VENTURE CAPITAL

VENTURE CAPITAL

The provision of funding for a start-up. For example, suppose a company with

little access to capital is attempting to open a new market or access an old one

with a better product. It may not be able to receive loans, either because of an

unproven track record or because it is already significantly in debt, and it may

have exhausted financing from family and friends. Venture capital allows this

company to begin and build upon its operations by providing necessary

funding. Usually, the provider of venture capital takes equity in the company in

exchange for the money. Venture capital firms may also provide needed

expertise in how to run a business than can help the start-up become

successful.

VENTURE CAPITAL INVESTMENT PROCESS

The venture capital activity is a sequential process involving the following six steps.

1. Deal origination2. Screening3. Due diligence Evaluation) 4. Deal structuring5. Post-investment activity6. Exit

Stages of Financing

Seed Money

To prove a concept (15-25L)

Extreme risk

Start Up

Provided to

companies

(25-60L)

Very high risk

First Round

Manufacturing funds

(1-3cr)

High risk

Second Round

Working capital & expenses

(2-5cr)

Sufficiently high

Third Round

For newel profitable company (2-10cr)

Medium

Forth Round

Bridge Financing for going

public process (100cr)

Low

1) Those promoted by the Central Government controlled development finance

institutions. For example: - ICICI Venture Funds Ltd. - IFCI Venture Capital Funds Ltd (IVCF) - SIDBI Venture Capital Ltd (SVCL)

2) Those promoted by State Government controlled development finance institutions.For example:

- Punjab Infotech Venture Fund - Gujarat Venture Finance Ltd (GVFL) - Kerala Venture Capital Fund Pvt Ltd.

3) Those promoted by public banks.For example:

- Canbank Venture Capital Fund - SBI Capital Market Ltd

VENTURE CAPITAL IN INDIA

4)Those promoted by private sectorcompanies.For example:

- IL&FS Trust Company Ltd - Infinity Venture India Fund

5)Those established as an overseas venture capital fund.For example:

- Walden International Investment Group - HSBC Private Equity

management Mauritius Ltd

PIRAMAL GROUP The family office of Ajay Piramal is stepping into venture

capital investing to get a slice of the fast-growing entrepreneurial ecosystem in the country. Known as being one of the savviest value investors in India Inc, Piramal is backing the newly floated Montane Ventures, an early-stage fund, as its anchor investor, a first such move by an Indian business conglomerate.

Piramal's family office, sources said, is ploughing as much as $50 million into Montane Ventures, which plans to raise up to $150 million with participation from external investors, going forward. The Piramal group, however, did not disclose how much the family office has invested in the fund.

Celebrated as an ace dealmaker, having reaped windfall gains by selling stake in telecoms major Vodafone, Piramal, whose diversified group has interests across pharmaceutical, finance and private equity, would stand out as one of the first Indian business leaders to propel a pure-play venture capital fund.

TOP CITIES ATTRACTING VENTURE CAPITAL INVESTMENTS

CITIES SECTORS

MUMBAI Software services, BPO, Media, Computer graphics, Animations, Finance & Banking

BANGALORE All IP led companies, IT & ITES, Bio-technology

DELHI Software services, ITES , Telecom

CHENNAI IT , Telecom

HYDERABAD IT & ITES, Pharmaceuticals

PUNE Bio-technology, IT , BPO

Factors PE VCBasis Existing company with existing

productsEntirely new setup

Hunt Companies in the mature stage Startups

Trick Restructure to optimise financial performance

May turn almost bankrupt firms to profitable enterprises

Environment Controlled ChaosInfluential medium Numbers Ideas

Primary Lever Optimised structure Disruptive innovationDirection of value

creationTop-down Bottom up

Risks – return Normal risks with normal returns

High risks with supernormal returns

Tenure of investment 5 to 10 yrs with an option to exit from 6th yr onwards

4 to 7 with an option to exit 4th year onwards

PE vs. VC

Life cycle of Companies

Venture Capital Private Equity

ChaosPre-productPre-revenuesPre-company

ControlExisting productExisting revenueExisting company

SEBI Regulations AIF Regulations 2012 repealed the earlier regulations regarding

VCF VCFs used as a common vehicle for all investments

Original aim of promoting early-stage company seems to be neglected

Features: VCFs should primarily invest in unlisted securities of startups,

emerging or early stage Venture Capital units To invest in new products, new services, technology or IP right

based activities or new business model

Laid further investment restrictions with respect to corpus to be invested

MICRO VENTURE CAPITAL (MICRO VC)• Micro venture capital is money invested to seed early-stage emerging companies with

amounts of finance that is typically less than that of traditional venture capital. In contrast to traditional venture capital which is money used to invest in companies looking to fund growth (also referred to as a Series A round of funding), micro venture capital consists of smaller seed investments, typically between 50 lacs to 1.5Cr., in companies that have yet to gain traction. In India the number of micro venture capital firms have continued to rise rapidly over the last 5/6 years, and have become an important source of finance for start-up companies.

• Characteristics Of Micro VC’s A. Initial investment at the seed stage B. Investment on behalf of 3rd party Limited Partners C. Most commonly have fund sizes that are less than around 100 Cr.

• Most micro venture capital firms pursue start-ups that are at their seed stage because of their lower initial cost basis. Though there is a high probability that the majority of these start-ups will not survive long enough to reach a Series-A round of funding, micro venture capital firms are willing to make the investment because start-ups generally do not require large sums of capital to bring a product to market, and because they believe that it requires only a few successful companies for them to see profitable returns.

• Normally big VC funds have very small investing teams & that limit the domain knowledge. In early stage you need to know wide range of domain expertise.

• Normally such investments are less than a VC investment but more than a wealthy individuals or angel funds.

Example : Kroc Flint & Candler launched 100 Cr. Fund & have invested in 2/30 start-ups where the investment was ranging from 0.7 Cr. To 1.5Cr.

• The Micro VC help companies grow their ideas into viable business models• The risk is high but if the bet goes well then returns are really very rich. 20 to 30 times the

investment.

Example : Utilis, Unicorn ventures & Endiya partners meet the crucial needs of the companies making the first institutional investment in a start-up just about when it figures out that the product is market fit.

• Presently there are 12 Micro VCs are operating in India. These Micro VC’s keep the flow alive which allows the bigger players like SAIF partners etc. to invest in Series-A deals in matured start-ups.

• The big players have also started to form Micro VC’s with an idea of scooping up a huge & successful start-up.

• Professional from VC funds have started quitting their jobs & are showing inclination towards micro VC’s

• Challenges 1. Such investor will face fewer Series-A deals as the same will go to bigger VC’s & the important deals will never come to Micro VC’s.

2. Most of Micro VC’s are equipped with professionals & who neither have entrepreneurial background nor thorough understanding of how VC works.

THANKYOUMANALI DALVI 13ABHISHEK DARIRA 14NANCY FERNANDES 15HARESH GALA 16SUNIL GODBOLE 17