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A GRAND PROJECT REPORT ON Venture capital financing in India In Partial fulfillment of Post Graduate Diploma in Management(Full Time Programme) Prepared By Jadhav Kinjal (Roll No.12)

Batch (2008-2010) Parul Institute of Management PO Limda, TA:Waghodia Dist: Vadodara, Gujarat-391760(Approved by AICTE, MHRD, Govt. Of India, New Delhi

(JANUARY 2010)


AcknowledgementCompleting a task is never a one man effort. It is often the result a valuable contribution of a number of individuals in direct or in director indirect manner that helps in shaping and achieving an objective. I express a sense of gratitude to my guide. I would like to express my thankfulness to our Director sir N.K.Kapoor for granting me permission to carry on my project on Venture capital. And for taking deep interest in my project work ensuring at each stage that target are achieved as per schedule. Also he gives me good knowledge about the venture capital. and he provides all guidance as per requirement of my project. I sincerely hope that this project would strive to answer need of the corporate world. The project need gave a challenging. and exhilarating experience in doing research study.


DECLARATIONWe do hereby solemnly declare that this project VENTURE CAPITAL FINANCING IN INDIA is original and bonafied work done by us is being submitted in fulfillment of the requirement for the PGDM Program of Parul Institute of Management. This project is our own and is not submitted to any other institution or published any where before.

Place: Vadodara Date:


PrefaceIn India, a revolution is ushering in a new economy, wherein major investment are being made in the knowledge based industry with substantial low investments in land, building, plant and machinery. The asset/ collateral backed lending instruments adopted for the hard for the hard core manufacturing industries, are proving to be inadequate for the knowledge based industries that very often start with just an idea. The only way to finance such industries is through venture capital. Venture capital is instrumental in bringing about industrial development, for it exploits the vast and untapped potentialities and promotes the growth of the knowledge based industries worldwide. In India too, it has become popular in different parts of the country. Thus, the role of venture capitalist is very crucial , different, and distinguishable to the role of traditional finance as it deals with others money. In view of the globalization; Venture capital has turned out to be a boon to both business and industry. There is, thus an intense need to be exploit to the maximum its potential as a new means, This report deals with the concept of venture capital with particular reference to India. The report includes all facts, rules and regulations. Regarding venture capital and its written in very comprehensive manner.


INDEX Serial No 1 2 3 4 4.1 4.2 4.3 4.4 4.5 5 6 6.1 7 8 8.1 9 10 11 12 13 14 Title Introduction Objective Methodology Data Collation and Analysis Meaning of Venture Capital History of Venture Capital Notion of Venture Capital Feature of Venture Capital Stages of Venture Capital Business plan Process of Venture Capital Financing Methods of Venture Financing Objectives and vision for venture Capital in India SEBI Regulation Recommendation Venture Capital in Micro Finance ICICI Venture Recommendation Conclusion Bibliography Annexure Page No 5 6 7 8 9 10 11 12 13 14 18 20 31 33 34 40 44 45 46 47


INTRODUCTIONCapital is one of the most important factors of production. No economic entity can start functioning without requiring capital as this helps the entrepreneurs in acquiring machinary,equipment and other productive facilities purely in functional terms, capital to company is like blood in human body. Here capital refers to financial capital and not exactly produced means of production in the version of economics. The companies entrepreneurs engaged in traditional line of business can easily procure necessary financial capital from conventional capital market. Whose vital ingredients are public issue, financial institution, commercial banks, mutual funds, lease entrepreneurs, face great difficulty while venturing out to procure financial capital for newly floated enterprise as at the initial stages of business risk is very high and the return, quit uncertain Common investors hesitate to invest their saving in such companies even though they lead to high industrial growth and economic development, because it is difficult to trade off between risk returns. Move specifically, rate of return normally remains disproportionate to the degree of risk associated with newly floated companies this is much more true in the case of such companies whose business feature is based on the foundation of high technology or unproved technology having no time tested foundation in the commercial world. Particularly this is true in the arena of electronics and computer application industries, medical instruments and bio-technology application industries where the change is very fast with rapid advancement of global science and technology However, lack of finance the new entrepreneurs and technocrats from starting new venture though they may very well have innovative ideas and requisite technological knowledge. Hence the arises that how these type of firms shall them6

be financed ? under the circumstances the concept of venture capital fund was born with a fundamental objective to provide initial capital and support in building capital base to the entrepreneurs, having a sound background of professional education, expertise and initiative to launch the business based on fast changing technology.


To understand concept of venture capital To understand VC industry in global scenario To study the evaluation and need of venture capital industry in India To understand the legal framework formulated by SEBI to encourage activity in Indian economy. To know the impact of political and economical factors on VC investment



I collected data from two sources

Primary source of data These data were collect from the financial institution like ICICI venture that provides venture capital for the new projects in different sectors.

Secondary source of data These datas are collected through internet, books and magazines. I have also gone through the different reference book and through internet. The data used are fully guidance oriented and not mean for the coping of product.


VENTURE CAPITALVenture capital is means of financing fast-growing privet companies. Finance may be required for the startup, development /expansion or purchase of a company via a mechanism. Such as in management buyout. Venture capital is capital typically provided by outside investors for financing of new, growing or struggling business. Venture capital investments generally are high risk investments but offer the potential for average returns. Venture capital typically comes from institutional investors and high net worth individuals and is pooled together by dedicated investment firms. Venture capital firms typically comprise small teams with technology backgrounds (scientists, researchers) or those with business training or deep industry experience. VENTURE CAPITALIST A venture capitalist is a person or investment firm that makes venture investments, and these venture capitalists are expected to bring managerial and technical expertise as well as capital to their investments.

VENTURE CAPITAL FUND Venture capital fund is a pooled investment vehicle (often a partnership) the primarily invests the financial capital of third party investors in enterprise that are too risky for the standard capital market or bank loss.9

HISTORY OF VENTURE CAPITALUSA is the place of venture capital industry as we know it today. During most its historical evolution, the market for arranging such financing was fairly informal relying primarily on the resource of wealthy families. In 1946 American research and development Corporation (ARD). A publicly treaded, closed-end investment company was formed. ARDs best known investment startup financing it provided in 1958 for computer maker digital equipment crop. ARD was eventually profitable providing its original investors with 15.8 percent annual rate of return over its twenty five years an independent firm. The number of such specialized investment firms eventually to be called venture capital firms began to boom in the late 1950s the growth was aided in large part by the creation in 1958 of the federal of the federal small Business Investment Company program. Hundreds of SBICs were formed in the 1960s , and remain in operation today.


NOTION OF VENTURE CAPITALVenture capital is significant innovation of the twentieth century. It is generally considered as a synonym of risky capital. Venture capital is ofetn thought of as the early stage financing of new and young enterprise seeking to grow rapidly. In broad terms, venture capital is the investment of long-term equity finance where the venture capitalist earns his return primarily in the form of capital gains. The underlying assumption is that the entrepreneur and the venture capitalist would act together in the interest of the enterprise as partners. The true venture capital finances any risky idea. in fact, venture capital can prove to be a powerful mechanism to institutionalize innovative entrepreneurship. It is a commitment of capital for the formation and setting up of small-scale enterprise specializing in new ideas or new technologies. The venture capitalist focuses on growth. He would like to see small business growing into larger ones. The venture capitalists management approach differs significantly from that of a conventional banker o


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