information technology and the business, consumer and retail industries, give the huge number of companies financed in the technology and Internet boom of 1999-2000, and the subsequent downturn. The healthcare pool, driven by investment in biopharmaceuticals and medical devices, has actually grown to some degree in the different geographies .In United States, the healthcare pool has grown consistently over the last several years, both in terms of number of companies and cumulative dollars invested. Key observations on the pool of private companies by industry:-

The information and technology pool has declined by just 6% since 2002; particularly due to increasing Interest in WEB 2.0 innovations.

Since 2003, the IT pool has decreased by 27% in Europe and since 2004 17% in Israel. Cumulative investment has declined in similar amounts.

The business, consumer and retail category has faced the steepest declines across the board. In US the number had fallen 54% since 2002 and 54% in Europe since 2003 .In Israel; it dropped 67% since 2004.

The number of healthcare companies has grown in U.S. since 2002 by 27% and the capital risen 30% in last five years. Capital investment to the pool of healthcare companies in Europe and Israel has also climbed, although the number of companies dropped by 9%in Europe since 2003 and 9% in Israel since 2004.

Clean technology is a small but increasing element of the pool. There were 262 clean technology companies with a cumulative invested venture capital of US $38 billion in 2007.

Mega trends

Several global mega trends will likely have an impact on venture capital in the next decade:-

Beyond the BRICs: - A new wave of fast growing economies is joining the global growth leaders like Brazil, China, India, and Russia. The beginning of venture capital activity has been seen in others countries such as Indonesia, Korea, Turkey and Vietnam.

The new multinationals: - A new breed of global company is emerging from developing countries and redefining industries through low-cost advantage, modern infrastructure, and vast customer databases in their home countries.



These companies are potential acquirers of developed market companies at all stages of growth.

Globalization of capital:- Changes in economic and financial landscape are creating a significant regional shifts in IPO activity. These changes have also sparked global consolidation alliances among stock exchanges.

Transformation of the CFO’s role and function:- With the globalization and increasingly complex regulatory environment, CFOs have a wider range of responsibilities and finance function has been transformed to face broader mandates.

Clean Technology: - Clean technology is poised to become the first break through sector of 21st century. Encompassing energy, air and water treatment, industrial efficiency improvements, new material and waste management etc are playing very vital role globally because of which VC investors are enjoying rewards.



3.4 GLOBAL TREND IN VENTURE CAPITAL INDUSTRY

The 2007 Global Venture Capital Survey was sponsored by Deloitte & Touche LLP in conjunction with the National Venture Capital Association and other venture capital associations* throughout the world. It was administered in April and May 2007 to venture capitalists (VCs) in the Americas, Asia Pacific, Europe, the Middle East, and Africa.

There were 528 responses from general partners, with 45 percent of respondents from the United States and 31 percent from Europe. A complete geographic breakdown of respondents is as follows:

Figure: 3.1 Primary focused location for investment (APAC) respondents

The breadth of assets under management by these respondents was varied. The highest number of respondents—42 percent—had managed assets totaling less than $100 million; 35 percent managed assets between $100 million and $499 million; 12 percent managed assets between $500 million to $1 billion; and 11 percent more than $1 billion in assets under management There are 13 % respondents from APAC in which China, India, Japan, South Korea, other Asia. 45% respondents from Middle East include Israel and other area of Middle East.

Global VC investment increasing, but growth is slow and cautious.

We may live in a global economy, but the venture capital community is not broadly embracing global investment. Rather, roughly half of the venture community has made a commitment to a global investment strategy and those



firms are implementing that strategy slowly and cautiously. The intentions for growth of foreign investment, as demonstrated by this year’s survey data, are modest at best.

Figure: 3.2 Percentage of venture capitalist currently investing outside home country (U.S. respondents)

Figure: 3.3 Percentage of venture capitalist currently investing outside home country (Non U.S. respondents)

Among U.S. investors, 54 percent indicated that they would be expanding their investment focus outside of their home country or region in the next five years. Adequate deal flow in their home country was the reason indicated most for not wanting to expand globally.

Some venture investors are certainly taking advantage of opportunities outside their home countries, actual growth in terms of percentage of venture investors investing globally is occurring much more slowly than is commonly believed.



And, for a lot of firms, they’re not diving deep into investing in other countries, but dipping a toe in with one or two deals. This cautious approach allows the venture firms to further assess the investment environment, evaluate how their strategy may need to be adjusted and how critical challenges, such as tax and intellectual property issues impact overall performance.

3.5 Current strategies

Among those VCs who are currently investing abroad, 48 percent of them have developed strategic alliances with a foreign-based firm and 51 percent invest only with other investors who have a local presence. This underscores the need in venture capital to be physically close to the portfolio companies in order to work with management. Firms also indicated that to succeed, they need to understand local culture, and to do so they must have a local presence in their target countries to take advantage of in-country expertise. To this end, they also are hiring investment staff with expertise in target countries (41 percent) and requiring their partners to travel more (58 percent).

Figure: 3.4 Current business practices used by venture capitalist to manage foreign investment Focus



3.6 China, India, Israel and Canada are primary target countries for U.S. venture capitalists

There continues to be a consensus among U.S. venture capitalists regarding where the most opportunities exists globally. Most of the U.S. firms who have invested globally are making investments in China, India, Israel, and Canada. However, even in these countries, the majority of U.S. respondents are essentially dabbling, making only one to two investments thus far.

Figure: 3.5 Foreign investment currently held by firms

Allocations by U.S. and non-U.S. firms alike for the most part represent less than 5 percent of capital invested overseas in fewer than three to five deals. Survey results indicate that there will not be significant change during the next five years.



RESPONSE FROM U.S. RESPONDENTS

Figure: 3.6 Primary focused location for investment (U.S) respondents

Here from the above chart we can see that the highest percent of respondents are interested in China for setting up their businesses. India is the second choice for the global investors.



RESPONSE FROM (APAC) RESPONDENTS

Figure: 3.7 Primary focused location for investment (APAC) respondents

While China, India, Israel, and Canada are by far the most seductive target markets for investment by U.S. firms, venture capitalists in non-US countries have a different focus. By far the greatest contrast is among European respondents, who indicated a strong preference for investing in other parts of Europe (67 percent) and the United States (17 percent), with the remainder focused on Asia. Asian respondents had a similar level of interest in the United States (18 percent), but looked primarily inward to other Asian countries (78 percent), with the remainder focused on the Middle East. This data shows that while non-U.S. investors are interested in making deals outside of their home countries, there’s still a desire to remain somewhat close to home and do business with cultures close to theirs. Most of APAC respondents like to investment china and other Asia. There is 3% ready to invest in South Korea, Japan and South Korea.

Resources are critical for international investing

The survey findings indicate that global investing will broaden among U.S. VC firms at a slow pace for the foreseeable future. Of those VCs who indicated they currently have capital deployed abroad, more than half of U.S. respondents (54 percent) expect to expand their global investment focus over the next five years, and 61 percent of non-U.S. firms also see a future in investing outside of their home country. Not surprising, larger VC firms are most likely to be investing outside the United States and plan to increase their overseas investment. In fact, 85 percent of U.S. firms and 92 percent of non-U.S. firms with capital management over $1 billion indicated plans to increase their foreign investments. Interestingly, among mid-size firms, 47 percent of the VCs with $100 to



$499 million capital under management are investing outside the U.S. This underscores that global investing requires additional resources and a sophisticated infrastructure in order to manage a global investment strategy. That said, the study also shows that a significant percentage of mid-size firms recognize that opportunities exist outside their home country and are building their franchise in a way that will enable them to take advantage of those opportunities.

Figure: 3.8 Percentage of venture capitalist expecting to expand investment focus Outside home country

3.7 Primary reasons why venture investors expanding globally

Among the primary reasons VCs around the world are interested in investing globally is to take advantage of higher quality deal flow—particularly in the United States, China, parts of Europe, and Israel. This is especially true for non-U.S. firms. A second reason is the emergence of an entrepreneurial environment, again and notably in China, but also India. Among U.S. firms, this latter rationale is the most significant motivation for investing globally. Other motivators include access to quality entrepreneurs, diversification of industry and geographic risk and access to foreign markets.



Figure: 3.9 primary reasons why venture investors expanding globally

Above chart reveals that 19% U.S respondents are expand globally for generating high quality deal flow. And 31% believe that they expand globally for getting benefit of emergence of entrepreneurial environment. While 17% respondents of non U.S are expand globally for diversification of industry and geographic risk. All respondents are least concerned about low cost of locations.

3.8 Investing globally by investing locally

One way to build a comfort zone for global investing and to take advantage of opportunities abroad is to invest locally in companies with operations outside their home country, as opposed to investing directly in foreign countries. This year, there was a significant increase in the number of respondents who indicated that a sizeable number of their portfolio companies have a considerable amount of operations outside the country in which they’re headquartered.

A significant number, 88 percent of U.S. respondents and 82 percent of non-U.S. respondents, indicated that at least some portion of their portfolio has significant operations outside of the country of headquarters. Again, moderation is evident as more than half of those indicated that less than 25 percent of their portfolio had significant foreign operations. Nonetheless, these numbers have increased significantly from prior years and reflect an increased trend in this method of investment



Figure: 3.10 Percentage of venture capital firms portfolio companies that give significant operation outside the country

Globally and among U.S. respondents, China has become the primary choice for relocating manufacturing operations, while India is the primary choice for R&D operations. Engineering operations tend to land in India as well, but China is also a popular location. For back office activities, again, the choice is India. However, for non-U.S. respondents, the United States is the primary choice for R&D and engineering while European respondents preferred Central and Eastern Europe for manufacturing, R&D, and Engineering. One reason why this approach is taking off is that investors are concerned about intellectual property and liquidity events—and, in general, they feel a need to be closer to top management. This also reflects a new reality—that VCs are now investing in companies that operate globally from day one— companies that reflect a larger global entrepreneurial sector. This strategy allows the portfolio companies (and investors) to take advantage of cost savings and access to talent in foreign markets while protecting intellectual property. There are, however, concerns that such a trend could result in the U.S. losing its R&D edge.

3.9 Impediments to global investing

For all the benefits of overseas investing, VC firms encounter a variety of risks and challenges abroad. Both U.S. and non-U.S. firms perceive the U.S. as the country where the cost of complying with regulation is too high. In fact, the percentage of non-U.S. respondents who indicated this as a concern leaped from 28 percent last year to 41 percent this year. Globally, 4 percent more, 44 percent, saw this issue as a concern. Forty-six percent of U.S. respondents believe the cost of complying with corporate governance is too high.



Figure: 3.11 Top markets where the cost of complying with corporate governance regulation too high

From the above chart we can see that most of the respondents believe that U.S. has high cost of complying with Corporate Governance regulation and china, india ,Israel and Canada cost of complying with corporate governance regulation too high.



CHAPTER 4

VENTURE CAPITALIN INDIA



4.1 Evolution of VC Industry in India

The first major analysis on risk capital for India was reported in 1983. It indicated that new companies often confront serious barriers to entry into capital market for raising equity finance which undermines their future prospects of expansion and diversification. It also indicated that on the whole there is a need to revive the equity cult among the masses by ensuring competitive return on equity investment. This brought out the institutional inadequacies with respect to the evolution of venture capital.

In India, the Industrial finance Corporation of India (IFCI) initiated the idea of VC when it established the Risk Capital Foundation in 1975 to provide seed capital to small and risky projects. However the concept of VC financing got statutory recognition for the first time in the fiscal budget for the year 1986-87.

The Venture Capital companies operating at present can be divided into four groups: Promoted by All – India Development Financial Institutions Promoted by State Level Financial Institutions Promoted by Commercial banks Private venture Capitalists.

Promoted by all India development financial institutions

The IDBI started a VC fund in 19876 as per the long term fiscal policy of government of India, with an initial capital of Rs. 10 cr which raised by imposing a cess of 5% on all payments made for the import of technology know- how projects requiring funds from rs.5 lacs to rs 2.5 cr were considered for financing. Promoter’s contribution ranged from this fund was available at a concessional interest rate of 9% ( during gestation period) which could be increased at later stages.

The ICICI provided the required impetus to VC activities in India, 1986, it started providing VC finance in 1998 it promoted, along with the Unit Trust of India (UTI) Technology Development and Information Company of India (TDICI) as the first VC company registered under the companies act, 1956. The TDICI may provide financial assistance to venture capital undertakings which are set up by technocrat entrepreneurs, or technology information and guidance services.

The risk capital foundation established by the industrial finance corporation of India (IFCI) in 1975, was converted in 1988 into the Risk Capital and Technology Finance company (RCTC) as a subsidiary company of the ifci the rctc provides assistance in the form of conventional loans, interest –free conditional loans on profit and risk sharing basis or equity participation in extends financial supoort to high technology projects for technological upgradations. The RCTC has been renamed as IFCI Venture Capital Funds Ltd.(IVCF)

Promoted by State Level Financial Institutions In India, the State Level financial institutions in some states such as Madhya Pradesh, Gujarat, Uttar Prades, etc., have done an excellent job and have provided VC to a small



scale enterprises. Several successful entrepreneurs have been the beneficiaries of the liberal funding environment. In 1990, the Gujarat Industrial Investment Corporation, promoted the Gujarat Venture Financial Ltd.(GVFL) along with other promoters such as the IDBI, the World Bank, etc. The GVFL provides financial assistance to businesses in the form of equity, conditional loans or income notes for technologies development and innovative products. It also provides finance assistance to entrepreneurs.

The government of Andhra Pradesh has also promoted the Andhra Pradesh Industrial Development Corporation (APIDC) venture capital ltd. To provide VC financing in Andhra Pradesh.

Promoted by commercial banks

Canbank Venture Capital Fund, State Bank Venture Capital Fund and Grindlays bank Venture Capital Fund have been set up by the respective commercial banks to undertake vc activities.

The State Bank Venture Capital Funds provides financial assistance for bought –out deal as well as new companies in the form of equity which it disinvests after the commercialization of the project.

Canbank Venture Capital Fund provides financial assistance for proven but yet to b commercially exploited technologies. It provides assistance both in the form of equity and conditional loans.

Private Venture Capital Funds

Several private sector venture capital funds have been established in India such as the 20 th

Centure Venture Capital Company, Indus Venture Capital Fund, Infrastructure Leasing and Financial Services Ltd.

Some of the companies that have received funding through this route include: Mastek, on of the oldest softwear house in India Ruskan software, Pune based software consultancy SQL Star, Hyderabad-based training and software development consultancy Satyam infoway, the first private ISP in India Hinditron, makers of embedded software Selectia, provider of interactive software selectior Yantra, ITLInfosy’s US subsidiary, solution for supply chain management Rediff on the Net, Indian website featuring electronic shopping, news,chat etc.



4.2 INDUSTRY LIFE CYCLE:

From the industry life cyle we can know in which stage we are standing. On the basis of this management can make future strategies of their business.

Figure: 4.1 Industry life cycle

The growth of VC in India has four separate phases:

4.2.1 Phase I - Formation of TDICI in the 80’s and regional funds as GVFL & APIDC in the early 90s.

The first origins of modern venture capital in India can be traced to the setting up of a Technology Development Fund in the year 1987-88, through the levy of access on all technology import payments. Technology Development Fund was started to provide financial support to innovative and high risk technological programmes through the Industrial Development Bank of India.

The first phase was the initial phase in which the concept of VC got wider acceptance. The first period did not really experience any substantial growth of VCs’. The 1980’s were marked by an increasing disillusionment with the trajectory of the economic system and a belief that liberalization was needed. The liberalization process started in 1985 in a limited way. The concept of venture capital received official recognition in 1988 with the announcement of the venture capital guidelines.

During 1988 to 1992 about 9 venture capital institutions came up in India.Though the venture capital funds should operate as open entities, Government of India controlled them rigidly. One of the major forces that induced Government of India to start venture funding was the World Bank. The initial funding has been provided by World Bank. The most important feature of the 1988 rules was that venture capital funds received the benefit of a relatively low capital gains tax rate which was lower than the


INTRODUCTION GROWTH


corporate rate. The 1988 guidelines stipulated that VC funding firms should meet the following criteria:

Technology involved should be new, relatively untried, very closely held, in the process of being taken from pilot to commercial stage or incorporate some significant improvement over the existing ones in India

Promoters / entrepreneurs using the technology should be relatively new, professionally or technically qualified, with inadequate resources to finance the project.

Between 1988 and 1994 about 11 VC funds became operational either through reorganizing the businesses or through new entities.

All these followed the Government of India guidelines for venture capital activities and have primarily supported technology oriented innovative businesses started by first generation entrepreneurs. Most of these were operated more like a financing operation. The main feature of this phase was that the concept got accepted. VCs became operational in India before the liberalization process started. The context was not fully ripe for the growth of VCs. Till 1995; the VCs operated like any bank but provided funds without collateral. The first stage of the venture capital industry in India was plagued by in experienced management, mandates to invest in certain states and sectors and general regulatory problems. Many public issues by small and medium companies have shown that the Indian investor is becoming increasingly wary of investing in the projects of new and unknown promoters.

The liberation of the economy and toning up of the capital market changed the economic landscape. The decisions relating to issue of stocks and shares was handled by an office namely: Controller of Capital Issues (CCI). According to 1988 VC guideline, any organization requiring to start venture funds have to forward an application to CCI. Subsequent to the liberalization of the economy in 1991, the office of CCI was abolished in May 1992 and the powers were vested in Securities and Exchange Board of India. The Securities and Exchange Board of India Act, 1992 empowers SEBI under section 11(2) thereof to register and regulate the working of venture capital funds. This was done in 1996, through a government notification. The power to control venture funds has been given to SEBI only in 1995 and the notification came out in 1996. Till this time, venture funds were dominated by Indian firms. The new regulations became the harbinger of the second phase of the VC growth.

4.2.2 Phase II - Entry of Foreign Venture Capital funds (VCF) between 1995 -1999

The second phase of VC growth attracted many foreign institutional investors.During this period overseas and private domestic venture capitalists began investing in VCF. The new regulations in 1996 helped in this. Though the changes proposed in 1996 had a salutary effect, the development of venture capital continued to be inhibited because of the regulatory regime and restricted the FDI environment. To facilitate the growth of venture funds, SEBI appointed a committee to recommend the changes needed in the VC funding context. This coincided with the IT boom as well as the success of Silicon Valley start-ups. In other words, VC growth and IT growth co-evolved in India



4.2.3 Phase III - (2000 onwards) - VC becomes risk averse and activity declines:

Not surprisingly, the investing in India came “crashing down” when NASDAQ lost 60% of its value during the second quarter of 2000 and other public markets (including those in India) also declined substantially. Consequently, during 2001-2003, the VCs started investing less money and in more mature companies in an effort to minimize the risks. This decline broadly continued until 2003.

4.2.4 Phase IV – 2004 onwards - Global VCs firms actively investing in IndiaSince India’s economy has been growing at 7%-8% a year, and since some sectors, including the services sector and the high-end manufacturing sector, have been growing at 12%-14% a year, investors renewed their interest and started investing again in 2004. The number of deals and the total dollars invested in India has been increasing substantially.

4.3 Growth of venture capital in India

Growth of VC in India

1160 937 591 470

2200

7500

14234

6390

1650

280

110

78

146

299

170

387

71

56

0

2000

4000

6000

8000

10000

12000

14000

16000

2000 2001 2002 2003 2004 2005 2006 2007 1st halfof 2008

0

50

100

150

200

250

300

350

400

450

Value of deals No.of deals

USD Million No. of Deals

Figure: 4.2 Growth of Venture capital in india

The venture capital is growing 43% CAGR. However, in spite of the venture capital scenario improving, several specific VC funds are setting up shop in India, with the year 2006 having been a landmark year for VC funding in India. The



total deal value in 2007 is 14234 USD Million. The NO. of deals are increasing year by year. The no. of deals in 2006 only 56 and now in 2007 it touch the 387 deals. The introduction stage of venture capital industry in India is completed in 2003 after that growing stage of Indian venture capital industry is started.

There are 160 venture capital firms/funds in India. In 2006 it is only but in 2007 the number of venture capital firms are 146. The reason is good position of capital market. But in 2008 no. of venture capital firms increase by only 14. the reason is crashdown of capital market by 51% from January to November 2008. The No. of venture capital funds are increasing year by year.

2000 2001 2002 2003 2004 2005 2006 2007 2008841 77 78 81 86 89 105 146 160 www.nasscom.org, strategic review 2008 published by (National Association of Software and Service Companies)

Venture capital growth and industrial clustering have a strong positive correlation. Foreign direct investment, starting of R&D centres, availability of venture capital and growth of entrepreneurial firms are getting concentrated into five clusters. The cost of monitoring and the cost of skill acquisition are lower in clusters, especially for innovation. Entry costs are also lower in clusters. Creating entrepreneurship and stimulating innovation in clusters have to become a major concern of public policy makers. This is essential because only when the cultural context is conducive for risk management venture capital will take-of. Clusters support innovation and facilitates risk bearing. VCs prefer clusters because the information costs are lower. Policies for promoting dispersion of industries are becoming redundant after the economic liberalization.

The venture capital firm invest their money in most developing sectors like health care, IT-ITes,, telecom, Bio-technology, Media& Entretainment, shipping & ligistics etc.


http://www.nasscom.org/


2007 VC INVESTMENTS BY INDUSTRY TOTAL US$14.2Bn

9881638

3979

1628478

1101

616

685

1839

1284

IT&ITES ManufacturingBFSI Eng & ConstructionHealthcare & lifesciences EnergyMedia&Entertinment Shipping&LogisticsTelecom Others

Source : TSJ Venture Intelligence India

Figure: 4.3 Total sector wise venture capital investment-2007

Now venture capital is nascent stage in india. Now due to growth of this sector, the venture capital industry is also grow. The top most player in the industries are ICICI venture capital fund, Avishhkar venture capital fund, IL&FS venture capital fund, Canbank.



4.4 Venture Capital investment Q3, 2008.

Venture Capital firms invested $274 million over 49 deals in India during the three months ending September 2008. The VC investment activity during the period was significantly higher compared to the same quarter last year (which had witnessed 36 investments worth $252 million) as well as the immediate previous quarter ($165 million invested across 28 deals).

The latest numbers take the total VC investments in the first nine months of 2008 to $661 million (across 108 deals) as against the $648 million (across 97 deals) during the corresponding period in 2007.

4.4.1 Top InvestmentsThe largest investment reported during Q3 2008 was the $18 million raised by online tutoring services provider TutorVista from existing investors Sequoia Capital India and LightSpeed Ventures.

Top VC Investments

Company

TutorVista

Sector

Online Services (Remote Tutoring)

Amount (US$ M)

18.0

Investors

Sequoia Capital India, Lightspeed Ventures

Connectiva Systems

Communications Tech (Revenue Assurance)

17.0 IFC, NEA-IUV, SAP Ventures, Others

SeventymmOnline Services (Video Rental)

12.0 NEA-IUV, ePlanet Ventures, Matrix Partners India,DFJ

Equitas Micro Finance

Microfinance 12.0 Bellwether, Others

HaloSource Water Purifiers 11.5 Origo Sino-India, Unilever Tech Ventures

Table: 4.1 Top venture capital investments



4.4.2 Investments by Industry

Information Technology and IT-Enabled Services (IT & ITES) industry retained its status as the favorite among VC investors during Q3 ’08.

VC Investments by IndustryIndustry Volume

Q3 ‘ 08No. of Deals

YTD**

Value Q3’ 08

(US $ M)YTD

IT & ITES 25 58 147 361

BFSI 5 8 34 54

Engg & Construction 3 4 23 33

Healthcare & Life Sciences

6 12 4 52

Education 2 3 17 23

Other Services 1 6 15 29

Manufacturing 2 2 13 13

Media 2 5 11 19

Energy 2 6 6 48

Travel & Transport 1 2 4 14

Retail - 1 - 10

Telecom - 1 - 5

Table: 4.2 Venture capital investment by industry

Led by the $12 million investment by Bellwether and others into Chennai-based microfinance firm Equitas, BFSI emerged as the second largest (in value terms) for VC investments during the period. Other microfinance firms that attracted investments during Q3 ’08 included Kolkata-based Arohan Financial Services (which raised funding from Lok Capital and others) and Guwahati-based Asomi Finance (IFC and Aavishkaar Goodwell).



INVESTMENT BY INDUSTRY (Q3 ' 08)

54%

12%

8%2%

6%6%

5% 4% 2%1%

IT & ITES BFSI

Engg & Construction Healthcare & Life Sciences

Education Other Services

Manufacturing Media

Energy Travel & Transport

Figure: 4.4 investment by industry Q3,2008



4.4.3 Investment by Stage

About 67% of VC investments during Q3 ‘08 were in the early stage segment.

VC Investments by StageStage of Company Development

Volume

Q3 '08 YTD

Value Q3 '08 YTD

Early 33 67 172 339

Growth 16 41 102 322

Table: 4.3 Venture investment by stage

STAGE WISE INVESTMENT

67%

33%

EARLY LATER

Figure: 4.5 Stage wise investment

4.5 Need for growth of venture capital in India

In India, a revolution is ushering in a new economy, wherein entrepreneurs mind set is taking a shift from risk averse business to investment in new ideas which involve high risk. The conventional industrial finance in India is not of much help to these new emerging enterprises. Therefore there is a need of financing mechanism that will fit with the requirement of entrepreneurs and thus it needs venture capital industry to grow in India.

Few reasons for which active Venture Capital Industry is important for India include:

Innovation : needs risk capital in a largely regulated, conservative, legacy financial system

Job creation: large pool of skilled graduates in the first and second tier cities



Patient capital: Not flighty, unlike FIIs

Creating new industry clusters: Media, Retail, Call Centers and back office processing, trickling down to organized effort of support services like office services, catering, transportation

4.6 Regulatory and legal framework

Definition of Venture Capital Fund : The Venture Capital Fund is now defined as a fund established in the form of a Trust, a company including a body corporate and registered with SEBI which: A. Has a dedicated pool of capital; B. Raised in the manner specified under the regulations; and C. To invest in venture capital undertakings in accordance with the regulations."

Definition of Venture Capital Undertaking: Venture Capital Undertaking means a domestic company:- a. Whose shares are not listed on a recognized stock exchange in India b. Which is engaged in business including providing services, production or

manufacture of articles or things, or does not include such activities or sectors which are specified in the negative list by the Board with the approval of the Central Government by notification in the Official Gazette in this behalf? The negative list includes real estate, non-banking financial services, gold financing, activities not permitted under the Industrial Policy of the Government of India.

Minimum contribution and fund size : the minimum investment in a Venture Capital Fund from any investor will not be less than Rs. 5 lacs and the minimum corpus of the fund before the fund can start activities shall be at least Rs. 5 crores.

Investment Criteria : The earlier investment criteria has been substituted by a new investment criteria which has the following requirements :

Disclosure of investment strategy; maximum investment in single venture capital undertaking not to exceed 25% of the

corpus of the fund; Investment in the associated companies not permitted; At least 75% of the investible funds to be invested in unlisted equity shares or equity

linked instruments. Not more than 25% of the investible funds may be invested by way of:

a. Subscription to initial public offer of a venture capital undertaking whose shares are proposed to be listed subject to lock-in period of one year;

b. Debt or debt instrument of a venture capital undertaking in which the venture capital fund has already made an investment by way of equity.



It has also been provided that Venture Capital Fund seeking to avail benefit under the relevant provisions of the Income Tax Act will be required to divest from the investment within a period of one year from the listing of the Venture Capital Undertaking.

Disclosure and Information to Investors: In order to simplify and expedite the process of fund raising, the requirement of filing the Placement memorandum with SEBI is dispensed with and instead the fund will be required to submit a copy of Placement Memorandum/ copy of contribution agreement entered with the investors along with the details of the fund raised for information to SEBI. Further, the contents of the Placement Memorandum are strengthened to provide adequate disclosure and information to investors. SEBI will also prescribe suitable reporting requirement from the fund on their investment activity.

QIB status for Venture Capital Funds: The venture capital funds will be eligible to participate in the IPO through book building route as Qualified Institutional Buyer subject to compliance with the SEBI (Venture Capital Fund) Regulations.

Relaxation in Takeover Code: The acquisition of shares by the company or any of the promoters from the Venture Capital Fund under the terms of agreement shall be treated on the same footing as that of acquisition of shares by promoters/companies from the state level financial institutions and shall be exempt from making an open offer to other shareholders.

Investments by Mutual Funds in Venture Capital Funds: In order to increase the resources for domestic venture capital funds, mutual funds are permitted to invest upto 5% of its corpus in the case of open ended schemes and upto 10% of its corpus in the case of close ended schemes. Apart from raising the resources for Venture Capital Funds this would provide an opportunity to small investors to participate in Venture Capital activities through mutual funds.

Government of India Guidelines: The Government of India (MOF) Guidelines for Overseas Venture Capital Investment in India dated September 20, 1995 will be repealed by the MOF on notification of SEBI Venture Capital Fund Regulations.

The following will be the salient features of SEBI (Foreign Venture Capital Investors) Regulations, 2000 :

Definition of Foreign Venture Capital Investor : Any entity incorporated and established outside India and proposes to make investment in Venture Capital Fund or Venture Capital Undertaking and registered with SEBI.

Eligibility Criteria : Entity incorporated and established outside India in the form of investment company, trust, partnership, pension fund, mutual fund, university fund, endowment fund, asset management company, investment manager, investment management company or other investment vehicle incorporated outside India would be eligible for seeking registration from SEBI. SEBI for the purpose of registration shall consider whether the applicant is regulated by an appropriate foreign regulatory authority; or is an income tax payer; or submits a certificate from its banker of its or its promoters’ track record where the applicant is neither a regulated entity nor an income tax payer.



Investment Criteria:

Disclosure of investment strategy; Maximum investment in single venture capital undertaking not to exceed 25% of the

funds committed for investment to India however it can invest its total fund committed in one venture capital fund;

Atleast 75% of the investible funds to be invested in unlisted equity shares or equity linked instruments.

Not more than 25% of the investible funds may be invested by way of:

a. Subscription to initial public offer of a venture capital undertaking whose shares are proposed to be listed subject to lock-in period of one year;

b. Debt or debt instrument of a venture capital undertaking in which the venture capital fund has already made an investment by way of equity.

Hassle Free Entry and Exit: The Foreign Venture Capital Investors proposing to make venture capital investment under the Regulations would be granted registration by SEBI. SEBI registered Foreign Venture Capital Investors shall be permitted to make investment on an automatic route within the overall sectoral ceiling of foreign investment under Annexure III of Statement of Industrial Policy without any approval from FIPB. Further, SEBI registered FVCIs shall be granted a general permission from the exchange control angle for inflow and outflow of funds and no prior approval of RBI would be required for pricing, however, there would be ex-post reporting requirement for the amount transacted.

Trading in unlisted equity : The Board also approved the proposal to permit OTCEI to develop a trading window for unlisted securities where Qualified Institutional Buyers (QIB) would be permitted to participate.

4.7 Methods of Venture Financing

Venture capital is typically available in three forms in India, they are:

Equity: All VCFs in India provide equity but generally their contribution does not exceed 49 percent of the total equity capital. Thus, the effective control and majority ownership of the firm remains with the entrepreneur. They buy shares of an enterprise with an intention to ultimately sell them off to make capital gains.

Conditional Loan: It is repayable in the form of a royalty after the venture is able to generate sales. No interest is paid on such loans. In India, VCFs charge royalty ranging between 2 to 15 percent; actual rate depends on other factors of the venture such as gestation period, cost-flow patterns, riskiness and other factors of the enterprise.

Income Note : It is a hybrid security which combines the features of both conventional loan and conditional loan. The entrepreneur has to pay both interest and royalty on sales, but at substantially low rates.

Other Financing Methods: A few venture capitalists, particularly in the private sector, have started introducing innovative financial securities like participating debentures, introduced by TCFC is an example.



4.8 Key considerations

For investor/venture capitalist

Ideal entrepreneur

A venture capital (VC) who is financing the firm would as the first necessity assess and gauge the promoters. Because in the case of start-up where the product or the technology is yet to be tested, the only thing they can trust and their investment on the people behind it. While investing in a company what a VC is essentially looking for is a partnership and therefore the first decision making criterion is the character and personality of the promoters.

However from a venture capitalist’s perspective, the ideal entrepreneur,

1. is qualified in a ‘hot’ area of interest2. Delivers sales or technical advances such as FDA approval with reasonable

probability3. Tells a compelling story and is presentable to outside investors,4. Recognizes the need for speed to an ipo for liquidity,5. Has a good reputation and can provide references that show competences and skill,6. Understand the need for a team with a variety of skill and therefore sees why equity

has to be allocated to other people7. Works diligently toward a goal but maintains flexibility8. Get along with the investor group 9. Understands the cost of capital and typical deal structures and is not offended by them10. Is sought after by many VCs11. Has a realistic expectation about process and outcome.

Besides the ideal entrepreneur, the investor tries to ensure the following for himself.

1 Reasonable reward given in the level of risk.2 Sufficient influence on the management of the company through board representation.3 Minimization of taxes.4 Ease in achieving future liquidity on the investment.5 Flexibility of structure that will allow room to enable additional investment later,

incentives for future management and retention of stocks if management leaves6 Balance-sheet attractiveness to suppliers and debt financier 7 Retention of key employees through adequate equity participation

4.9 Venture financing practices and procedures

Entrepreneurs who need VC financing for their enterprises should have sufficient information to be able to choose a VC company or fund suitable for their requirement and have a broad understanding of the procedures required to be followed for obtaining financial assistance at different stages of implementation of their projects.Basically they need to develop a business plan or prototype to get venture finance.



The business plan is document that conveys a company’s prospects and growth potential, and thereby sells the business to potential backers. The process is to be managed just as most other business task is managed. It requires advance preparation, delegation, refinement, and disciplines do most important business functions.

Companies are increasingly being called on to provide written business plans, financial backers, especially VCs and other private investors , have long sought business plans before making investment decisions. In addition, organization and individuals considering long term relationships with the companies, large customers, suppliers and distributors are much more inclined to seek written plans.

The business plan process involves gathering accurate and convincing information as well as carefully outlining the plan before writing. Executives should also determine what kind of plan they need, ranging from a summary plan full plan or an operating plan.

Once all these considerations have been formulated, the plan is ready for final rewriting and presentation. Extensive editing is recommended, along with careful attention to presentation details like the cover and concerns of its likely reader’s .perhaps most important, the plan should be used to guide the company. Thus it should be reviewed and updated.

In project appraisal, feasibility of the project is assessed from different angels with stress on production process and marketability, as the lending institutions are backed by the security of movable and immovable assets of the borrower and chiefly concerned with the return of the investment with interest. In venture capital financing the venture capitalist has a different approach because of equity participation, risk sharing and involvement in the management of project. Investment by a venture capitalist indifferent stage of enterprise calls for an analysis of factors related to each stage.

However, the order of preference followed by the venture capitalists in evaluating of business plan is as under:

1. Analysis of management.2. Analysis of organization pattern.3. Analysis of production process.4. Analysis of marketing & sales.5. Financial analysis and projections.6. Analysis of reference information.



CHAPTER 5

COMPREHENSIVE STUDY OF INDIAN

MARKET



5.1 VENTURE CAPITAL & ALTERNATIVE FINANCING

COMPARISON

.

High

Low

Low High

S.V .Institute Of Management, Kadi

Private Placement, IPO,

vendor financing, state

funding, strategic alliance,

parent company finance

Venture Capital

Angel investment, licensing self funding, friends, family, Community bank

Bootstrapping(factoring, trade credit, leasing ), micro loans, financing debt, sell some assets, business credit card

60


Level of Risk

Figure: 5.1 venture capital & alternative financing comparison

If we’ are struggling to find success in our quest for venture capital, may be we are looking in the wrong place. Venture capital is not for everybody. For starters, venture capitalists tend to be very picky about where they invest. They are looking for something to dump a lot of money into (usually no less than $1 million) that will pour even more money right back at them in a short amount of time (typically 3-7 years). We may be planning for a steady growth rate as opposed to the booming, overnight success that venture capitalists tend to gravitate toward. We may not be able to turn around as large of a profit as they are looking for in quick enough time. We may not need the amount of money that they offer or our business may simply not be big enough.

Simply put, venture capital is not the right fit for our business and there are plenty of other options available when it comes to finding capital.

5.1.1 Substitute in Early stage

1. Angels

Most venture capital funds will not consider investing in anything under $1 million to $2 million. Angels, however, are wealthy individuals who will provide capital for a startup business. These investors have usually earned their money as entrepreneurs and business managers and can serve as a prime resource for advice on top of capital. On the other hand, due to typically limited resources, angels usually have a shorter investment horizon than venture capitalists and tend to have less tolerance for losses.

2. Private Placement

An investment bank or agent may be able to raise equity for our company by placing our unregistered securities with accredited investors. However, you should be aware that the fees and expenses associated with this practice are generally higher than those that come with venture and angel investors. We will likely receive little or no business counsel from private investors who also tend to have little tolerance for losses and under-performance.

3. Initial Public Offering

If we are somehow able to gain access to public equity markets than an initial public offering (IPO) can be an effective way to raise capital. Keep in mind that, while the public market’s high valuations, abundant capital and liquidity characteristics make it attractive, the transaction costs are high and there are ongoing legal expenses associated with public disclosure requirements.


http://en.wikipedia.org/wiki/Liquidity

http://en.wikipedia.org/wiki/Initial_public_offering

http://en.wikipedia.org/wiki/Initial_public_offering

http://en.wikipedia.org/wiki/Securities

http://en.wikipedia.org/wiki/Stock

http://en.wikipedia.org/wiki/Investment_bank

http://en.wikipedia.org/wiki/Angel_investor

http://en.wikipedia.org/wiki/Venture_capital


5.1.2 Later Stage Financing

1. Bootstrap Financing

This method is intended to develop a foundation for your business from scratch. Financial management is essential to make this work. With bootstrap financing you’re building a business from nothing, which means there is little to no margin for error in the finance department. Keep a rigid account of all transactions and don’t stray from your budget.

A few different methods of bootstrapping include :

Factoring, which generates cash flow through the sale of your accounts receivable to a “factor” at a discounted price forscash.

Trade Credit is an option if you are able to find a vendor or supplier that will allow you to order goods on net 30, 60 or 90 day terms. If you can sell the goods before the bill comes due then you have generated cash flow without spending anysmoney. Customers can pay you up front our services.

Leasing your equipment instead of purchasing it outright.

2. Fund From Operations

Look for ways to tweak your business in order to reduce the cash flowing out and increase the cash flowing in. Funding found in business operations come free of finance charges, can reduce future financing charges and can increase the value of your business. Month-by-month operating and cash projections will show how well we have planned, how you can optimize the elements of your business that generate cash and allow you to plan for new investments and contingencies.

3. Licensing

Sell licenses to technology that is non-essential to our company or grant limited licensing to essential technology that can be shared. Through outlicensing we can generate revenue from up-front fees, access fees, royalties or milestone payments.

4. Vendor Financing

Similar to the trade credit related to bootstrap financing, vendors can play a big role in financing your new business. Establish vendor relationships through our trade association and strike deals to offer their product and pay for it at a date in the near future. Selling the product in time is up to us. In hopes of keeping you as a customer, vendors may also be willing to work out an arrangement if we need to finance equipment or supplies. Just make sure to look for stability when you research a vendor’s credentials and reputation before you sign any kind of



agreement. And keep in mind that many major suppliers (GE Small Business Solutions, IBM Global Financing) own financial companies that can help you.

5. Self Funding

Search between the couch cushions and in old jacket pockets for whatever extra money you might have lying around and invest it into your business. Obviously loose change will not be enough for extra business funding, but take a look at your savings, investment portfolio, retirement funds and employee buyout options from your previous employer. You won’t have to deal with any creditors or interest and the return on your investment could be much higher.

However, make sure that you consider the risks involved with using your own resources. How competitive is the market that you are about to enter into? How long will it take to pay yourself back? Will you be able to pay yourself back? Can you afford to lose everything that you are investing if your business were to fail? It’s important that your projected returns are more than enough to cover the risk that you will be taking.

6. SBIR and STTR Programs

Coordinated by the SBA, SBIR (Small Business Innovation Research) and STTR (Small business Technology Transfer) programs offer competitive federal funding awards to stimulate technological innovation and provide opportunities for small businesses. You can learn more about these programs at SBIRworld.com.

7. State Funding

If you’re not having any luck finding funding from the federal government take a look at what your state has to offer. There is a list of links to state development agencies that offer an array of grants and financial assistance for small businessessonsAbout.com..

8. Community Banks

These smaller banks may have fewer products than their financial institution counterparts but they offer a great opportunity to build banking relationships and are generally more flexible with payment plans and interest rates.

9. Microloans

These types of loans can range from hundreds of dollars to low six-figure amounts. Although some lenders regard microloans to be a waste of time because the amount is so low, these can be a real boon for a startup business or one that just needs to add some extra cash flow.


http://www.about.com/

http://usgovinfo.about.com/library/weekly/blstategrants.htm

http://usgovinfo.about.com/library/weekly/blstategrants.htm

http://www.sbirworld.com/

http://www-03.ibm.com/financing/us/

http://www.gemoney.com/small_business/index.html

http://www.gemoney.com/small_business/index.html


10. Finance Debt

It may be more expensive in the long run than purchasing, but financing your equipment, facilities and receivables can free up cash in the short term or reduce the amount of money that you need to raise.

11. Friends

Ask your friends if they have any extra money that they would like to invest. Assure them that you will pay them back with interest or offer them stock options or a share of the profits in return.

12. Family

Maybe you have a rich uncle or a wealthy cousin that would be willing to lend you some money get your business running or send it to the next level. Again, make it worth their while by offering interest, stocks or a share of the profits.

13. Form A Strategic Alliance

Aligning your business with a corporation can produce funding from upfront or access fees to your service, milestone payments and royalties. In addition, corporate partners may be able to provide research funding, loans and equity investments.

14. Sell Some Assets

Find an interested party to buy some of your assets (computers, equipment, real estate, etc…) and then lease them back to you. This provides an instant source of cash and you will still be able to use whatever assets you need.

15. Business Lines of Credit

If your business has positive cash flow and has proven that it will cover its debts then you may be eligible for a business line of credit. This type of financing is a common service offered by most business banks and serves as business capital, up to an agreed upon amount, that you can access at any time.

16. Personal Credit Cards

Using personal credit cards to finance a business can be risky but, if you take the right approach, they can also give your business a lift. You should only consider using this type of financing for acquiring assets and working capital. Never



consider this to be a long-term option. Once your company breaks even or moves into the black, ditch the credit cards and move toward traditional bank financing or lease agreements.

17. Business Credit Cards

Business credit cards carry similar risks as personal credit cards but tend to be a safer alternative. While the activity on this card goes toward your credit report, a business credit card can help you to build business credit, keep your business expenses separate from your personal expenses and can make tax season easier to manage.


VC & FVCI

SEBI RBI FIPB TAX


5.2 PEST ANALYSIS:

5.2.1 Political factors:

Venture Capital being a very sensitive institutional form due to the high-risk nature of its investments it was prerequisite for the government to be careful to ensure that its policies do not adversely affect its venture capitalists. There are number of rules and regulation for VC and these would broadly come under either of the following heads:

The Indian Trust Act, 1882 or the company Act,1956 depending on whether the fund is set up as a trust or a company.

The foreign investment Promotion Board (FIPB) and the RBI in case of an offshore fund. These funds have to secure the permission of the FIPB while setting up in India and need a clearance from the RBI for any repatriation of income.

The Central Board of Direct Taxation(CBDT) governs the issues pertaining to income tax on the proceed from VC funding activity. The long term capital gain tax is at around 10% in India and the relevant clauses to VC may be found in Section 10(sub section 23)

SEBI (VCF) Reg. 1996 SEBI(FVCI) Reg.2000 SCR Act.1956 SEBI(SAST) Reg.1997 SEBI(DIP)Guidelines,2000 SEBI Act,1992

FEMA, 1999 Transfer or issue of

security by a person resident outside India regulation 2000

FDI policy Investment

approvals Press

Notes

IT Act, 1961 DTAA

Singapore Mauritius Others

Figure: 5.2 Major Regulatory framework for venture capital industry

Minimum contribution and fund size : the minimum investment in a Venture Capital Fund from any investor will not be less than Rs. 5 lacs and



the minimum corpus of the fund before the fund can start activities shall be at least Rs. 5 crores.

Short term capital gain: Rate of tax on short term capital gains under Section 111A & Section 115AD increased to 15 per cent from earlier 10%

Investment Criteria : The earlier investment criteria has been substituted by a new investment criteria which has the following requirements :

Disclosure of investment strategy; Maximum investment in single venture capital undertaking not to exceed

25% of the corpus of the fund; Investment in the associated companies not permitted; At least 75% of the investible funds to be invested in unlisted equity shares

or equity linked instruments. Not more than 25% of the investible funds may be invested by way of:

c. Subscription to initial public offer of a venture capital undertaking whose shares are proposed to be listed subject to lock-in period of one year;

d. Debt or debt instrument of a venture capital undertaking in which the venture capital fund has already made an investment by way of equity.

It has also been provided that Venture Capital Fund seeking to avail benefit under the relevant provisions of the Income Tax Act will be required to divest from the investment within a period of one year from the listing of the Venture Capital Undertaking.

Disclosure and Information to Investors: In order to simplify and expedite the process of fund raising, the requirement of filing the Placement memorandum with SEBI is dispensed with and instead the fund will be required to submit a copy of Placement Memorandum/ copy of contribution agreement entered with the investors along with the details of the fund raised for information to SEBI. Further, the contents of the Placement Memorandum are strengthened to provide adequate disclosure and information to investors. SEBI will also prescribe suitable reporting requirement from the fund on their investment activity.

QIB status for Venture Capital Funds: The venture capital funds will be eligible to participate in the IPO through book building route as Qualified Institutional Buyer subject to compliance with the SEBI (Venture Capital Fund) Regulations.

Relaxation in Takeover Code: The acquisition of shares by the company or any of the promoters from the Venture Capital Fund under the terms of



agreement shall be treated on the same footing as that of acquisition of shares by promoters/companies from the state level financial institutions and shall be exempt from making an open offer to other shareholders.

Investments by Mutual Funds in Venture Capital Funds: In order to increase the resources for domestic venture capital funds, mutual funds are permitted to invest upto 5% of its corpus in the case of open ended schemes and upto 10% of its corpus in the case of close ended schemes. Apart from raising the resources for Venture Capital Funds this would provide an opportunity to small investors to participate in Venture Capital activities through mutual funds.

Government of India Guidelines: The Government of India (MOF) Guidelines for Overseas Venture Capital Investment in India dated September 20, 1995 will be repealed by the MOF on notification of SEBI Venture Capital Fund Regulations.

GUIDELINES FOR OVERSEAS VENTURE CAPITAL INVESTMENT IN INDIA

In recognition of growing importance of Venture Capital as one of the sources of finance for Indian industry, particularly for the smaller unlisted companies, the Government has announced a policy governing the establishment of domestic Venture Capital Funds/Companies. An amendment has also been carried out in the SEBI Act empowering the Securities and Exchange Board of India (SEBI) to register and regulate Venture Capital Funds (VCFs) and Venture Capital Companies(VCCs) through specific regulations.

With a view to augment the availability of Venture Capital, the Government has decided to allow overseas venture capital investments in India subject to suitable guidelines as outlined below :

a. Offshore investment may invest in approved domestic Venture Capital Funds/Companies set up under the new policy after obtaining FIPB approval for the investment. There is no limit to the extent of foreign contribution to a domestic venture capital company/ fund. An offshore venture capital company may contribute 100% of the capital of domestic venture capital fund, and may also set up a domestic asset management company to manage the Fund.



b. Establishment of an asset management company with foreign investment to manage such funds would require FIPB approval and would be subject to the existing norms for foreign investment in non-bank financial services companies.

c. Once the initial FIPB approval has been obtained, the subsequent investment b y the domestic venture capital company/fund in Indian companies will not require FIPB approval. Such investments will be limited only by the general restriction applicable to venture capital companies viz.-

i. A minimum lock-in period of three years will apply to all such investments.

ii. VCFs and VCCs shall invest only in unlisted companies and their investment shall be limited to 40% of the paid up capital of the company. The ceiling will be subject to relevant equity investment limits that may be in force from time to time in relation to areas reserved for the Small Scale Sector.

iii. Investment in any single company by a VCF/VCC shall not exceed 20% of the paid-up corpus of the domestic VCF/VCC.

d. The tax exemption available to domestic VCFs and VCCs under Section 10(23F) of the Income Tax Act, 1961, will also be extended to domestic VCFs and VCCs which attract overseas venture capital investments provided these VCFs/VCCs conform to the guidelines applicable for domestic VCFs/VCCs. However, if the VCF/VCC is willing to forego the tax exemptions available under Section 10(23F) of the Income Tax Act, it would be within its rights to invest in any sector.

e. Income paid to offshore investors from Indian VCFs/VCCs will be subject to tax as per the normal rates applicable to foreign investors.

f. Offshore investors may also invest directly in the equity of unlisted Indian companies without going through the route of a domestic VCF/VCC. However, in such cases each investment will be treated as a separate act of foreign investment and will require separate approval as required under the general policy for foreign investment proposals.



Hassle free entry/exit for foreign venture apital firm

SEBI registered Foreign Venture Capital Investors shall be permitted to make investment on an automatic route within the overall sectorial ceiling of foreign investment under Annexure III of Statement of Industrial Policy without any approval from FIPB. Further, SEBI registered FVCIs shall be granted a general permission from the exchange control angle for inflow and outflow of funds and no prior approval of RBI would be required for pricing, however, there would be ex-post reporting requirement for the amount transacted.

DTAT (Double Tax Avoidance Treaties)

Foreign funds investing in India directly into Indian portfolio companies will not be affected by the proposed amendment. As most of these funds have been set up in tax neutral jurisdictions like Mauritius, they will continue to enjoy tax exemption on capital gains tax under the Double Tax Avoidance Agreements, effectively getting the equivalent of a “pass through” notwithstanding which sector they invest in.

Controller of Capital Issue

The exist route available to the venture capitalist were restricted to the IPO route. Pricing of the issue was dependent on Controller of Capital Issues (CCI) regulations before deregulations. Many of the issues were underpriced. Failure of OTCEOI so small companies could not hope for BSE/NSE listing.

REALXATION IN IPO NORMS :

The SEBI norms for an IPO by a Venture Capital company / fund be relaxed. The requirement of three years track record should be waived off for a Venture Capital company / fund registered with SEBI. This will help the Venture Capital company / fund to generate resources locally.

. SEBI registered VCFs have been permitted to invest in equity and equity

linked instruments of offshore venture capital undertakings, subject to overall limit of USD 500 million and with prior SEBI approval. Investment can be made only in those companies which have an Indian connection and the investment can not exceed 10% of the VCFs investible funds.



Taxes on emerging sector :

As per Union Budget 2007 and its broad guidelines, Government proposed to limit pass-through status to venture capital funds (VCFs) making investment in nine areas. These nine areas are biotechnology, information technology, nanotechnology, seed research and development, R&D for pharma sectors, dairy industry, poultry industry and production of bio-fuels. Pass-through status means that the incomes earned by funds are taxable now.

Liberalization:

With the advent of liberalization, India has been showing remarkable growth in the economy in the past 10 - 12 years. The government is promoting growth in capacity utilization of available and acquired resources and hence entrepreneurship development, by liberalizing norms regarding venture capital. In the year 2000, the finance ministry announced the liberalization of tax treatment for venture capital funds to promote them & to increase job creation. This is expected to give a strong boost to the non resident Indians located in the Silicon valley and elsewhere to invest some of their capital, knowledge and enterprise in these ventures.



5.2.2 ECONOMIC FACTORS:

MERGER & ACQUISITION :

Venture backed liquidity events by year 2001-2008 through M&A

Quarter/Year

Total M&A Deals

M&A Deals with

Disclosed Values

Total Disclosed

M&A Value($M)

Average M&AsDeal Size($M)

2002 318 152 7,916.4 52.12003 290 122 7,721.1 63.32004 339 186 15,440.6 83.0

2005-1 81 45 4,351.9 96.72005-2 81 34 4,725.0 139.02005-3 101 48 18,056.0 376.22005-4 87 39 2,594.0 66.52005 350 166 29,727.0 179.1

2006-1 107 52 5,607.5 107.82006-2 105 40 4,018.5 100.52006-3 94 42 3,894.8 92.72006-4 62 26 5,616.8 216.02006 368 160 19,137.6 119.6

2007-1 82 29 4,540.3 156.62007-2 87 36 3,972.3 110.32007-3 100 52 10,810.0 207.92007-4 86 43 9,084.1 211.32007 355 160 28,406.7 177.5

2008-1 70 28 3,602.4 128.72008-2 50 14 2,397.3 171.22008 120 42 5,999.7 142.9

www.thomsonreuters.com

Table: 5.1 Venture backed liquidity events by year 2001-2008 through M&A


http://www.thomsonreuters.com/


VENTURE BACKED LIQUIDITY BY EVENTS

8512.6

5999.7

169

120

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

FIRST TWO QUARTER OF2007

FIRST TWO QUARTER OF2008

VA

LU

E O

F D

EA

LS

0

20

40

60

80

100

120

140

160

180

No

.OF

DE

AL

S

Value of Deals No. of Deals

Figure: 5.3 Venture backed M & A deals

MERGERS AND ACQUISITIONS VOLUME DECLINES

In the second quarter of 2008, 50 venture-backed M&A deals were completed, 14 of which had an aggregate deal value of $2.4 billion. M&A volume of 120 transactions in the first half of 2008 was down 28 percent from the first half of 2007 when 169 transactions were completed. The average disclosed deal value for the quarter was $171.2 million. Due to this V/C is directly affected negatively because M&A is the exit route for Venture capital industry. The reason behind decreasing No. of M&A deals is crashdown of SENSEX by 51%



Quarter/Year

No.of IPO's

Total Offer Amount

Average IPO Offer Amount

($M) ($M)

2002 22 2,109.10 95.9

2003 29 2,022.70 69.8

2004 93 11,014.90 118.4

2005-1 10 720.7 72.1

2005-2 10 714.1 71.4

2005-3 19 1,458.10 76.7

2005-4 18 1,592.10 92.2

2005 57 4,485.00 78.7

2006-1 10 540.8 54.1

2006-2 19 2,011.00 105.8

2006-3 8 934.2 116.8

2006-4 20 1,631.10 81.6

2006 57 5,117.10 89.8

2007-1 18 2,190.60 121.7

2007-2 25 4,146.80 165.9

2007-3 12 945.2 78.8

2007-4 31 3,043.80 98.2

2007 86 10,326.30 120.1

2008-1 5 282.7 56.5

2008-2 0 0 n/a

2008 5 282.7 56.5

www.thomsonreuters.com

Table: 5.2 Number of IPOs during 2002-2008




Here the No. of IPO is decreased in first two quarter of 2008 as compared to first two quarter of previous two years. The no. of IPO in 1st two quarter of 2007 are 43 and in first two quarter of 2008 are only 5 IPO. Because due to crash down of IPO nobody like to bring IPO. IPO is the exist route for venture capital company. It comes a barrier for venture capital to exist from a venture capital.

INFLATION RATE

INFLATION v/s VC GROWTH RATE

7.4

4.5

3.2

5.8251.06

33.33

89.79

240.91

0

1

2

3

4

5

6

7

8

2004 2005 2006 2007

INF

LA

TIO

N R

AT

E

0

50

100

150

200

250

300

VC

GR

OW

TH

RA

TE

INFLATION RATE VC GROWTH RATE

Source : www.rbi.org.in, Macroeconomic and Monetary Development, annual statement on monetary policy, First Quarter Review 2008-09

Figure: 5.4 Inflation V/S Venture capital growth rate

IMPACT

In above chart the inflation rate is decreased to 4.5 in 2005 from 7.4 in 2004. At same time the growth of VC is also declining to 33.33% in 2005 from 251.06% in 2004. From the above chart we can conclude that inflation and VC has positive relationship. Now in June 2008 the inflation rate was 11.9 and the NO. of deal in first two quarter in 2008 was 170 and value of deal was 6390 US$mn and in third quarter of 2008 there was only four deals. And in October the inflation touch the 13.01%. Due to increase in inflation rate the people will going to spend more. Thus, their savings will decrease. So more money will come into the market and demand of the products will increase continuously. now due to growth of any sector will attract new entrepreneur to enter in the industry. For that they must need funds. So there is a great opportunity for venture capital industry to attract this new entrepreneur.


http://www.rbi.org.in/


GDP GROWTH RATE

GDP V/S VC GROWTH RATE

8.57.5

9.69.4240.91

33.33

251.06

89.79

0

2

4

6

8

10

12

2004 2005 2006 2007

GD

P G

RO

WT

H R

AT

E(%

)

0

50

100

150

200

250

300

VC

GR

OW

TH

RA

TE

(%)

GDP GROWTH RATE VC GROWTH RATE

Source :CII (Confederation of Indian Industry) July 2008 Presentation

Figure: 5.5 GDP V/S Venture capital growth rate

IMPACT

In above chart there was a positive relation ship there was between GDP growth rate. But in 2007 the growth of VC was decline to 89.79% from 240.91% in 2006 but here the value of deal was increasing. In 2008 the growth rate is 9% and project the next year GDP 8% to 9%. So there is a hope, the growth of VC industry can be increased.

India is the 4th largest economy in terms of PPP. GDP of India is US$ 3787.3 billion in PPP terms.

Taking Indian Purchasing Power Parity (PPP) into consideration, this would be equivalent to $22 billion worth of investment in the US. Since about $1.75 billion (or approximately 40% of $4.4 billion) has been already raised, even if only $2.2 billion is raised by December 2006.

Evalueserve cautions that there will be a glut of VC money for earlystage investments in India. This will be especially true if the VCs continue to invest only in currently favourite sectors such as IT, BPO, software and hardware products, telecom, and consumer Internet.



CONTRIBUTION OF SECTOR IN GDP:

GDP COMPOSITION

19%

27%

54%

AGRICULTURE INDUSTRY SERVICES

Source : CII (Confederation of Indian Industry) July 2008, Presentation

Figure: 5.6 Contribution of sector in GDP

In Indian GDP growth rate the contribution of service and manufacturing sectors are increasing. In 1991 the contribution of service and industry sectors are 41% and 27% and now in 2008 it is 54% and 27% respectively.

IMPRESSIVE GROWTH IN INDUSTRY SECTOR :

Items 2004-05 2005-06 2006-07 2007-08(AE)Industry 9.8 10.15 11 8.1Mining and Quarrying 7.5 4.87 5.7 4.7Manufacturing 8.7 8.98 12 8.8Electricitym gas water supply 7.5 4.68 6 6.3Construction 14.1 16.46 12 9.8



IMPRESSIVE GROWTH IN SERVICES SECTOR :

Items 2005-06 2006-07 2007-08(AE)Services 10.34 11.9 10.7Trade, hotels, transport & communication

11.51 11.8 12.0

Financial, real estate & business services

11.41 13.9 11.8

Community, social and personal services

7.21 6.9 7.3

Source : Confederation of Indian Industry, July 2008

Most of the venture capital industry invest their money in IT companies, hotels, transport, communication, bio-technology, BIFS etc. This shows an impressive growth year by year. This are emerging sectors for venture capital industry.

SENSEX CRASHDOWN

SENSEX IN 2008

9092.72

9788.06

12860.4314564.53

14355.75

13461.6

16415.5717287.31

15644.44

17578.72

17648.71

02000400060008000

100001200014000160001800020000

JAN

FEB

MARCH

APRILM

AY

JUNE

JULY

AUGSEPT

OCT

NOV

www.bseindia.comFigure: 5.7 SENSEX in 2008



IMPACT

The SENSEX is down by 51% from January 2008 to Nov 2008. So one company is try to come up with IPO. IPO in first two quarter of 2007 is 43 and value of IPO is 6337.4 and in first two quarter of 2008 there is only 5 IPO and value is only 282.7 through VC company go for exit. Because IPO is one of the exit route for Venture capitalist from the company. It is also favorable for venture capital company because no one try to come up with IPO so they must go to the venture capital for money

SMALL SCALE INDUSTRIES

No. deals V/S No. of SMEs

56 71

146

299

387

109.49

113.95

118.59

123.42

128.44

0

50

100

150

200

250

300

350

400

450

2003 2004 2005 2006 2007

100

105

110

115

120

125

130

No. of deals No. of SMEs

Source: www.MSME.org.in, Economiv Survey 2007-08,chapter 8

Figure: 5.8 No. of deals V/S No. of SMEs

IMPACTVC, to be able to contribute to developing entrepreneurship in India, needs to concentrate its investment in small and medium enterprises. A “Package for Promotion of Micro and Small Enterprises” was announced in February 2007. This includes measures addressing concerns of credit, fiscal support, cluster-based development, infrastructure, technology, and marketing. Capacity building of MSME Associations and support to women entrepreneurs are the other important features of this package. SMEs have been allowed to manage their direct/indirect exposure to foreign exchange risk by booking/canceling/roll over of forward contracts without prior permission of RBI.




To boost the micro and small enterprise sector, the bank has decided to refinance an amount of 7000 crore to the Small Industries Development Bank of India, which will be available up to March 31, 2010. The Central Bank said that it is also working on a similar refinance facility for the National Housing Bank (NHB) of an amount of Rs 4, 000 crore.

INTEREST RATE :

INTEREST RATE

6.11

7.987.23

8.73 9.11

0

2

4

6

8

10

MARCH--06

MARCH--07

MARCH--08

JUNE--08

JULY--08

PE

RC

EN

TA

GE

Sources:- The Macro economic and monetary development annual statement on monetary policy, First Quarter Review 2008-09

Figure: 5.9 Interest Rate

IMPACT :

The interest rate increase year by year. It is 6.11% in March-2006 and now in July 2008 it is 9.11%. venture capital firms generally borrow from banks now if interest rates are increasing interest cost of venture capital firms will also increase which led reduce the profitability of Venture Capital firms. Because if anyone is investing in any option he will look for good return, so here if they will maintain their own profits they will have to give less return to investors then investors will go for other options. Here increase in bank rates affect Venture Capital firms in both ways from the suppliers as well as buyers side.



CURRENCY RISK :

Exchange Rate(INR/US$)

45.75 47.73 48.42 45.95 44.87 44.09 45.1140.01

0

10

20

30

40

50

60

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

EX

CH

AN

GE

RA

TE

Figure: 5.10 Exchange Rate(INR/US$)

IMPACT

From the above chart we can see that exchange rate is highly fluctuated. Nowadays the exchange rate touches to 50 Rs. Per dollar. Now due to globalization venture capital firms are entering at global level. Nowa for a particular country currency risk can be defined in two ways.

Indian venture capital are concentrated on global level due to increasing opportunity in global level. They make a deal with global company. So there is directly affect the movement of exchange rate.

In second way , Foreign institutional investor incest their money Indian stock market and nowadays due to crash down of market the investment of FII is decreasing. Due to this nobody like to bring IPO. It is directly affected to venture capital company because IPO is one way for exist.



EXPORT AND IMPORT

VALUE OF EXPORT AND IMPORT

52.7

78.1

111.5

149.2

185.7 185.7

63.883.6

103.1

155.5

126.4

61.4

0

20

40

60

80

100120

140

160

180

200

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

US

do

llar

s in

bil

lio

ns

EXPORT IMPORT

Figure: 5.11 Value of export and import

IMPACT :

The value of Import and export are increasing year by year. In 2002-03 the value of import and export are 52.7 and 61.4 US$bn respectively and in 2007-08 the value of import and export are 155.7 and 185.7 US$bn. It means industry need more money for import and export. So it is an opportunity for venture capital. On the other side when company going to export the company must have good contact with other country’s company. So for that venture capital industry is useful because they have good contact and affiliation network with other country’s company.

REPO RATE

The Repo Rate is now reduced to 6.5 from 8.5 in july 2008. It is directly affect the home loan rate. The rate of home loan is reduced so it is very helpful for real estate sector. And most of the Venture Capital companies invest their money in real estate sector. There is an improve the flow of credit to productive sectors of the economy.



LACK OF FINANCIAL TRANSPERANCY AND OTHER PROCESSES :

Again, partly because the Indian economy was a “socialistic and closed” economy and partly because Indian entrepreneurs are not as proficient at business development as their counterparts in the US, Indian start-ups lack financial transparency and often have limited experience in implementing effective financial processes. This usually makes the task of the Venture Capital much more difficult not only during the due-diligence phase, but also in helping the start-up grow rapidly.

FACTOR FAVOURABLE

UNFAVOURABLE BOTH

MERGER& ACQUISITION,IPO

√

INFLATION RATE √

GDP GROWTH RATE

√

SENSEX CRASHDOWN

√


√

INTEREST RATE √

CURRENCY RISK : √

EXPORT & IMPORT

√

REPO RATE √

Table: 5.3 Result of Economic factors



5.2.3 SOCIAL FACTORS:

Demographic factor:

AGE:

Population Demographic ShiftAge % of population 1997 2002 2007Under 15 years 37.20% 33.50% 30.00%Between 15-59 years 56.10% 59.30% 62.30%Above 60 years 06.60% 06.90% 07.50%

Table: 5.4 Population Demographic Shift

AGE BETWEEN 15-59 YEARS

56.1

59.3

62.3

52

54

56

58

60

62

64

1997 2002 2007

PE

RC

EN

TA

GE

(Source: Planning Commission Projection data)Figure: 5.12 population demographic shift between 15-59 years

In above chart we can see young working people in India is increasing rapidly. Earlier the young working peoples are 56.1% out of total population and nowadays it is 62.3%. Young people out of total population. The average young age in India is 25 upto year 2025.



UNEMPLOYMENT RATE:

UNEMPLOYMENT RATE

8.8 8.89.5 9.2 8.9

7.8 7.2

0

2

4

6

8

10

2002 2003 2004 2005 2006 2007 2008

PE

RC

EN

TA

GE

www.indexmundi.com

Figure: 5.13 Unemployment rate

In India the unemployment rate is very high. No doubt it is decreasing year by year. It is 9.5% in 2004 and now it is 7.2% in 2008. Here there is a great opportunity for Venture capital firm because there is a huge untapped market and they require amount fr strting the business.

According to one survey by National Entrepreneurship Development Board (NEBD), Ministry of SSI & ARI, Govt. of India, on ‘Entry barriers to entrepreneurship as perceived by youth’. In this survey out of 1625 respondents 19.2% people have future plan to become entrepreneur for starting the business and 80.8% persons are not ready for business. But out of this 80.8% persons 58.3% person are ready for becoming entrepreneurship if they get help in finance, project idea, and training for business and management. So here there is a great opportunity for venture capital firms.

INDIAN ENTREPRENEUR LACKS IN MARKETING, SALES AND BUSINESS DEVELOPMENT EXPERTISE :

An Indian entrepreneur is found to be quite adept technically and definitely at par with similar entrepreneurs in developed countries. However, entrepreneurs in India generally lacked expertise in marketing, sales and business development areas, especially when compared to their counterparts in the US. Furthermore, since India had socialistic economic policies during 1947-1992, there is a lack of good talent in marketing and sales professionals who can thrive in an extremely competitive environment.

Hence, finding the appropriate marketing, sales and business development people is one area where Indian start-ups need help. This problem is further exacerbated because the Indian economy has been growing at 8% and most start-ups have to compete for talent not only with other companies who are exporting similar or


http://www.indexmundi.com/


dissimilar products and services but also with many Indian domestic companies. In fact, finding and retaining the ‘right talent’ has become an issue not only in marketing, sales and business development but also in research, technical and advanced development areas. Finally, if the eventual market were a developed country, then such expertise can be potentially found in that country. However, if the market for the corresponding product or service is India, China or some other developing nation, then finding such people can be a Herculean task!

INDIAN ENTREPRENEURS ARE HESISTANT TO GIVE UP CONTROL :

Indian entrepreneurs are usually hesitant about giving up control. In fact, most of the entrepreneurs in India currently receive their initial funding from family and friends, and even if they do not do so, the Indian social system is such that relatives and friends still end up being a major influence. Also, company can borrow money from bank and other financial institution at lower than Venture capital rather give substantial share to the VC.

Consequently, the Venture Capital will have to provide a very clear value proposition to the start-ups and cannot simply state that they bring value to the table just because they are well connected, etc. In fact, we believe that in some cases the Venture Capital may even have to go to the extreme of closing contracts and bringing in the revenue on behalf of a start-up rather than simply “opening doors” by providing the contacts in their “Rolodex.”



ORIGIN OF IMMIGRANT ENTREPRENEUR

ORIGIN OF IMMIGRANT ENTERPRENEUR

0

5

10

15

20

25

30

COUNTRY OF ORIGIN

PE

RC

EN

TA

GE

OF

FO

UN

DE

RS

Source: Presentation of ITeC (institute for technology entrepreneurship & commercialization)

Figure: origin of immigrant entrepreneur

Salaries of skilled people are rising 15-20% annually in India and China. Skilled immigrants have contributed to greatly to US industrial growth but there is a huge immigration backlog:

– Legal, Educated, skilled workers currently waiting for green cards– 500,040 in main employment-based visa categories plus 555,044 family members– Over 1 million skilled immigrants waiting for yearly quota of 120,000 visas – with

8,400 max/country



FACTOR FAVOURABLE UNFAVOURABLE BOTHDEMOGRAPHIC FACTOR

AGE & UNEMPLOYMENT RATE

√

INDIAN ENTREPRENEUR LACKSIN MARKETING, SALES AND BUSINESS DEVELOPMENT EXPERTISE

√

INDIAN ENTREPRENEURS ARE HESISTANT TO GIVE UP CONTROL

√

ORIGIN OF IMMIGRANT ENTREPRENEUR

√

Table: 5.5 Result of demographic factors



5.2.4 GEOGRAPHIC FACTOR :

1. EMERGING CITIES

TOP CITIES ATTRACTING VENTURE CPITAL INVESTMENTS(2007)

City NO. Of Deals Value(US$M)Mumbai 109 5995

Delhi (Include Noida & Gurgaon)

63 2688

Bangalore 49 685Hyderabad 41 1380

Chennai 32 824Ahmedabad 14 492

Kolkata 12 339

Table: 5.6 Top cities attracting venture capital investment

Cities SectorsMumbai Software services, BPO, Media, Computer

Graphics, Animation, Finance and Banking

Bangalore All IP-led companies; IT and IT-enabled services, Biotechnology

Delhi Software services, IT enabled services, Telecom.

Chennai IT and Telecom Hyderabad IT and IT enabled services, Pharma Pune Biotech, IT, BPO

Source: IVCA

Table: 5.7 city wise sectorial investment by venture capital

In Venture Capital industry most of the deals are made in emerging city like Mumbai, Delhi, Bangalore, Chennai, Kolkata. In this industry Venture Capital firms invest their money in most highly risk and emerging sector like bio-technology, IT-ITES, real estate, healthcare and this sectors are highly developed in this emerging city. So there is a great opportunity for Venture Capital to invest their money in this city.


Rivalry among competing

sellers

Bargaining power of buyer

Bargaining power of supplier

SubstituteProducts

Threats from new entrants


5.3 FIVE FORCE ANALYSIS:

Investor supply money company receives VC

Figure: 5.15 Porter’s five force model

5.3.1 THREATS FROM NEW ENTRANTS / ENTRY BARRIERS:

1. Capital requirement:

Here if any investor want to invest in venture capital firm, the investment should not be less than Rs. 5 lac, while for the venture capital firms minimum requirement for starting the investment is Rs. 5 crore. So being a venture capital firm one must fulfill these types of conditions. Here the fund requirement for starting up the venture capital firm is so high that an ordinary persons can not start this business. And in addition the venture capitalists must have good industrial contacts and large network also to obtain funds as well as to sell their services.

2. High risky business:

we can see from the chart that generally more deals are taking place at early stage. But at the early stage it is difficult to predict the success of the business so there is a high risk of getting failure in these types of investments. So the investors of venture capital also found high risk in investing in venture capital firms. And generally it is known that when there is high risk in investment the bargaining power of supplier is high. It is clear that when company is in its later stage the risk associated with it is lower compared to the early stage and at



later stage there are many options with the companies to borrow the funds so the investment is less risky.

170153 144

176

282

211

151

22681

33

5153

65

5351

62

0

50

100

150

200

250

300

2004 2005 2006 2007

0

10

20

30

40

50

60

70

80

90

EARLY STAGES ($ MILLIONS) LATER STAGES ($ MILLIONS)EARLY STAGES (no. of deals) LATER STAGES (no. of deals)

Figure: 5.16 investment in early and later stage

Possible result of venture capital investments

No. of companies out of 10 investments

Annual rate of return

Failure 4 0%

Viable 3 15%

Solid 2 50%

Superstars 1 100%

Blended average 24.5

Source : IVCA Presentation 2007Table: 5.8 success ratio of venture capital deals

From the above table we can see the success ratio of the venture capital investment. 40% of the investments are getting failure and only 10% of them are able to give 100% return. And the average return by the venture capitalists is only 24.5% which is not extra ordinary. This type of returns can be found in many other investment options. So there isn’t any special reason to invest in venture capital. So if there is not any extra advantage of investment or special feature to attract investors bargaining power of suppliers is high and entry barrier for new entrants are high. So threat from new entrants from this point of view is low.



3 Exit route barriers:

Here the venture capital company can exit through IPO or through merger and acquisition with other companies. Now-a-days, from the below given table and current crash in stock market we can see that the comparison between M&A deals and IPO in the year 2007 and 2008 (first two quarters of both years). Now in the year 2007 there were 189 M&A deals while in 2008 number of M&A deals are 120 only. In addition in 2007 number of IPO were 43 which are 5 only in the year 2008. So there is a crucial problem for the Venture Capital firms to get their funds back from the companies in which they have invested. Now if new player will enter he will have to collect more funds and will also have to wait for the return. The risk is also high in current market for the Venture Capital firms. So entry barrier is high for new entrants.

Quarter/Year

Total M&A Deals

M&A Deals with Disclosed Values

Total Disclosed M&A Value($M)

Average M&AsDeal Size($M)

No.of IPO's

Total Offer Amount($M)

Average IPO Offer Amount($M)

2007-1 82 29 4,540.3 156.6 18 2,190.6 121.72007-2 87 36 3,972.3 110.3 25 4,146.8 165.92008-1 70 28 3,602.4 128.7 5 282.7 56.52008-2 50 14 2,397.3 171.2 0 0.0 n/a

Source: www.thomsonreuters.com.

Table: 5.9 M& A deals and IPOs in 2007-08 (Q-1 & Q-2 )

4. Learning and experience curve effect: Venture capital funds, before going for an in-depth analysis, carry out initial screening of all projects on the basis of some broad criteria. Main screening criteria are……

Size of investment

Geographical location

Stage of financing

Knowledge about product and market

So the existing firms can have the benefit of experience in the industry, so on the basis of their capabilities they can use that experience for the shake of the firm. But new firms don’t have the experience in the industry so they may have a loss from this side. So threat from new entrants is low from this point of view also. Experience person can become competitive advantage.




5. Time constraint:

As we have discussed above risk associated with early stage of financing is very high compared to other stages because of uncertainty attached with early stage. But from the below given table we can say that the business can’t satisfy the investor.

Stage wise financing :

Financing Stage Period (funds locked in years)

Risk perception

Activity to be financed

Early stage finance Seed

7-10 Extreme For supporting a concept or idea or R & D for product development

Start up 5-9 Very high Initializing operations or developing prototypes

First stage 3-7 High Start commercial production and marketing

Second stage 3-5 Sufficiently high

Expand market & growing working capital need

Later stage finance 1-3 Medium Market expansion, acquisition & product development for profit making company

Buy out-in 1-3 Medium Acquisition financing

Turnaround 3-5 Medium to high

Turning around a sick company

Mezzanine 1-3 Low Facilitating public issueSource : Satish Taneja, Venture capital india, first edition, Galgotia publishing company, page no. 18

Table: 5.10 stage wise financing

From the above we can say that threat from new entrants are low to moderate. Because there are high entry barriers.



5.3.2 Rivalry among competitors:

1. Fragmented industry:

Here the venture capital industry is highly fragmented no one is market leader. The market for industry’s product or service is becoming more global, putting companies in more and more countries in the same competitive arena. The industry is young and crowded with aspiring contenders. As in the year of 2006 and 2007 the stock market of India was booming like anything thus more venture capital investors and players were attracted towards industry, which can be seen from the chart given below. But in the year 2008 because of sub-prime crisis the stock market has crashed and it affect adversely the venture capital industry because the IPO is the main exit route for the venture capital industry and because of current crash no one is coming with IPO. As there was high growth of stock market in the year 2006 and 2007 most of the VCs have entered in the market so now in crashed market every one is eager to sell their services in small market of buyers. So the competition is very high at current stage.

www.nasscom.org, strategic review 2008 published by (National Association of Software and Service Companies) strategic review 2008

Figure: 17 Number of venture capital firms in india




Source: www.nasscom.orgTable: 5.11 Top venture capital investment

Investment pattern:

In venture capital industry, firms are investing on some basic criteria which they have decided by their own requirements. Here some companies are investing in some particular industries and some of them have also decided the stage of financing the company. So Venture Capital firm investing in early seed stage does not directly compete with the firm investing in the later stage, one investing in LBO, MBO and MBI deals. So the competition between stages is moderate while It is high within the stages. So the overall competition is moderate to high.

Top VC Investments

Company

TutorVista

Sector

Online Services (Remote Tutoring)

Amount (US$ M)

18.0

Investors

Sequoia Capital India, Lightspeed Ventures

Connectiva Systems Seventymm

Communications Tech (Revenue Assurance)

17.0 IFC, NEA-IUV, SAP Ventures, Others

Online Services (Video Rental)

12.0 NEA-IUV, ePlanet Ventures, Matrix Partners India,DFJ

Equitas Micro Finance

Microfinance 12.0 Bellwether, Others

HaloSource Water Purifiers 11.5 Origo Sino-India, Unilever Tech Ventures

Company Seed stage

Start up stage

Early stage

Later stage

IDBI venture fund 50 63 1 2ICICI venture funds 5 109 68 73SIDBI 5 19 2 3RCTC veture capital fund scheme 6 43 3 7CANBANK VC fund LTD 2 40 3 13Gujrat venture capital funds 1995 0 7 0 8Industrial venture capital Ltd. 8 17 19 12

(source: Venture Capital in India by “Satish Taneja” , “Galgotia Publishing Company”, Pg No.245 to 288)




Table: 5.12 companies stage wise investment

3. Effect of Globalization:

Formerly whenever money was invested in a company, many factors were considered---the kind of market available for the product, the economic viability, and its place in the stock market. Today however globalization is a factor to contend with. The investors want to be the 1st in the market to be associated with something that is really “hot’ and are prepared to take the “high risk” factor in their stride because they know that it is likely to produce tremendously “ high returns”. so because of less concerned about other factors investors are looking only for the returns thus the competition among players is moderate to high.

4. Fast growing market

Source: www.ivca.com

Figure: 5.18 CAGR of venture capital industry We can see from the chart that the market is growing at 43% CAGR. As we know market will grow only if the demand for services is increasing which will attract new entrants to the market and will also led the existing players think on the matter how to handle new entrants and how to compete with other existing players. So the growth rate will increase the competition among rivalry.


http://www.ivca.com/


5. Emerging sectors:

In today’s world new entrepreneurs are entering in businesses which lead to increase in competition and also give arise to new emerging businesses which will need finance which can increase the scope of venture capital. From the below given chart we can see that there is a huge investment opportunities for the money suppliers. This can raise funds in market and will also increase the competition among existing players.

2007 VC INVESTMENTS BY INDUSTRY TOTAL US$14.2Bn

9881638

3979

1628478

1101

616

685

1839

1284

IT&ITES ManufacturingBFSI Eng & ConstructionHealthcare & lifesciences EnergyMedia&Entertinment Shipping&LogisticsTelecom Others

Source : TSJ Venture Intelligence India

Figure: 5.19 sector wise venture capital investment 2007

From the above we can say that competition among rivalry is moderate to high.



5.3.3 Threat from substitutes:

Stages Early stage Start up stage Expansion stage

SubstituteAngel investors IPO BankFriends & family Preference shares IPOIPO Debentures Parent firmsPrivate placements Bank loan FDI

Substitute at early stage financing: Here the substitute are angle investors, friends, family and here the level of investment is very low, so no one is ready to take the money from venture capital firm. Threat from substitute is high.

CONTROL FINANCIAL BURDEN

MANAGEMENT SUPPORT

Angel investors

NO LOW NO

Friends &Family

NO LOW NO

IPO YES LOW NOPrivate placement

YES LOW NO

Venture capital

YES HIGH YES

Here the venture capital is the only option providing management support to the business while the financial burden are very low. It also have the control over the business. Thus, the mind set of Indian entrepreneur can not accept the entry of venture capital funds in his business. So at early stage threats from substitute is so high.

Substitute at start up stage: Here the company requires huge capital for starting the business and that time there is lot of risk. So the company collects the money through IPO rather than through Venture Capial. Threat from substitute is moderate.


MANAGEMENT SUPPORT

IPO YES LOW NOPREFERENCE SHARES

NO LOW NO

DEBENTURE NO MODERATE NOBANK LOAN NO MODERATE NOVENTURE YES HIGH YES



CAPITALHere also the venture capital only is providing management support while the other options (IPO, Debenture, Bank loan, Preference shares) can provide more management safety then VCs. Moreover it also handover some management control to venture capitalist while other options except IPO provide full freedom. Thus, venture capital doesn’t fit according to Indian entrepreneur mindset. So threat from substitute is moderate to high.

Substitute at expansion stage: Here the company wants to expand geographically and make merger and acquisition with another company, and also make LBO,MBO/MBI deals so the requirement of investment is very high and there is less risk and this stage company has good bargaining power because the company is already developed and they can collect the money from any where.. Nobody is ready to give money to the company at this stage rather than venture capital. Threat from substitute is low.


MANAGEMENT SUPPORT

BANK NO MODERATE NOFDI MODERATE HIGH NOIPO YES LOW NOPARENT FIRM

YES YES

VENTURE CAPITAL

YES HIGH YES

At this stage the biggest substitute for the Venture Capital. is FDI.because at this stage firm requires a huge capital for expansion and here the Venture Capital having only one competitive advantage over FDI is management support provided by them. In all other sectors Venture capital firm and FDI are mostly similar like control, financial burden and risk associated with them.

WORKING CAPITAL MANAGEMENT:As at this stage working capital requirement is not so high,so the firms can get the funds from any of the substitute available at this stage which are as follows.

Factoring Vendor finance Parent company Short term loan

If the company is going to borrow money from Venture Capitalists it will increase their interest cost while company can get the funds from the above options at low interest rates. So the threat from substitute is high at this stage.

The overall we can say that threat from substitute moderate.



5.3.4 BARGAINING POWER OF SUPPLIERS:

Here suppliers are the investors who provide funds to venture capitalist. The investors are corporations, individual, banks, pension funds, insurance companies.

1. Risky business: Here generally venture capitalists are investing in businesses

which are highly risky, but are confident. Generally the projects or proposals

which do not get funds from other cheap options or need management support will

go for the borrowing from venture capital firms. It also has been mentioned that

most of the deals take place at early stage of business and its hard to predict

success of business at early stage, so the risk associated with investment is high,

which lead to increase the bargaining power of suppliers (investors)




Failure 4 0%Viable 3 15%Solid 2 50%Superstars 1 100%Blended average 24.5

Source: IVCA Presentation 2007Table: 5.13 success ratio of venture capital deals

2. In the following stakeholder map we have arranged the most important stakeholders according to their interest in the industry/single companies and to their power to exert any impact.



Figure: 5.20 Stake holders’ Impact So here from the interest taken by the investors we can define their bargaining power. If they will take interest it will create high impact on performance of the firm. With the expected globalisation and development of capital markets investors have a wider choice of investments. . A good track record and good investor relationships will become even more important. Personal contacts are essential. So, high returns are the most powerful means for attracting and maintaining investors. With a rising competition for the really qualified people across all industries we expect salaries levels to rise. Due to this bargaining power of supplier is high.

2. Switching cost: Here this is the list of money supplier for the venture capital firms. These suppliers are in large number and every contributor is so much important for the Venture Capital firm. Now all of them are having many other options of investment and the risk associated with other options is low compared to investment in Venture Capital firms. Thus, the bargaining power of supplier is high.



Indian scenario (2007)Contributors of funds to Venture CapitalContributors Rs mn Per centForeign institutional investors

13,426.47 52.46

All india financial institutions

6,252.90 24.43

Multilateral development agencies

2,133.64 8.34

Other banks 1,541.00 6.02Foreign investors 570 2.23Private sector 412.53 1.61Public sector 324.44 1.27Nationalized banks 278.67 1.09Non resident Indians 235.5 0.92State financial institutions

215 0.84

Other public 115.52 0.45Insurance companies 85 0.33Mutual funds 4.5 0.02Total 25,595.17 100.00

(Source: www.ivca.com)Table: 5-20 contributors of funds to venture capital

3. They are interested in high returns. Besides that, few investors have other preferences as well, like the support for certain industries or technologies. The investment preferences of the investors influence, where they put their money in. Therefore, it is very important for the Venture Capital companies to demonstrate a good track record of high returns to attract funds. Bargaining power of suppliers is very high.

Company Seed stage

Start up stage

Early stage

Later stage

IDBI venture fund 50 63 1 2ICICI venture funds 5 109 68 73SIDBI 5 19 2 3RCTC veture capital fund scheme 6 43 3 7CANBANK VC fund LTD 2 40 3 13Gujrat venture capital funds 1995 0 7 0 8Industrial venture capital Ltd. 8 17 19 12

(source: Venture Capital in India by “Satish Taneja” , “Galgotia Publishing Company”, Pg No.245 to 288)



Table: 5.15 companies stage wise investment

4. Nowadays there is high liquidity in today’s financial market. Because RBI reduces the repot rate, reverse report, CRR for enhancing the liquidity position of the bank. Taking swift action to inject about Rs 60,000 crore into the cash-strapped system, the Reserve Bank cut CRR 1.5% on October 11, 2008. and last time RBI reduce CRR further 1% from 6.5% to 5.5% and that time Rs. 40000 crore are inject in the market. Nowadays venture capital firm can get easily money from the market. Here the bargaining power of suppliers are moderate.

Source: www.economictimes.com News 11 october

On the basis of above we can say that the bargaining power of suppliers are high

5.3.5 BARGAINING POWER OF BUYERS

The "buyers" are the companies in which we invest. The venture capital firms select them on the basis of their criteria and after evaluating them they limit the losses.

As the investment made by the Venture Capital firms are generally in risky projects, because if any firm is getting firm at lower interest rates it will not go to the Venture Capital firms, but if their projects are more risky other investors won’t be ready to invest in their projects. At that time they will go to the venture capitalists for borrowing the funds. On the basis of this discussion we can decide that the bargaining power of buyers is moderate.

Sensex crash:

SENSEX & IPO

16415.5713461.614355.75

12860.439788.06

17648.71 17578.72 17287.3115644.44 14564.538 8

4

1

3

5

32

00

0

5000

10000

15000

20000

MONTHS(2008)

SE

NS

EX

0123456789

NO

. OF

IPO

SENSEX NO. of IPO

www.bseindia.comFigure: 5.21 SENSEX vis-à-vis IPO movement


http://www.bseindia.com/

http://www.economictimes.com/


The bargaining power of buyers is very low, because of current crash in market no one can come with IPO. So for getting fund company must go to the venture capital firm. So here the bargaining power of buyer is very low.

Bargaining power of buyer is also dependent on when buyer borrows the money. In early stage bargaining power of buyer is high because at that time Company can take finance from any other substitute like friends, family, and angel investor and can bring IPO. In later or development stage bargaining power of buyer is low because at that time there is huge requirement of capital and at that time company make M&A deal or MBI/MBO. So it is very risky. At this stage no other banks, institutions are ready to give money to the company as there is a high risk associated with high capital requirements. So here at this stage bargaining power of buyers is very low.

170153 144

176

282

211

151

22681

33

5153

65

5351

62

0

50

100

150

200

250

300

2004 2005 2006 2007

0

10

20

30

40

50

60

70

80

90

EARLY STAGES ($ MILLIONS) LATER STAGES ($ MILLIONS)EARLY STAGES (no. of deals) LATER STAGES (no. of deals)

Figure: 5.22 investment in early and later stage

Advantages of financing by venture capital: 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.



The venture capitalist may be capable of providing additional rounds of funding should it be required to finance growth.

Result of Five force analysis

Threat from new entrants/entry barriers

Rivalry against competitors

Threat from substitute

Bargaiing power of buyers

Bargaiing power of suppliers

Low√

Low to moderate

√

Moderate √Moderate to high

√

High √

Table: 5.16 Result of five force analysis



5.4 DRIVING FORCES FOR VENTURE CAPITAL FIRM

Growth of Small Scale industries

Source: www.MSME.com Figure: 5.23 Growth of small scall and medium scale industry


According to one survey by National Entrepreneurship Development Board (NEBD), Ministry of SSI & ARI, Govt. of India, on ‘Entry barriers to entrepreneurship as perceived by youth’. In this survey out of 1625 respondents 19.2% people have future plan to become entrepreneur for starting the business and 80.8% persons are not ready for business. But out of this 80.8% persons 58.3% person are ready for becoming entrepreneurship if they get help in finance, project idea, and training for business and management. So here there is a great opportunity for venture capital firms.


http://www.MSME.com/


There are also some driving forces for industry :

Drivers Expected future development and Impact on Venture capital industry

Development of technology,esp. IT andcommunication

Will go on at a high pace Broad variety of new developments; it is uncertain, which of

these will become industry standards and which not Risk of failure for investees gets higher Harder to determine successful investments Venture Capital firms need more expert knowledge in various

fields Shorter lifecycles for IT-systems lead to higher capital

requirements IT provides much easier access to information for everyone Investors seeking for higher returns are better informed and

take smarter decisions – money will concentrate at investments with the best track records

Knowledge, not money, becomes the key factor for a competitive advantage

Development of financial markets

Rising liquidity leads to More money available to invest Higher prospects for IPO's Rise of new / alternative forms of investments that compete for

funds If the first wave of e-start-ups starts to break down, the

attractiveness of the whole industry for funds might decline, specialized and small Venture Capital firms will have problems

Rising integration, liberalization on a global scale will improve the attractiveness and performance of financial markets in general, thus also boosting the Venture Capital industry

State of the economy

Business cycles, economic up- and downturns influence the Venture

Capital companies and all industries in which they invest Economic upturn:

Fuels growth and the number of start-ups – need for Venture Capital

High returns seek for re-investment – willingness to invest in Venture Capital -funds will rise

Economic downturn: investors preferences will slide from high returns to stable

returns – investments in Venture Capital funds loose attractiveness

companies need money for restructuring / recovering

Development of political climate for the economy, Globalization

Global deregulation of capital markets provides new opportunities

National protectionism and national subsidies programmes in some countries would make these economies less attractive



for investments Positive climate for education, R&D fuels new business

opportunities and start-ups Tax policy can have a huge influence on investment

preferences and can change the attractiveness of Venture Capital-funds for investors in both directions

Globalisation drives scale Requires huge investments in acquisitions and market

development Need for external expertise Ongoing globalisation and liberalisation provide twofold

opportunities for Venture Capital firms Direct Venture Capital activities in new markets, e.g. eastern

Europeanentrants into the EU companies go global and need funding for their international

activities

Table: 5.17 Driving forces for the venture capital industry



5.5 KEY SUCCESS FACTOR FOR VENTURE CAPITAL INDUSTRY IN INDIA

Knowledge become the key factor for a competitive advantage for company. Venture Capital firms need more expert knowledge in various fields. The various key success factor for venture capital industry are as follow:

Knowledge about Govt. changing policies:

Investment, management and exit should provide flexibility to suit the business requirements and should also be driven by global trends. Venture capital investments have typically come from high net worth individuals who have risk taking capacity. Since high risk is involved in venture financing, venture investors globally seek investment and exit on very flexible terms which provides them with certain levels of protection. Such exit should be possible through IPOs and mergers/acquisitions on a global basis and not just within India. In this context the judgement of the judiciary raising doubts on treatment of tax on capital gains made by firms registered in Mauritius gains significance - changing policies with a retrospective effect is undoubtedly acting as a dampener to fresh fund raising by Venture capital firms.

Quick Response time :

The company have flat organization structure results in quicker decision making. The entrepreneur is relieved of the trauma that one normally goes through in an interface with a funding institution or a development agency. They follow a clearly defined decision making process that works with clock like precision, which means that if they agree on a funding schedule entrepreneur can count on them to stick it.

Knowledge about Global Environment

With increasing global integration and mobility of capital it is important that Indian venture capital firms as well as venture financed enterprises be able to have opportunities for investment abroad. This would not only enhance their ability to generate better returns but also add to their experience and expertise to function successfully in a global environment.

Good Human Resource :

Venture capital should become an institutionalized industry financed and managed by successful entrepreneurs, professional and sophisticated investors. Globally, venture capitalist are not merely finance providers but are also closely involved with the investee enterprises and provide expertise by way of management and marketing support. This industry has developed its own ethos and culture. Venture capital has only one common aspect that cuts across geography i.e. it is risk capital invested by experts in the field. It is important that venture capital in India be allowed to develop via professional and institutional management.



Balance between three factors

Venture Capital backed companies can provide high returns. However, despite of success stories like Apple, FedEx of Microsoft, a lot of these deals fail. It is said that only one out of ten companies succeed. That's why every deal has an element of potential profit and an element of risk, depending on the deals size. To be successful, a Venture Capital Company must manage the balance between these three factors.

Figure: 5.24 frame work for key success factor

Knowledge is key, to get the balance in this "Magic Triangle". With knowledge we mean knowledge about the financial markets and the industries to invest in, risk management skills and contacts to investors, possible investees and external expertise. High profits, achievable by larger deals, are not only important for the financial performance of the Venture Capital company. As a good track record they are also a vital argument to attract funds which are the basis for larger deals. However, larger deals imply higher risks of losses. Many Venture Capital companies try to share and limit their risks. Solutions could be alliances and careful portfolio management. There are Venture Capital firms that refuse to invest in e-start-up's because they perceive it as too risky to follow today's type.


KnowledgeRisk management skills and contacts to investors

Possible investees and external expertise

Financial markets and the industries to invest in


5.6 GE NINE – CELL INDUSTRY ATTRACTIVENESS – COMPETITIVE STRENGTH MATRIX

Industry attractiveness:

Industrial Attractiveness Importance weight Rating ScoreGrowth Rate 0.20 7 1.4

Intensity of competition 0.20 6 1.2Regulatory policies 0.10 4 0.40

Domestic economic factor 0.20 8 1.6Industrial profitability 0.20 7 1.4

Product innovation 0.10 4 0.4Total 1.00 6.4

Table: 5.18 industry attractiveness

Business strength :

Business Strength

Importance weight

APIDC (Rank/score)

IVCF (Rank/score)

UTI (Rank/score)

ICICI (Rank/score)

AVISHKAR (Rank/score)

Quick response time

0.20 7/1.4 4/0.8 5/1.00 8/1.6 7/1.4

International Affiliation & network

0.15 6/0.90 5/0.75 5/0.75 7/1.05 6/0.90

Entrepreneurial Edge

0.20 7/1.4 5/1.00 4/0.8 6/1.20 7/1.40

Intellectual Assets

0.25 6/1.5 6/1.5 6/1.5 7/1.75 6/1.50

Management support

0.20 6/1.2 7/1.4 4/0.8 7/1.4 6/1.20

Total 1.00 6.40 5.45 4.85 7.00 6.40

Table: 5.19 Business strength



High

Moderate

Low

High Moderate Low

Figure: 5.25 GE 9 cell matrix


1 1 2

12 3

2 3 3

10

6.7

3.3

0

10 6.7 3.3 0

ICICIIVCF

APIDC,AVISKA

Business Strength

Industry Attractiveness

UTI


Implication :

The First Zone consists of the three cells in the upper left corner. The ICICI venture capital firms falls in this zone that it is in a favorable position with relatively attractive growth opportunities. This indicates to invest in this service.

The Second Zone consists of the three diagonal cells from the lower left to the upper right. The APIDC, Aviskar, VCF, UTI fall in this phase. A position in this zone is viewed as having medium attractiveness. Management must therefore exercise caution when making additional investments in this service. The suggested strategy is to seek to maintain share rather than growing or reducing share.

The ICICI venture capital fund will try to go in upward line and try to increase their strength and must allocate their source on his strength like affiliation & network Management support and Intellectual assets. For this company make Strategic Business Unit(SBU) for each deal. Company can make network with other global companies . So it is useful when company make deal in Merger& Acquisition deals and company must have knowledge about global culture. Due to large network it may become useful in generation a flow of deals The company must hire experienced professional person. Because it can become competitive advantage for company in Venture Capital Industry. The company can increase its strength by providing better post investment services like strategic planning, better portfolio management services and helpful in financing from other companies.



Industrial attractiveness

Market growth rate

CAGR OF VC

1160

14234

0

2000

4000

6000

8000

10000

12000

14000

16000

2000 2007

VA

LU

E O

F D

EA

LS

43%

Figure: 5.26 CAGR of venture capital industryFrom the above graph we can say that Venture capital industry is growing at the CAGR of 43%. And the value of deals in 2000 was 1160 which increased to 14234 in the year of 2007. which shows substantial increase in the number of deals. This attract the new entrepreneur to enter in the industry.

Intensity of competition :

Source: www.nasscom.org, strategic review 2008 published by (National Association of Software and Service Companies) strategic review 2008 Figure: 5.27 Number of venture capital firms in india




Here the number of venture capital firms is increasing year by year. In 2001 it is only 77 now it has been increased to 160 in the year of 2008. the reason behind that is there is over all growth in the GDP and also substantial growth position in sectors likebiotechnology, ITes, retailing, telecom etc. due to this more players are eager to establish their foothold in the industry.

Regulatory policy

Minimum contribution and fund size : the minimum investment in a Venture Capital Fund from any investor will not be less than Rs. 5 lacs and the minimum corpus of the fund before the fund can start activities shall be at least Rs. 5 crores. And the foreign players can easily enter in the venture capital industry of India. An offshore venture capital company may contribute 100% of the capital of domestic venture capital fund. There are other hurdles to enter in the industry so there is favorable condition for them to enter in to venture capital industry in India.

Domestic economic factors:

GDP growth rate

GDP V/S VC GROWTH RATE

8.57.5

9.69.4240.91

33.33

251.06

89.79

0

2

4

6

8

10

12

2004 2005 2006 2007

GD

P G

RO

WT

H R

AT

E(%

)

0

50

100

150

200

250

300

VC

GR

OW

TH

RA

TE

(%)

GDP GROWTH RATE VC GROWTH RATE

Source: CII (Confederation of Indian Industry) July 2008 Presentation

Figure: 5.28 GDP V/S VC Growth rate

In above chart there was a positive relation ship there was between GDP growth rate. But in 2007 the growth of Venture Capital was decline to 89.79% from 240.91% in 2006 but here the value of deal was increasing. In 2008 the growth rate is 9% and project the next year GDP 8% to 9%. So here we can conclude that there is good growth prospect for the venture capital players to enter in the horizon of India.



INFLATION v/s VC GROWTH RATE

7.4

4.5

3.2

5.8251.06

33.33

89.79

240.91

0

1

2

3

4

5

6

7

8

2004 2005 2006 2007

INF

LA

TIO

N R

AT

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200

250

300

VC

GR

OW

TH

RA

TE

INFLATION RATE VC GROWTH RATE

Source: CII (Confederation of Indian Industry) July 2008 Presentation

Figure: 5.29 Inflation V/S Venture capital growth rate

In above chart the inflation rate is decreased to 4.5 in 2005 from 7.4 in 2004. At same time the growth of Venture Capial is also declining to 33.33% in 2005 from 251.06% in 2004. From the above chart we can conclude that inflation and Venture Capital has positive relationship. Now in June 2008 the inflation rate was 11.9 and the NO. of deal in first two quarter in 2008 was 170 and value of deal was 6390 US$mn and in third quarter of 2008 there was only four deals. And in October the inflation touch the 13.01%. Due to increase in inflation rate the people will going to spend more. Thus, their savings will decrease. So more money will come into the market and demand of the products will increase continuously. now due to growth of any sector will attract new entrepreneur to enter in the industry. For that they must need funds. So there is a great opportunity for venture capital industry to attract this new entrepreneur.




Source : economic survey 2007-08, chapter-8

Figure: 5.30 growth fo smalla and medium scale industries

Venture Capital, to be able to contribute to developing entrepreneurship in India, needs to concentrate its investment in small and medium enterprises. A “Package for Promotion of Micro and Small Enterprises” was announced in February 2007. This includes measures addressing concerns of credit, fiscal support, cluster-based development, infrastructure, technology, and marketing. Capacity building of MSME Associations and support to women entrepreneurs are the other important features of this package. SMEs have been allowed to manage their direct/indirect exposure to foreign exchange risk by booking/canceling/roll over of forward contracts without prior permission of RBI.




EXPORT AND IMPORT

VALUE OF EXPORT AND IMPORT

52.7

78.1

111.5

149.2

185.7 185.7

63.883.6

103.1

155.5

126.4

61.4

0

20

40

60

80

100120

140

160

180

200

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

US

do

llar

s in

bil

lio

ns

EXPORT IMPORT

Source: CII, july,2008 presentation

Figure: 5.31 value of export import

The value of Import and export are increasing year by year. In 2002-03 the value of import and export are 52.7 and 61.4 US$bn respectively and in 2007-08 the value of import and export are 155.7 and 185.7 US$bn. It means industry need more money for import and export. So it is an opportunity for venture capital. On the other side when company going to export the company must have good contact with other country’s company. So for that venture capital industry is useful because they have good contact and affiliation network with other country’s company.



5.6.1 Industry Profitability :

The venture capital firms invest their money in most emerging sectors like biotechnology, ITes, retailing, infrastructure which gives higher return but also they all involved risk in substantial amount.




Failure 4 0%Viable 3 15%Solid 2 50%Superstars 1 100%Blended average 24.5

Source : IVCA Presentation 2007

Table: 5.20 Success ratio of venture capital deals

From the above table we can see the success ratio of the venture capital investment. 40% of the investments are getting failure and only 10% of them are able to give 100% return. And the average return by the venture capitalists is only 24.5% which is not extra ordinary. This type of returns can be found in many other investment options. So there isn’t any special reason to invest in venture capital.

Product innovation:

Venture capital firms are coming with new ideas of investment to attract the buyers to their firms. For this purpose they are introducing new types of funds and schemes.

For example, IFCI Venture Capital Funds Limited (IVCF) has launched three new funds in emerging sectors of the economy namely :

i) India Automotive Component Manufacturers Private Equity Fund –1-Domestic (IACM-1-D) with a target corpus of Euro 60 million equivalent to Rs.396 crores. This Fund will be dedicated for investment mainly in Indian Automotive Component companies and in other related/ emerging sectors.

ii) India Enterprise Development Fund (IEDF) ,a Venture Capital fund set up with target corpus of Rs.250 crores to invest in knowledge based projects in key sectors of Indian economy with outstanding growth prospects.

iii) Green India Venture Fund (GIVF), a Venture Capital fund setup with a target corpus of Euro 50 million (approx. Rs.330 crores) with the objective to invest in commercially viable Clean Development Mechanism (CDM), energy efficient and other commercially viable projects with an aim to reduce negative ecological impact, efficient usage of



resources such as energy, power etc and other related sectors/projects. The summary of the Funds :

Launching of new funds by IFCI

Funds IACM –1 GIVF IEDFObjective To invest in Indian

companies engaged in, amongst others, the automotive parts and components manufacturing sector in order to generate high returns for its investors.

The objective of GIVF would be to invest in companies setting up Clean Development Mechanism (CDM) projects and other commercially viable projects/ business.

To invest in knowledge based projects with relatively high entry barriers, critical applications, prospects for high growth and global scalability in diversified and/ or emerging sectors.

Size Euro 60 million (INR 396 Cr)

Euro 50 million (INR 330 Cr) with green shoe option

INR 250 Cr

Nature of Fund PE Fund VC Fund VC FundTenure 8 yrs. With two

prolongation option of 1 year each

10 years with two prolongation options of 1 year each

10 years with two prolongation options of 1 year each.

Expected returns 20% p.a. 20% p.a. 20% p.a.Size of investment Rs. 6 to 40 Cr Rs. 2 to 30 Cr Rs. 2 to 25 Cr Management fee 2% of the total

subscription amount2% of the total subscription amount

2% of the total subscription amount

Source: www.ifciventure.com

Table: 5.21 launching of new funds by IFCI

The SICOM venture capital firm introduce SME opportunity fund for small scale industries.

5.6.2 Business attractiveness:

1. Quick response time :

Quick Response time :the company have flat organization structure results in quicker decision making. The entrepreneur is relieved of the trauma that one normally goes through in an interface with a funding institution or a development agency. They follow a clearly defined decision making process that works with clock like precision, which means that if they agree on a funding schedule entrepreneur can count on them to stick it.

2. International Affiliation & network

in today’s era, the company must have a good network with financial institution for getting finance and must have a good network with global companies because Venture capital industry concentrate on global level.


http://www.ifciventure.com/


For e.g. Andhra Pradesh industrial development corporation (APIDC), a state owned institution promoting industrial development , has an excellent track record of promoting and nurturing industrial development. The fund can draw on APIDC’s rich and varied experience and government connectivity to assist start-up venture as well as those with expansion plans. APIDC, a state- owned institution promoting industrial development has an excellent track record of promoting and nurturing industrial development.

APIDC-VCL identifies and explores high-potential opportunities that entrepreneurs can use to advantage. It facilitates access to sophisticated technologies for Indian entrepreneurs through links with technical institutions in India and abroad affects technical alliances through connections with corporate, research institutions, and technology innovators in the west.

IVCF has provided finance to over 350 ventures since inception and has supported commercialization of over 50 new technologies. IVCF has pioneered effort for widening entrepreneurial base in the country.

Avishkar venture capital concentrate on Micro & small enterprise. But the response they have received from this sector is not supportive. Their main concentrated areas are rural and semi urban.

3. Entrepreneurial edge

APIDC-VCL has honed to fine skill, the ability to recognize the potential of a great entrepreneurial idea, understand it, and gauge its true worth. An uncanny feel for projects based on the strength of their fundamentals.

Asset managers

It is one of less than handful of asset managers, which are owner – manager driven. Most of other asset managers and large hierarchical structures are dominated by a big institution. Unlike the “effective” model successful in the developed market. The asset management team has impressive credentials, strengths in business building, entrepreneurship and strong overseas capabilities that are essential In today’s liberalized markets, rather than pure financial skills. This allows APIDC-VCL to better relate and assess provide value- addition to investee companies.

4. Intellectual Assets :

The company must have good intellectual assts for screening and evaluating the business plan and must take care while pricing the deals. The venture capitalists evaluate project’s risk in isolation and thus effect of risk on total portfolio investment are rarely assessed. So company must have good intellectual assets for minimizing the risk.

The UTI venture capital firm has experienced local team they have proactive team with unmatched local insight. With over 75 years of collective experience in Indian capital markets, the skill sets of each team member are both diverse and complimentary. Our knowledge of domestic regulatory frameworks and cultural sensitivities gives us a distinctive edge among private equity firms in India.



The ICICI Venture capital funds possess for skills assessing promoters, deal structuring and in depth evaluation of ventures including future commercial feasibility study while carrying out due diligence of businesses and investments _ Network for interaction with financial institutions, banks, industry association etc. Experience in all the phases of investment cycle viz. from deal sourcing to exit from investment.

The IVCF evaluate the business plan by 360 degree. The evaluation include financial feasibility, risk measurement and compensation factors.

The IVCF can provide independent, fair and informed assessment for undertaking investment in business in India which will help Managers vigoroursly pursue focus areas, identify growth impediments and draw-out plan to overcome them.

5. Management support :

Following two are examples of management support services provided by venture capital firms to the investee company.

ICICI Venture endeavours to ensure that the Portfolio Companies are governed effectively and that there is active involvement and timely intervention by the team once the investment is made. The team creates value in the Portfolio Companies by taking strategic, operational and financial initiatives aimed at strengthening their competitive position vis-à-vis competitors and industry benchmarks.

The Investment team works with management teams to identify opportunities for enhancing value through cost reduction and internal rationalization. They also work together to implement growth strategies based on market definitions, customer segmentation, price management, focused marketing and sales plans, strategic capital investments and /or the introduction of proven technologies. The Investment teams also help in further strengthening the management teams. ICICI Venture works actively with management teams to identify and execute acquisitions.

IVCF provide investment monitoring services:

Provide Value addition to invested business by guiding raise funds/ working capital, listing of securities, undertake strategic moves, plan organizational strategy & solving problems, it faces.

Enable recovery of loan, evaluation of options for disinvestments etc.

Portfolio management upto closure of investment.

Analyze trends and identification of upside potential for the investee cos.

Risk Analysis and mitigation by initiating remedial actions for improvement of performance of the investee company.

5.7 Is Indian Venture Capital attractive?



Increasingly, corporate strategies have to be seen in a global context. Even if an organization does not plan to import or to export directly, management has to look at an international business environment, in which actions of competitors, buyers, sellers, new entrants of providers of substitutes may influence the domestic market. Information technology is reinforcing this trend.

Figure: 5.32 Is Indian Venture Capital attractive?

Factor conditions:


Firm strategy, structure and

rivalry

FactorConditions

DemandConditions

Related and supporting Industries

Labor force Increasing literacy rate Infrastructure

Number of Venture capital firms

Increase in small scale industry

Enhance globally Concentrate on project Evaluation Strategic alliance Sector wise investment

Public, insurance companies, corporate funds, banks, pension funds, FIIs, FDIs


The situation in a country regarding production factors, like skilled labor, infrastructure, etc., which are relevant for competition in particular industries.

Source: www.indexmundi.com

Table: 5.22 Labour and Literacy rate from 2002 to 2008

Here we can see that year by year literacy rate is increasing, only in the year 2007 it has been decreased by 0.5%. during the year 2003 it has registered tremendous growth of 10.6%. Now we can say that condition of availability of skilled labor is good enough to survive in any industry. As a venture capitalist one will look for experienced people to appoint in his firm. Venture capital firms will have to evaluate the proposals of entrepreneurs and will provide them funds. they also provide management support because of which buyers are ready to pay their high interest rates. If they will have good skilled labor they can use them in beneficial way of the firm by using their skills in evaluation process and for providing management support.

Infrastructure development also needs to be prioritized using government support and private management. This involves creation of technology as well as knowledge incubators for supporting innovation and ideas. R&D also needs to be promoted by government as well as other organizations. The India is IT hub for foreign companies.

Home demand conditions:

Describes the state of home demand for products and services produced in a country.

S.V .Institute Of Management, Kadi

year Labour force

2002 40.62003 40.62004 47.22005 48.222006 49.642007 50.932008 51.64

YearLiteracy (%)

2002 37.72003 48.32004 48.32005 48.32006 48.32007 47.82008 47.8

124



Source: www.nasscom.org, strategic review 2008 published by (National Association of Software and Service Companies) strategic review 2008

Figure: 5.33 Number of venture capital firms in india

We can see from the above chart that year by year numbers of venture capital firms are increasing. Now it is known that whenever in any industry demand is increasing number of competitors will increase. As growing demand attract new entrants, competition among firms will increase.

Source: www.rbi.org.in, Economy Survey 2007-08,chapter 8

Figure: 5.34 growth of small and medium scale enterprise

Because of some level of unemployment youth is attracting towards entering into new businesses. and in the below given chart we can see that number of SMEs are also increasing continuously, which shows increase in demand of funds. Thus scopes for venture capital firms are increasing.





Firm strategy, structure and industry:

The conditions in a country that determine how companies are established, are organized and are managed, and that determine the characteristics of domestic competition.

Firm Strategies:

currently venture capital firms are facing recession because of sudden crash in stock market exit rout has been closed for them. No one can come with IPO so investment of the firm is getting blocked. As players in this industry has been increased tremendously during last few years because of constant growth in stock market. So now at this stage if they will found a single opportunity all will try to catch it, so everyone will find severe competition. Presently venture capital firms are using following strategies to compete in current market conditions.

ENHANCE GLOBALLY: They go global for expanding their contacts with other firms at global level. As they also provide management support to the firms borrow from them, if they have global contacts they can also attract the firms which want to expand their business at global level. these types of firms will also like to borrow from venture capital firms as they will get ready contacts at global level through venture capitalist’s network.

HIGH CONCENTRATION ON PROJECT EVALUATION:As venture capital firms invest in new or a risky projects they must evaluate it carefully. Because wrong evaluation may create loss for them. They will have to appoint some experienced or trustworthy person to evaluate any project.

SECTOR AND STAGE WISE INVESTMENT STRATEGY:Most of the venture capital firms are investing in their interested areas only. They mostly invest in the sectors or in the stages from which they can get more return with less risk. Some particular sectors are providing constant or incremental returns to venture capitalists. Thus they are concentrating on those particular sectors only. They are also concentrating on stage wise investment as risks associated with different stages are different.

STRATEGIC AND BUSINESS ALLIANCES:As per current trend in market venture capital firms are also going for alliances with other firms for diversifying their risks in investment. They also use this strategy when they are not having enough funds for investing in any field.

Industry structureThe players and the market segments can be differentiated by a number of criteria, including time of investment (in the investees lifecycle), deals size and ownership of the Venture Capital companies. There are different group of player like angel player, small, medium and large venture fund, corporate venture fund and financial venture fund. They are investing at different stage of funds like at seed stage, start-up stage, expansion stage, turnaround stage.



Related and supporting industry:

The existence or non-existence of internationally competitive supplying industries and supporting industries.

Here firms are borrowing money from many industrial suppliers which themselves are also substitute for them. The list of those suppliers are given below.

Indian scenario (2007)Contributors of funds to VC

Contributors Rs mn Per centForeign institutional investors 13,426.47 52.46All india financial institutions 6,252.90 24.43

Multilateral development agencies 2,133.64 8.34Other banks 1,541.00 6.02

Foreign investors 570 2.23Private sector 412.53 1.61Public sector 324.44 1.27

Nationalized banks 278.67 1.09Non resident Indians 235.5 0.92

State financial institutions 215 0.84Other public 115.52 0.45

Insurance companies 85 0.33Mutual funds 4.5 0.02

Total 25,595.17 100.00

Source: ICFAI reader, April-2007,”Analysis of venture capital industry in india”, page no. 36 to 40.

Table: 5.23 contributors of funds to venture capital

All the above given suppliers are having their own industry and rules and regulations from government. Total funds coming to India is Rs. 25,595.17 mn. The rules and regulations for these industries also affect the performance of venture capital firms.


DEAL ORGANISA

TION

SCREENING

EVALUATION & DUE DILLIGEN

CE

DEAL STRUCTU

RING

POST INVESTME

NT ACTIVITIES

HUMAN RESOURCE DEVELOPMENT

MIS SYSTEM

ASSET MANAGER


5.8 VALUE CHAIN ANALYSIS

PrimaryActivitiesAnd Costs

SupportActivitiesAndCosts

Figure: 5.35 value chain

In primary activities there are four activities which supporting the venture capital’s service. The primary activities that are foremost in creating value for customers and requisite support activities that enhance the performance of primary activities.

Primary activities:

1. Deal organization2. Screening

3. Deal structuring

4. evaluation or Due Diligence

5. Post investment Activities

There are four supporting activities:

1. Human Resource Development2. Asset Manager

3. MIS System

4. International affiliation & Network

Primary Activities

1. Deal origination:

In generating a deal flow, the Venture capital investor creates a pipeline of deals or investment opportunities that he would consider for investing in. Deal may originate in



various ways. Referral system active search system and intermediaries. Referral system is an important source of deals. Deals may be referred to VCFs by their parent organizations, trade partners, industry associations, friends etc. Another deal flow is active search through networks, trade fairs, conferences, seminars, foreign visits etc. Intermediaries is used by venture capitalists in developed countries like USA, is certain intermediaries who match VCFs and the potential entrepreneurs. . A continuous flow of deals is necessary for the venture capital business.Yet another important source of deals flows is the active search through networks, trade fairs, conferences, seminars, etc.

For e.g. APIDC-VCL deal generation strategy will produce a relatively higher level of quality deals than a general promotional approach and will generate sufficient deals to invest the monies raised by it. Their focused approach to canvassing entrepreneurs will be more efficient in finding qualified entrepreneurs and project ideas that meet their criteria of ‘Key Differentials’. APIDC-VCL has set up a flow of investment opportunities with its existing network in India and with its associates in the USA. APIDC-VCL also plans to promote through focused seminars, a public relations, campaign to institutions and industry associations, to heighten the awareness of its activities.

2. Screening:

VCFs, before going for an in-depth analysis, carry out initial screening of all projects on the basis of some broad criteria. For example, the screening process may limit projects to areas in which the venture capitalist is familiar in terms of technology, or product, or market scope. The size of investment, geographical location and stage of financing could also be used as the broad screening criteria.

Here the company must identifying the market and company must have knowledge about how large the market, where is the market headed, what is the competition, how is the market segmented, how will the product or service be positioned in the market. And company must have knowledge about the product.

3. Due Diligence:

Due diligence is the industry jargon for all the activities that are associated with evaluating an investment proposal. The venture capitalists evaluate the quality of entrepreneur before appraising the characteristics of the product, market or technology. Most venture capitalists ask for a business plan to make an assessment of the possible risk and return on the venture. Business plan contains detailed information about the proposed venture. The evaluation of ventures by Venture Captal Funds in India includes; For the venture capital investment process, due diligence means a rigorous investigation and evaluation of an investment opportunity before committing funds. This investigation is conducted by the parties involved in preparing a registration statement to form a basis for believing the statements contained therein are true and that no material facts are omitted. This process includes review of its management team, business conditions, projections, philosophy, and investment terms and conditions.

Absolutely vital to making a sound investment, due diligence verifies any business opportunities that survive the initial screening stage. For venture capital investments, as few as 10-15% of proposals make it past the initial screening stage to the full due-diligence process, and only 10% of those receive funding. This verification process consists of checking the accuracy of business plans, audited accounts, and management


http://www.1000ventures.com/business_guide/bp_main.html

http://www.1000ventures.com/business_guide/crosscuttings/team_management.html


accounts; getting replies to warranty and other standard questionnaires; patent searches; and technical studies. Unpublished accounting information and subjective information are equally important; these data are collected by calling customers, suppliers, lawyers, and bankers, and by checking trade journals.

Preliminary evaluation: The applicant required to provide a brief profile of the proposed venture to establish prima facie eligibility.

Detailed evaluation: Once the preliminary evaluation is over, the proposal is evaluated in greater detail. Venture Capital funds in India expect the entrepreneur to have:- Integrity, long-term vision, urge to grow, managerial skills, commercial orientation.

Venture Capital Funds in India also make the risk analysis of the proposed projects which includes: Product risk, Market risk, Technological risk and Entrepreneurial risk. The final decision is taken in terms of the expected risk-return trade-off.

For e.g. APIDC-VCL will evaluate each deal against the started ‘investment strategy’ and whether the returns meet the target rates, and whether theriskd can be contained and are appropriate, prior to proceeding further. Specifically, APIDC-VCL will evaluate.

1. The quality of the management team.2. The match with its strategy of ‘Key Differential’ resulting in a strong, competitive

edge for the company.

3. The size and growth rate of market.

4. Types of risk and their management.

5. potential for high profitability while protecting the downside.

MONITORING AND VALUE ADDITION:

APIDC-VCL in line with its proactive strategy of value addition follows an active mode of monitoring and value addition. APIDC-VCL in collaboration with the investee company sets up milestones that lead up to the eventual disinvestments from the investeee company. These milestones are then monitored actively and the investee company is urged to adopt a reporting system that facilitates the monitoring of the progress versus the milestones.

4. Deal Structuring:

In this process, the venture capitalist and the venture company negotiate the terms of the deals, that is, the amount, form and price of the investment. This process is termed as deal structuring. The agreement also include the venture capitalist's right to control the venture company and to change its management if needed, buyback arrangements, acquisition, making initial public offerings (IPOs), etc. Earned out arrangements specify the entrepreneur's equity share and the objectives to be achieved.

1. The process involves the details of the financing instruments and the percentage ownership of the venture capitalist. The structure should also consider various



commercial issues. The common instruments are equity, preferred shares, convertible debt, conditional loans, conventional secured or unsecured loans and income notes, etc. the instruments used by the venture capitalist to optimize venture capital’s return / protection on one hand and to satisfy the entrepreneur’s requirement on the other.

PRICING OF DEAL

Pricing is the most sensitive part of the negotiation process. Pricing involves valuation of a company before and after financing based on an analysis of risk and return. In seed capital and other early stage investment. VCC/VCFs expect a compounded annual return of 50% or more, whereas in second stage investment VCC/VCF, may be satisfied with an annual return of 30-40% and in later stage financing, 25-30%. Venture capitalist must take care while pricing the deal as far as control over the ownership of the firm is concerned.

Company used various method for valuation of deals. They are as follow.

1. Conventional valuation method

This is based on the expected increase in the initial investment that could be sold out to a third party or through public offering via the exit route. Price –earning ratio(P/E) is calculated on the maturing date, also known as liquidity date. Multiplying the earning level post-tax effect by P/E ratio on the future maturity date arrives at valuation of investment at a future date. This method does not take into account the stream of cash flows beginning from the date of investment till the date of liquidity of investment.

2. Present-value-base method

This method takes into account the stream of earnings (or losses) generated during the entire period of the investment from the date of initial investment till date of maturity at a presumed discounted rate. The method was developed by Stanely Golder of the first Chicago corporation and is popularly known as “first chicago method”. Three alternative scenarios styled as “success; ‘survival’ and failure’ are assumed for the entire maturing period of the project that are discounted by a uniform discount rate to arrive at the present value of investment.

Each scenario is assigned a probability figure. Probability figures are based on many factors, which affect the earning stream: prices of raw material ;prices of finished good; marketing factors. The product is multiplied by respective probability figures to arrive at expected value in each scenario. The total of these scenarios gives the expected present value of the company. Based on such value the venture capitalist makes his investment. The problem with this method is that it is based more on a value judgment by the venture capitalist than empiricial consideration.

3. REVENUE MULTIPLIER METHOD



Revenue multiplier is an assumed factor used to estimate the value of an enterprise. By multiplying the annual estimated sales by such factor, the valuation figure is derived. This method is based on sales income and not on earnings. Assuming the absence of profit in the early stages of project, the method is useful for valuation at the early stages.The multiplier (M) is obtained by using the following equation :

Where,

M = stands for multiplier. g = standa for growth rate. n = stands for number of years between initial investment and exit date. e = stands for expected profit margin (post tax) percentage at the exit date. PE = stands for expected price earning ratio at the exit date. d = stands for appropriate discount rate for venture capital investment and undertaking risk.Valuation, (v) is obtained by using the following equation

Utilization of earlier investment is an important part of investigation that would reveal the ability of management to economically and efficiently utilize funds.

Post Investment Activities:

Once the deal has been structured and agreement finalized, the venture capitalist generally assumes the role of a partner and collaborator. He also gets involved in shaping of the direction of the venture. The degree of the venture capitalist's involvement depends on his policy. It may not, however, be desirable for a venture capitalist to get involved in the day-to-day operation of the venture. If a financial or managerial crisis occurs, the venture capitalist may intervene, and even install a new management team.

The company also provides following value added service:

1. Strategic planning 2. Recruitment

3. Operational planning

4. Help in obtaining additional financing

5. introduction to potential customers and suppliers

6. international access

7. legal and other professional services



8. Negotiation and execution of M&A

SECONDARY ACTIVITIES:

1. Human resource development :

The company must have good expertise person like engineers, professional etc. for the evaluation and screening of the deal. Because this is the most important stage in the venture capital investment process. On the basis of screening and evaluating of the deal we can get idea about the success or failure in the deal.

2. Asset Manager :

It is one of less than handful of asset manger, which are owner manager driven. The asset management team must have impressive credentials and strong overseas capabilities are essential in today’s liberalized market. This allows to better relate and assess provide value addition to investee companies.

3. MIS system

The company must have fully developed management information system for screening the deal and for evaluating the deal. The MIS system is also useful in pricing of the deal.

Cisco Systems Inc.Cisco Systems Inc. used the venture acquisition approach with remarkable success. The company has pioneered the use of carefully designed and effectively operated acquisition process governed by hard-and-fast criteria and and ability to strike a deal within twenty-four hours and close it within two months.

Cisco listens to the market, and if it doesn't have what the market wants, it uses company stock to buy a start-up or an emerging company that already has the product and integrates the new company along with its technology, as fast as possible. In 1994, Cisco acquired three companies, in 1995 – four, in 1996 – seven, in 1997 – six, in 1998 – nine, in 1999 – eighteen, and in 2000 – twenty-three.

Being AcquiredIdeally, a company considering being acquired can first work with its corporate candidate to sample the relationship. One way of accomplishing this is by accepting a strategic investment. However, the benefits and the risks for both sides must be weighed carefully. Relationships don't always develop into the merger or the acquisition.

Having a strategic investor is definitely a double-edged weapon. Before accepting corporate investments, companies should be sure that the investing company's agenda is consistent with theirs and be certain that they are prepared to manage conflicting agendas. Start-up companies must be sure to consider the universe or potential investors and what effect having one of those investors on their board will have on the others.



Winning is not necessary achieved without partners and parents. Expand your search to the international marketplace. Prepare the team, as well as your investors, for the possibility of acquisition as means to realize the full potential of the company's entrepreneurial vision.

5.9 OPPORTUNITIES AND THREATS:

5.9.1 OPPORTUNITIES :

Initiatives taken by the Government in formulating policies to encourage investors and entrepreneurs

The emerging scenario of global competitiveness has put an immense pressure on the industrial sector to improve the quality level with minimization of cost of products by making use of latest technological skills. The implication is to obtain adequate financing along with the necessary hi-tech equipments to produce an innovative product which can succeed and grow in the present market condition. Unfortunately, our country lacks on both fronts. The necessary capital can be obtained from the venture capital firms who expect an above average rate of return on the investment. Government of India understands this.

Also, The Government of India in an attempt to bring the nation at par and above the developed nations has been promoting venture capital financing to new, innovative concepts & ideas, liberalizing taxation norms providing tax incentives to venture firms, giving an opportunity for the creation of local pools of capital and holding training sessions for the emerging VC investors. In the year 2000, the finance ministry announced the liberalization of tax treatment for venture capital funds to promote them & to increase job creation. This is expected to give a strong boost to the non resident Indians located in the Silicon Valley and elsewhere to invest some of their capital, knowledge and enterprise in these ventures.

SME GROWTH



No. deals V/S No. of SMEs

56 71

146

299

387

109.49

113.95

118.59

123.42

128.44

0

50

100

150

200

250

300

350

400

450

2003 2004 2005 2006 2007

100

105

110

115

120

125

130

No. of deals No. of SMEs

VC, to be able to contribute to developing entrepreneurship in India, needs to concentrate its investment in small and medium enterprises. A “Package for Promotion of Micro and Small Enterprises” was announced in February 2007. This includes measures addressing concerns of credit, fiscal support, cluster-based development, infrastructure, technology, and marketing. Capacity building of MSME Associations and support to women entrepreneurs are the other important features of this package. SMEs have been allowed to manage their direct/indirect exposure to foreign exchange risk by booking/canceling/roll over of forward contracts without prior permission of RBI.


The Indian economy is growing at 8-9% so the there is a development of all sector like manufacturing, services sector. So there is a great opportunities for Venture Capital firms. Because mostly invest their money in this sectors.

India amongst leading entrepreneurial Hotbeds globally

City competencies emerging

Bangalore• All IP-led companies; IT and IT-enabled services

Delhi (NCR)



• Software services, IT enabled services, Telecom

Mumbai• Software services, IT enabled services, Media, Computer Graphics, Animation, Banking

Other emerging Centers• Chennai, Hyderabad, and Pune

Emerging sectors for investments

As the venture industry continues to accelerate, a number of trends that cross geographies can be seen. The industry is becoming even more globalized .As a result, innovation in clean tech, IT, and healthcare, pharmaceutical are having a global impact. This changing landscape is driving new approaches in how large corporations are interacting with the venture community.

Clean technology.

Global climate changes, high oil prices, accelerated growth in emerging markets, energy security concerns and the finite nature of resources are some of the key drivers of the growing global demand for clean technologies in energy and water. In addition ,the increased willingness of consumers and governments to pay for and use green technologies ,combined with the positive exit environment of the last years ,has provided venture capitalists with the confidence to invest in emerging companies around the globe.

According to the research from Dow Jones Venture One and Ernst &Young .US $1.28 billion was invested in 140financing rounds in 2006 in China , Europe Israel and United States that compares to US $ 664.1 million invested in 103 financing rounds in 2005,showing the capital investment in the field has nearly doubled over the past year. It is expected that investment in clean technologies will continue to increase not only in developed markets but also in the developing markets, mainly in India and China.

Biotechnology

Over last few years ,the story of the US biotech industry has been one of the remarkable success .There are signs that this success story is now repeated in other parts of world ,with maturing pipelines, record breaking financing totals, strong deal activity and impressive financial results. Industry is grew 31% for second year in raw in 2007. Exemption of import duty on key R&D, Contract manufacturing/clinical trial equipment and duty credit for R&D and consumer goods.



Source : ://http://indiabudget.nic.in , Economic survey 2007-08 ,chapter 8Figure: 5.36 Biotech industry revenues

Pharmaceutical

Source : ://http://indiabudget.nic.in , Economic survey 2007-08 ,chapter 8

Table: 5.24 export and import of pharmaceuticals



Figure: 5.37 export of pharmaceuticals

The industry's growth rate is likely to touch 19 per cent from the current 13 per cent, according to a projection released by the Confederation of Indian Industries (CII), on September 1, 2008.

According to a McKinsey study, the Indian pharmaceutical industry is projected to grow to US$ 25 billion by 2010 whereas the domestic market is likely to more than triple to US$ 20 billion by 2015 from the current US$ 6 billion to become one of the leading pharmaceutical markets in the next decade.

The Indian pharmaceutical industry has shown robust growth in terms of infrastructure development, technology base creation and a wide range of products with a determination to flourish in the rapidly changing environment, thereby establishing its global presence. The Indian pharmaceutical industry has increased its competitive intensity owing to pricing pressures and striving consistently to innovate. ICICI Venture-controlled Ranbaxy Fine Chemicals (RFCL) has acquired the US-based speciality chemicals major Mallinckrodt Baker in a deal estimated at US$ 340 million.

SO there is great opportunity for venture capital industry to invest their money in this sector. Nowadays, India will become a global pharma hub exporting by exporting domestically produced generic products

IT/ITes Industry



Figure: 5.38 IT/ITes Industry revenue

Source: http://www.ibef.org/sector/informationtechnolgy.aspx

The Department of Information Technology is setting up Nano Electronic Centres at the Indian Institute of Technology, Mumbai and the Indian Institute of Science, Bangalore. with an outlay of about Rs. 100 crore to carry out R&D activities in nano-electronics devices and materials.

In 2006-07, the performance of the Information Technology Enabled Services–Business Process Outsourcing (ITES-BPO) industry was marked by double-digit revenue growth, steady expansion into newer service lines and increased geographic penetration and an unprecedented rise in investments by multinational corporations (MNCs).

The Special Incentive Package Scheme (SIPS) to encourage investments for setting up semiconductor fabrication and other micro- and nano-technology manufacturing industries was announced in March2007. The incentives admissible would be 20 per cent of the capital expenditure during the first 10 years for units located in Special Economic Zones (SEZs) and 25 per cent for units located outside SEZs.

ELECTRONIC INDUSTRY


http://www.ibef.org/sector/informationtechnolgy.aspx


PRODUCTION OF ELECTRONIC INDUSTRY

97000118290

152420

190300

245600

0

50000

100000

150000

200000

250000

300000

2002-03 2003-04 2004-05 2005-06 2006-07

AM

OU

NT

Source : ://http://indiabudget.nic.in , Economic survey 2007-08 ,chapter 8

Figure: 5.39 Electronic industry production

There is a high growth of software and solutions related to the consumer Internet, software as a service (SAAS), open source, software-cum-services and telecommunications (both wireless and wire-line) products and related services. There is a great opportunity for venture capital industry to invest in this electronic production industry.

In 11th five year plan investment estimate in telecommunication sector are 65.1 US$bn.

The industry has seen the following trends in growth rate in April-June 2008 (estimated) over same period in 2007 :-

Transformers – 4.1% Motors & Starters – -14.58% Boilers – 35%



5.9.2 Threats :

Venture Capital Market in India Getting Overheated

The Venture Capital market in India seems to be getting as hot as the country’s famous summers. However, this potential over-exuberance may lead to some stormy days ahead, based on sobering research compiled by global research and analytics services firm, Evalueserve. Evalueserve research shows an interesting phenomenon is beginning to emerge:

Over 44 US-based Venture capital firms are now seeking to invest heavily in start-ups and early-stage companies in India. These firms have raised, or are in the process of raising, an average of US $100 million each. Indeed, if these 40-plus firms are successful in raising money, they would garner approximately $4.4 billion to be invested during the next 4 to 5 years. Taking Indian Purchasing Power Parity (PPP) into consideration, this would be equivalent to $22 billion worth of investment in the US. Since about $1.75 billion (or approximately 40% of $4.4 billion) has been already raised, even if only $2.2 billion is raised by December 2006, Evalueserve cautions that there will be a glut of Venture Capital money for early stage investments in India. This will be especially true if the VCs continue to invest only in currently favorite sectors such as IT, BPO, software and hardware products, telecom, and consumer Internet. Given that a typical start-up in India would require $9 million during the first three years (i.e., $3 million per year) and even assuming that the start-up survives for three years, investing $2.2 billion during 2007-2010 would imply investing in 150 to 180 start-ups every year during this period, which simply does not seem practical if the VCs continue to focus only on their current favorite sectors.

Unproductive workforce:

A global survey by McKinsey & Company revealed that Indian business leaders are much more optimistic about the future than their international peers. So Indian employees are tardy in their job so it will effect reversly on the economic condition of the country. Because they are unproductive to the economy of the country.

Exit route barriers :

Due to crashdown of market by 51% fromjanuary to novembor 2008. It create a problem for venture capital firms. Because Nobody is trying to come up with IPO and IPO is the exist route dor Venture Capital.

Taxes on emerging sector :

As per Union Budget 2007 and its broad guidelines, Government proposed to limit pass-through status to venture capital funds (VCFs) making investment in nine areas. These nine areas are biotechnology, information technology, nanotechnology, seed research and development, R&D for pharma sectors, dairy



industry, poultry industry and production of bio-fuels. Pass-through status means that the incomes earned by funds are taxable now.



5.10 Contemporary Issue In Venture Capital Industry

IIM-A Eyes venture capital to fund its incubators

Buoyed by the growing tribe of students wanting to go solo with their own entrepreneurial venture, the Indian Institute of Management, Ahmedabad (IIM-A) is looking to attract venture capital funds to the campus. The premier management institute is also in talks with several corporates to provide seed capital to budding entrepreneurs from its incubation lab.

“The number of students starting up their own venture is increasing in every batch. In a batch of 250 students, at least 10-15 are starting their own ventures.

Source: Business Daily from THE HINDU group of publicationsSunday, Jan 27, 2008

Angel investors betting big on Indian start-ups

Amid a slowdown in global venture capital investments, Indian start-up firms are emerging as clear favourites for seed capital among global angel investors.

During the first quarter of 2008, US-based venture capitalists invested $350 million in 38 deals in India, a 42 per cent jump from the previous quarter, when $246 million was invested in 33 companies. In the case of China, the funding by US-based Venture Capital firms dipped 24 per cent to $250 million invested in 32 firms during the first quarter of 2008, down from the $331 million invested in 39 deals in the previous quarter, according to data from the Money Tree report from PricewaterhouseCoopers and the US-based National Venture Capital Association

Source: Business Daily from THE HINDU group of publicationsSaturday, Apr 26, 2008



CHAPTER 6

CONCLUSION



CONCLUSION

The study provides that the maturity if the still nascent Indian Venture Capital market is imminent.

Venture Capitalists in Indian have notice of newer avenues and regions to expand. VCs have moved beyond IT service but are cautious in exploring the right business model, for finding opportunities that generate better returns for their investors.

In terms of impediments to expansion, few concerning factors to VCs include; unfavorable political and regulatory environment compared to other countries, difficulty in achieving successful exists and administrative delays in documentation and approval.

In spite of few non attracting factors, Indian opportunities are no doubt promising which is evident by the large number of new entrants in past years as well in coming days. Nonetheless the market is challenging for successful investment.

Therefore Venture capitalists responses are upbeat about the attractiveness of the India as a place to do the business.



CHAPTER 7

ANNEXURE



ANNEXURE

VC Player list

Government fund list

Name Type of company they fund

Deal stage they fund

Companies they fund

APIDC venture capital limited

Information technology Biotechnology Companies with registered office in Andhra Pradesh.

New projects,Expansion Diversification& Modernization

Project Nagarjuna group NCLNovo pan

Andhra Pradesh state finance corporation

Food processing Pharmaceuticals Bio-technologyTourism related activityInfrastructure development Hospital and Nursing homes Small and Medium scale industry

start –upEarly stage

Speck system limited ChemiloidsShree paper limited Thermal Systems private ltd.

Arunachal Pradesh industrial development and financial corporation

Agriculture and HorticultureMining Plantation of cropsAdventure Tourism

Start up

Assam Financial Corporation Start up Bihar State financial corporation Delhi financial corporation

Industrial transport ServicesMarketing companies in Delhi and Chandigarh

Start up ModernizationExpansion

M.S.Chhabra and Co.Electro spark

GDDIDC Lupin Goa Glass FibreLtdHigh mark India Pvt Ltd



Gujarat Biotechnology Venture FundGujarat Infrastructure Development Fund

Biotechnology Start upEarly Stage

Gujarat Information Technology Fund

Information Technology

Gujarat State Financial Corporation

SSIMSI

Start Up Expansion Diversification Modernization

Gujarat Venture Finance Limited

Information Technology Biotechnology,Other Technology SegmentsShould belong to SMEsegment

Start up ventures

Saraf Foods LimitedDecca net Designs Limited Neil soft Limited Lumen Cables Scicom Limited

Haryana Financial Corporation

Nursing HomesHotelsAmusement ParksSoftware ParksE-commerce

Himachal Pradesh Financial Corporation

Hotel IndustryHealthcareMiningInfrastructures

Start upModernizationSSIMSI

Industrial Venture Capital Ltd.

IT / Software / HardwareHi Tech PrintingConstructionTextile

SeedStartupMezzanine

Kerala Venture Capital Fund Pvt. Ltd

Information TechnologyBiotechnologyTourism

Start UpEarly StageGrowthDevelopment /Expansion

Invis Infotech Private LtdUshus TechnologiesEcommIT Labs Pvt. Ltd.Xylon Technologies Pvt. Ltd

KITVEN Information Technology Relq Software Pvt LtdLogix Microsystem LtdEcad Technologies Ltd, Itwine Technologies Pvt Ltd



Orissa Venture Capital Fund

Pradeshiya Industrial & Investment Corporation ofUttar Pradesh Limited

Electronics and electrical Telecommunications ,Food Processing ,Engineering

Punjab Venture Capital Fund

Infotech. hi tech health care,telecommunication

ll stages

Rajasthan Venture Capital Fund

Information Technology RetailBiotechnologyEntertainmentTourism

Start up Growth andExpansion Turn around Buy outs

Tech Axes

SIDBI Venture Capital Limited

ITComputer HardwareComputer SoftwareIT Enabled Services

Start up GrowthDevelopment/Expansion

Axiom ConsultingE-cube India SolutionsIndiaIdeas.com LtdBravo Healthcare

Tamilnadu Infotech Fund

Medical SoftwareBPOSecurity Banking

Midas CommunicationIPF OnlineSecurity Banking 004 LasersoftiMetrix (DATS)

Uttar Pradesh Venture Capital Fund



Private Indian funds

Name Type of companies they fund

Deal stage Portfolio companies

Aavishkar India Micro Capital

Fund Rural and Semi Urbandevelopment companies

Initial commercialexpansion

Servals AutomationShri Kamadhenu

Electronics Private Ltd.

Vortex Engineering Pvt.Ltd .

Tide TechnocratsAlliance Venture Capital Advisors Ltd.

BOA Consultancy services

IT RetailBio Tech and pharmaMedia High end BPO

Start up Knowcross Consultants Sanshadow Consultants MobileNxtMedia Madhouse Author GEN Electronic Tender

CDC Advisors Private Limited

Chrys Capital Fund

BiotechComputer Hardware Computer SoftwareITIT Enabled Outsourcing Services

Start up Early StageGrowth

Expansion/Development Mezzanine

Bajaj auto finance Jobs aheadBazee

NIITSpectra mind



Cipher Capital Advisors Ltd

Career Launcher Nuance Equinox Corporation SRF Limited

2i Capital (India) Pvt. Ltd.

IT Engineering Technology services

Early StageGrowthDevelopment/ Expansion

Dawn Consulting - GA

Technologysoftware services, embeddedBio-Tech & HealthcareManufacturingHospitality

Early StageLater Stage

Change pond Mind treeQuest Woodlands Sandisk

Global Technology Ventures

IT Consulting & SoftwareServices

Internet Infrastructure &Services R& D & Products

All stages Mind tree Global edgeIntimaeLiqwik KrstalNet magic

Hansuttam Finance Limited

Infrastructure Real Estate Oil and Gas Healthcare Hospitality Manufacturing

Helion Venture Partners

Outsourcing Internet Mobile, Technology Products

seed stagelater stage

United LexMakemytripcomEmbassy Gridstone ResearchJigrahak

HIVETEL Information Technology Start upsEarly Stage

ICF Ventures IT Computer Hardware and Software Media Consumer Bio-technology

Start up Early stageDevelopment / Expansion

ExplocityMatexnetLinc SoftwareGangagenSansken

IFB Venture Capital Finance LimitedIFCI Venture Capital Funds

Computer Hardware Computer Software

Start UpEarly Stage/Growth



Ltd. IT Enabled Services Telecommunications Life SciencesRetailAuto AncillaryEngineering

Development/ ExpansionMezzanine MBO

iLabs Venture Capital Fund

Consumer & FinancialServicesMedia & EntertainmentTelecomTechnology drivenProducts & Services,

Proven early-stage, Expansion-stageRestructuring/buy-outopportunities

SifyIntelligroup DQ Entertainment Cibernet, Megasoft,

IL&FS Venture Corporation Ltd. x

EngineeringAuto AncillaryIT Seed IT Enabled Services Telecommunications Biotech Life Sciences Retail

Start UpEarly Stage/GrowthDevelopment/ ExpansionMBO Mezzanine

India Co Ventures Limited

Indian Direct Equity Advisors Pvt. Ltd

Technology CommunicationEntertainment

Early stage Expansion

Alok Textile Industries LimitedBrainGEM L.L.C Ltd.United Studios Limited/UTVSun Earth Ceramics LtdDelta Innovative Enterprises Ltd.

INDIA IDFC Infrastructure Fund

Oil and Gas Industry Electricity

India Value Fund HealthcareRetailing Media & Entertainment Precision Engineering

Care HospitalBiocon Shringar

Infinity Venture ITSoftware ServicesMarketing ServicesInternet services

Start up Early /stage Growth

India gamesBrain visascognosysaztecIndia parenting

Jumpstart up Fund Advisors Pvt. Ltd.

SoftwareSemi conductor and embeddedsystems ,services

Start UpEarly Stage/Growth

Chutney Technologies ApnaloanCertus



CommunicationMarigold Capital Management LtdMarigold Capital Services Limited

Nova Star PowerInfrastructureManufacturingSoftware Bio tech

Amara Raja Batteries Amtek Auto Bio Con

Peninsula Realty Fund

Real Estate Cross roadsAshok

Reliance Technology Ventures Ltd

IT Media and Entertainment Telecommunications

YatraSeed fundYipes Holdings

Seed Fund RetailTelecomInternet Media MobileConsumer facing plays

Sicom Capital Management Ltd.

Computer Hardware Computer Software . IT

Early stageGrowth

Persistent e business SolutionsPARI RoboticsNeilsoft

SREI Venture Capital Limited

Real Estate

Sterling Technology & Venture Corp.Tata Investment Corporation Limited

RetailPharmaceuticals

Infiniti RetailNelcoAdvinus Therapeutics



Bank list

Name Type of companies they fund


Company they funded

Can bank Venture CapitalFund

Computer SoftwareComputer HardwareBiotechIT

Start UpEarly Stage/GrowthDevelopment/Expansion

Omnitech Info SolutionsLimitedKLT Automotive & TubularComponents LimitedTelesis Global Solutions

IDBI

ICICI Venture Funds ManagementCompany Ltd

PharmaceuticalsMediaReal EstateOverseas InvestmentManufacturingIT

GrowthBuy out

BioconAvesthagenDeccn AviationPantaloon RetailReliance PetroleumI Shopper's stop

Guardian Bank

HDFC Bank

HSBC Pvt. Equity Management IndiaKotak Mahindra VentureCapital Fund

RetailingHealthcareEntertainmentLife SciencesITFood Processing

PantaloonsSaskenTranselektraDivis Laboratories

SBI Ventures Pharmaceuticals

SIDBI Venture Capital Ltd. SIDBI Venture Capital Ltd. Axiom ConsultingNational Venture Fund for

IT- relatedNetworkingMultimediaData CommunicationValue Added services

New project Expansion Diversification Product development

Axiom ConsultingBhrigusCompulink Convergence Contact center DSS



Software and IT (NFSIT)

E-cube IndiaEisodus NetworksIndia ideasMithiManthan

SIDBI Venture Capital LtdSME Growth Fund

Unlisted SMEsManufacturing sector Service sector Infrastructure support

New projectExpansionDiversification Product development

Bravo Healthcare CarzonrentDirect logisticNaturol Bioenergy

Unit Trust of India-Technology Venture UnitScheme

IT & convergencetechnologies BPO Auto Ancillaries Life Sciences TechnologyRetail and Textiles

SubexExcel softKoutons RetailSemantic SpaceTechnology

Private global players

Name Types of the companies they fund


Portfolio companies

Artiman Ventures Leading Edge Technology

ConceptStart upEarly stage

Kasenna InvensenseNuance

Aureos India Fund

Later Stage Expansion Buy Out

Grupo DifotoVoltieDPLShelysOrangeAccutest (India Fund)Ordyn (India Fund)

Axis Venture Capital Fund

Information Technology

EllipticHyla CorporationInfoterraNetistix

BancAmerica Equity Partners (India)

Start Up,MezzanineGrowthBuy Out

Baring Private Equity Partners

ITESITSoftware

Development /ExpansionMBO

Molecular connectionGridstone ResearchSeccovaMphasis

Blue Run Ventures

IT Mobile

Start up byte mobileenpocket



Consumer Technologies

, India Freedompay

BTS Investment advisors(managing SWISS technology VC )

Information technology

Canaan Partners TechnologyHealthcare

JobdirectNational medical diagnostics Praecis PharamceuticalsSilicon Optix Vue TechnologiesiYogi (India fund)Bharat Matrimony (India fund)

Clearstone Venture Partners

Communication and OpticalNetworkingEnterprise and infrastructuresoftwareServicesBusiness and Consumer Internet

Seed stageEarly StageLater Stage for highlySuccessful technology companies

SyncVoice CommunicationsAoptixDigiBeePhasebridge

Draper International

SoftwareMedia

Early StageStart ups

CMM ltdYantraGeometric software servicesIndus league clothing

Eureka Venture Fund

MultimediaEnergyRobotics.BiotechnologyMaterial

Feedback Ventures

Infrastructure Development

Start up and onwards

Frontline Venture Services Pvt Ltd

Computer HardwareComputer SoftwareITIT Enabled ServicesMedia/Retail

Early Stage/GrowthDevelopment/ ExpansionMezzanine

ESL servicesShilpa Medicare LtdMegavisa Mktg & Solns. LtdCbay Systems LtdAstra Micro wave Pdts Ltd

Global Internet Ventures LLC (GIV)

Technology/ Internet Start upEarly stage

Global Technology Ventures (BLR)Venture infotek (Mumbai)



Tarang (Bangalore)Intel Capital Information

TechnologyComat TechnologiesMicroland LimitedMaya Entertainment

Matrix Partners InterneMobile Financial servicesHospitality Healthcare Travel and Tourism

Seed stage Later stage

Four InteractiveYo !China SeventymmvJive

Satwik Ventures Materials Semi conductorsWirelessOptical Components Systems

Early StageGrowth Stage Later Stage

OnMobileNiksunJareva Lara Networks

Sequoia Capital ServicesSoftware System and components

Seed stageEarly stage Growth stage

Apple computersCisco system YahooGoogle

Solitaire Capital Real Estate Development

Symphony Capital Partners (Asia) Ltd

Health care HospitalityLife style

Buy outs Buy ins Later stage development / expansion

Minor international One Central residences MacuaC Larsen Ltd.

Templeton India Private Equity fund

Waygate Capital IT Computer Hardware Computer SoftwareIT Enabled ServicesMedia/Entertainment

Mezzamine MBO

Walden International

ElectronicscommunicationsSemi conductors IT enabled services

Seed Start up Early stage Growth stage Development /Expansion

2bsure Digicom Systems Fast Mobile

West Bridge Capital Partner Advisors LtdUnitus Advisors Pvt. Ltd



Top India deals In October 2008Target Investor Investor nation Deal size ($m)

Comat technologies Omidyar network us 15.00Kotak mahindra bank

Warburg pincus Us 13.50

Prozone-liberty Ltg development capital

Uk 11.97

Telibrahma convergent communications

Ojas venture partners

India 2.00

Pegasus solar Gvfl India 0.77Havell’s India Warbug pincus Us 0.33Suvidhaa infoserve Norwest venture

partnerUs Na

Kotak up Kleiner perkins caufield & byers

Us Na

Trivitron medical systems

Montagu private equity

Us Na

Univercell telecommunications India

Peepul capital mauritius Na

Top Indian deals In Novembor 2008Target Nation Acquirer Nation Deal size

($m)tata teleservices India Nit docomo Japan 2654.8Sks microfinance

India Sandstone capital

Us 77.4

Mena healthcare

Uae Srl India 20.0

Giridharilal-sugar milling

India Olam international

Singapore 9.9

Champagne indage

India Arisaig partners (asia)

Singapore 4.3

Oldstone infratech

India Goldstone exports

India 3.5

V3 controls India Gefran spa Italy 0.2Woolite mercantile

India Umesh p chamdia

India 0.1

Shree om trades India Investor group India 0.0Dlf assets India Syphony capital

partnersuk India na



Top Asia deals In Novembor 2008Target Target nation Investor Investor nation Deal size ($m)China national bluestar (group) corporation

china Blackstone group

Us 600.00

Nvc lighting technologies

China Goldman, sacha &co.

Us 37.00

Comat technologies India Omidyar network

Us 15.00

Kotak mahindra bank

India Warburg pincus

Us 13.50

Prozone-liberty India Ltg development capital

Uk 11.97

Hangzhou prodigious drawing co.

China Beljing zhengrun investment co.

China 7.32

Son kim fashion corporation

Vietnam Bankinvest Denmark 2.76

Senodia technologies

China Dragon venture Us 2.00

Neomics co. South korea Novartis venture fund

Us 1.00

Univercell telecommunications india

China Pepul capital Mauritius Na



Top Indian M&A Deals In October 2008

TARGETTARGET NATION ACQUIRER

ACQUIRER NATION

DEAL SIZE ($M)

Citigroup Global Services India Tata Consultancy Shift India 505

Lavasa Corp. India Bank of India India 31.3Audit Control &

Expertise Switzerland Financial Tech India 22.5Prozone-Liberity India LTG International UK 12

ICSA India IndiaGoldman sachs(asia)Finance Hong Kong 8.3

Alcon Cement Co. India ACC India 4.7Rotate Black India India Rotate Black Inc. US 4.2Mijobil Grenland Norway Tata Motors European UK 1.9Bhuruka Gases India Bhuruka Gases Holdings India 1.9

Avanti Feeds IndiaThai Union Frozen Products Thailand 900

Swan Telecom India Etisalat India 802.7Axon Group UK HCL Technologies UAE 177.5WinWind oy finland Masdar India 25.7

Aztecsoft india MindTree India 23.4Gammon India india Warhol Singapore 22.1

New Millennium Capital Corp. canada Tata Steel Global Minerals Mauritius 15.2

Prakash Industries IndiaDeutshe Securities Mauritious Cyprus 13.2

Sz Design Srl italy koderat investments Cyprus 13.2Zagato Srl italy koderat investments India 4.3



BIBLIOGRAPHY

BOOKS :

1. Taneja Satish, “Venture Capital In India”, Galgotia Publishing Company, 2002, pg 1 – 44.

2. Chary T Satyanarayana, “Venture Capital – Concepts & Applications”, Macmillian India Ltd, 2005, pg 19 – 22.

3. Pandey I M, “Venture Capital – The Indian Experience”, Prentice Hall of India Pvt Ltd, 1999, pg 95 – 97.

4. Thompson Arthur, Strickland A J, Gamble John E, Jain Arun K, “Crafting & Executing Strategy – The Quest for Competitive Advantage”, Tata McGraw Hill, 14th edition, 2006, pg 44 – 80.

MAGAZINE :

1. Sharma Kapil, An Analysis of Venture Capital Industry in India, ICFAI Reader, April 2007, pg 37 – 43.

REPORT :

1. Trends of Venture Capital in India, survey Report by Deloitte, 2007.

2. Global Trends of Venture Capital, survey report by Deloitte, 2007.

3. Acceleration – Global Venture Capital Insights Report by Ernst & Young, 2007

4. Economic survey 2007-08, Chepter-8

WEBSITE :

1. www.sebi.gov.in

2. www.ivca.org

3. www.nenonline.org.

4. www.indiavca.org.

5. www.vcindia.com

6. www.ventureintelligence.in



7. www.vccircle.com

8. www.indiape.com

9. www.nvca.org

10. www.indexmundi.com

11. www.nasscom.org

12. www.ciiionline.org

13. www.rekha.com

14. www.msme.com

15. www.exim.indiamart.com

16. www.economictimes.indiatimes.com

17. www.100ventures.com

18. www.Thompsonrouters.com

19. www.planningcommission.nic.in


http://www.planningcommission.nic.in/

http://www.Thompsonrouters.com/

http://www.100ventures.com/

http://www.economictimes.indiatimes.com/

http://www.exim.indiamart.com/

http://www.msme.com/

http://www.rekha.com/

http://www.ciiionline.org/



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