venture capital
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VENTURE CAPITAL VENTURE CAPITAL & &
PRIVATE EQUITY PRIVATE EQUITY
INDIAN EXPERIENCEINDIAN EXPERIENCE
BY
G. N. BAJPAI
IMPERATIVES OF VENTURE CAPITAL IMPERATIVES OF VENTURE CAPITAL (VC)(VC)
Technological progress is the key driver of economic growth
Technological progress involves: Improvement in skills Better capital equipment New products, processes & business methods
Technological progress in emerging economies will emerge from enterprises catch-up
Technology capacity is necessary to adopt technologies to local conditions
VC encourages technological progress via research & development
VC converts research & development into new ventures
FINANCING STAGES DURING LIFE- FINANCING STAGES DURING LIFE- CYCLE OF INITIATIVECYCLE OF INITIATIVE VC funding is special which enterprises tap at different
stages of life cycle of initiative
Seed - to prove concept
Start-up - product development & market testing
First stage - commercial production
Second stage - expansion to scale
Later stage - expansion of profitable enterprise
Bridge/ Mezzanine - preparation for going public
SNAPSHOT OF INDIAN VENTURE SNAPSHOT OF INDIAN VENTURE CAPITAL SCENARIOCAPITAL SCENARIO
Snapshot of Indian Venture Capital Scenario
20 80 250 5001200 1100 1050
10000
0
2000
4000
6000
8000
10000
12000
Year
Tota
l Inv
este
d ($
m
illio
ns)
SOURCE: www.nishithdesai.com/Research-Papers/VCF-Xroads.pdf
EVOLUTION OF PRIVATE EQUITY EVOLUTION OF PRIVATE EQUITY FINANCEFINANCE
PHASE I PRE-1995
PHASE II 1995-97
PHASE III 1998-2001
PHASE IV 2002-2005
NUMBER OF FUNDS
8 20 50 75
PRIMARY STAGES
& SECTORS
Seed, Early stage & Development Diversified
Development Diversified
Seed, Early stage & Development Telecom & IT
Growth/ Maturity- Diversified
TOTAL FUNDS: ($M)
30 125 2847
5239
PHASE I PRE-1995 PHASE II 1995-97
PHASE III 1998-2001 PHASE IV 2002-2005
Sources: TSJ Media, ICVA publications (various Years)
EVOLUTION OF PRIVATE EQUITY EVOLUTION OF PRIVATE EQUITY FINANCE (cont.)FINANCE (cont.)
0
500
1000
1500
2000
2500
3000
3500
($
m)
Development 25 110 2168.1 3107
Growth / Maturity 21.9 1882
Seed/ Early stage 5 15 657 250
Phase I World Bank, Government
Phase II Government
Phase III Overseas Institutional
Phase IV Overseas Institutional
Primary Sources of Funds
Phase I
Pre- 1995
Phase II
1995-97
Phase III
1998-2001
Phase IV
2002-05
Data Sources: TSJ Media, ICVA publications (various Years)
EVOLUTION OF PRIVATE EQUITY EVOLUTION OF PRIVATE EQUITY FINANCE (cont.)FINANCE (cont.)
Evolution of Private Equity Finance
0
100
200
300
400
500
600N
um
be
r o
f T
ran
sa
ctio
ns
Seed Stage 10 20 273 58
Development stage 20 45 273 288
Growth/ Maturity Stage 0 0 2 100
Total Number of Transactions 30 65 548 446
Phase I World Bank,
Government
Phase II Government
Phase III Overseas Institutional
Phase IV Overseas Institutional
Primary Sources of Funds
Phase I
Pre- 1995
Phase II
1995-97
Phase III
1998-2001
Phase IV
2002-05
Data Sources: TSJ Media, ICVA publications (various Years)
EVOLUTION OF PRIVATE EQUITY EVOLUTION OF PRIVATE EQUITY FINANCE (cont.)FINANCE (cont.)
Evolution of Private Equity Finance (cont.)
PhaseI Phase II Phase III Phase IV
Primary sources of FundsWorld Bank,
GovernmentGovernment
Overseas Institutional
Overseas Institutional
Seed/ Early stage ($m) 5 15 657 250
Number of transactions 10 20 273 58
Development ($m) 25 110 2168.1 3107
Number of transactions 20 45 273 288
Growth / Maturity ($m) 21.9 1882
Number of transactions 2 100
Total Number of transactions 30 65 548 446
Average Investments ($m) 1 2 5.2 11.75
Sources: TSJ Media, ICVA publications (various Years)
INDIA RISK CAPITAL INVESTMENTS BY INDIA RISK CAPITAL INVESTMENTS BY STAGE 2003-05STAGE 2003-05
2005 2004 2003
Stage of Company Development
Volume Value Average Deal Size
Volume Value Average Deal Size
Volume Value Average Deal Size
Deals No.
% Share
Amt $ M
% Share
$ M Deals No.
% Share
Amt $ M
% Share
$ M Deals No.
% Share
Amt $ M
% Share
$ M
Early Stage
( India Based) 22 15.1 79 3.6 3.6 19 28.4 125.9 11.6 6.6 18 47.4 134.7 27 7.5
Early Stage
(Cross-Border) 6 4.1 71 3.2 11.8
Sub-Total Early Stage
28 19.2 150 6.9 5.36
Growth Stage 24 16.4 332 15.2 13.8 13 19.4 244.9 22.5 18.8 10 26.3 55.8 11.2 5.6
Late Stage 40 27.4 638 29.1 16 15 22.4 238.4 21.9 15.9 4 10.5 41.9 8.4 10.5
PIPE 49 33.6 763 34.9 15.6 20 29.9 477.3 43.9 23.9 4 10.5 184.5 37 46.1
Buyout 5 3.4 306 14 61.2 2 5.3 82.2 16.5 41.1
Total 146 2189 15 67 1087 16.2 38 499.1 13.1
Report of the committee on Technology Innovation & Venture capital Govt of India Planning Commission New Delhi July 2006
VC IN INDIAVC IN INDIA
Securities & Exchange Board of India (SEBI) regulates both Domestic Venture Capital Funds & Foreign Venture Capital Investors & Registration benefits
Income passes through to investors without tax when Trusts are registered under the Indian Trust Act & Venture Capital Companies
FVCIs freely remit funds to India for investments in Indian venture capital undertakings (VCUs) & SEBI registered DVCFs
FVCIs are exempt from both the entry & exit pricing regulations that otherwise apply to foreign investors, such as market-related pricing on disinvestment
Sale of shares by VCFs to company insiders post- listing is exempt from SEBI takeover code
VCFs automatically obtain (“QIB”) Qualified Institutional Buyer status, which is useful in participating in new security placements
Exemption from one year lock-in for disinvestment post-IPO for shares purchased prior to the IPO
VCFs do not get treated as promoters for purposes of IPO
WHAT IS INDIA WORKING ON?WHAT IS INDIA WORKING ON?
Securities & Exchange Board of India (SEBI) to: Obviate restriction on preferential offering Permit investment in projects/SPVs& surplus funds in
bank deposits etc. Mitigate restrictions of Substantial Acquisition &
Takeover Regulations Reserve Bank of India (RBI) to:
Grant general permission under FEMA and clear inconsistencies
Allow banks to value VCF investments on cost basis Allow investment in real estate
Government of India: Revisit tax issues for greater participation Allow investments in VCF by pension funds Streamline regulations under companies act including
winding up & valuation guidelines
CONTACT DETAILSCONTACT DETAILS
Mr. G. N. BajpaiChairmanMob : 98335 64458Email : [email protected]
Add : Intuit Consulting Pvt. Ltd.Trade World, ‘B’ Wing, 7th Floor, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel,Mumbai – 400 013. India.
Tel : +91-22-40043041-44Fax : +91-22-40043045