venture capital in india
Post on 03-Nov-2014
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Money provided by investors to startup firms and small businesses with perceived long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for above-average returns.
investment made in a business or industrial enterprise that carries high elements of risk, insecurity and probability of business hazards.
Venture capitalists are full-time professional investors who invest for their partnership funds
Before making an investment, they carefully scrutinize the founders and their business concepts
After the initial investment, venture capitalists tend to be very active in the process of raising additional funds for their portfolio companies
They also continuously monitor their companies, both formally through participation at the board level and informally
POTENTIALITY OF INDIA:
India, along with Israel, Taiwan and the United States, is recognized for its globally competitive high technology and human capital.
The success in software and information technology -- against several odds such as inadequate infrastructure, expensive hardware, restricted access to foreign resources and limited domestic demand, is a pointer to the hidden potential it has in the field of knowledge and technology based industry
In 1972, a committee on Development of Small and Medium Enterprises highlighted the need to foster venture capital as a source of funding new entrepreneurs and technology. This resulted in a few incremental steps being taken over the next decade-and-a-half to facilitate venture capital funds into needy technology oriented small and medium Enterprises (SMEs), namely:
Risk Capital Foundation, sponsored by IFCI, was set-up in 1975 to promote and support new technologies and businesses.
Seed Capital Scheme and the National Equity Scheme was set up by IDBI in 1976
Programme for Advancement of Commercial Technology (PACT) Scheme was introduced by ICICI in 1985.
Setting up of TDICI AND REGIONAL FUNDS
VENTURE CAPITAL FUNDS
1. Venture Capital Fund Scheme IDBI 1987 Rs. 543.6
2. India Investment Fund Grindlays 3i Invest.
Services Ltd. 1987 US$ 7.5
3. Venture Capital Unit Scheme I TDICI 1989 Rs. 300
4. Information Technology Fund Credit Capital Venture Fund (I) Ltd. 1993 Rs 100
Source: AVCJ, 1994-95
TYPES OF VENTURE CAPITAL FUNDS
1 . VCFs promoted by the Central govt.
controlled development financial
2. VCFs promoted by the state government-
controlled development finance institutions
3. VCFs promoted by Public Sector banks
4. VCFs promoted by the foreign banks or
private sector companies and financial
SOME OF THE PROJECTS FINANCED BY TDICI
SYNERGY ART FOUNDATION
FORMS OF ASSISTANCE OF VCS
(1) Corporate & Independent VCs help with
obtaining additional financing;
(2) strategic planning;
(3) management recruitment;
(4) operational planning;
(5) introductions to potential customers and
(6) resolving compensation issues.
RETURN ON INVESTMENT TYPICALLY SOUGHT BY
Stage of Business Expected Annual Return on
Expected Increase on Initial
60% + 10-15 *investment
Turnaround situation 50% + 8-15*investment
INVESTMENT DETERMINANTS OF THE VENTURE
SECTOR WISE INVESTMENT IN 2010
IT & ITES
MEDIA & ENTERTAINMENT
BANKING AND FINANCIAL
GREEN AND CLEAN TECH
FOOD AND AGRICULTURE
GROWTH IN REGISTERED VENTURE CAPITAL
FIRMS IN INDIA
2000 2002 20042006 2008 2010
1 2 3 4 5 6
year number of vc firms
CLASSIFICATION OF INVESTORS
Corporate Venture (CORPVEN)
Financial Corporations (FINCORP)
Investment Banks (IBANK)
Government Institutions (GOVT)
Private Equity/ Venture Capital Firm (PRIV)
ROUTES OF VCPE INVESTMENTS IN INDIA
There are 4 major routes through which VCPE investments happen in India:
1. The investor can register with SEBI (Securities Exchange Board of India) as a Domestic or Foreign Venture Capital Fund.
2. Direct Investment in an Indian company from outside India
3. Investment in an Indian subsidiary of a US company
4. a US company invests in a subsidiary in India by routing the investment through a Mauritius subsidiary of the US company
VENTURE CAPITAL IS TYPICALLY AVAILABLE IN
THREE FORMS IN INDIA
Equity : All VCFs in India provide equity but generally their contribution does not exceed 49 percent of the total equity capital.
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;
Income Note : It is a hybrid security which combines the features of both conventional loan and conditional loan
SOME IMPORTANT VENTURE CAPITAL FUNDS IN
1. APIDC Venture Capital Limited, Hyderabad
2. Canbank Venture Capital Fund Limited,Bangalore
3. Gujarat Venture Capital Fund 1997, Ahmedabad
4. Industrial Venture Capital Limited, Chennai
5. Auto Ancillary Fund Opp. New Delhi
6. Gujarat Venture Capital Fund , Ahmedabad
7. Karnataka Information Technology Venture Capital Fund .Bangalore
8. India Auto Ancillary Fund, Mumbai
9. Information Technology Fund, Mumbai
10. Tamilnadu Infotech Fund , Mumbai
11. Orissa Venture Capital Fund, Mumbai
12. Uttar Pradesh Venture Capital Fund, Mumbai
TOP FIVE CAPITAL VENTURE FIRMS IN 2010
Webaroo Technology India
NetAmbit InfoSource & e-Services
- Private equity and mutual venture investment in India in February 2011 dropped by 30.85% to $334 million as compared to the same period last year.
- The median deal amount and the average value of deals was $13 million and $24 million, respectively.
- Financials, consisting of BFSI and Real Estate, was the most targeted sector with a cumulative investment of $221.47 million across 5 deals.
- Exits took a backseat with investors realizing only $53 million of capital across 8 deals as compared to $485 million realized from 11 deals during the same period last year.
- Fund raising activity gained momentum with three funds raising $347 million and another three funds gearing up to raise money from limited partners.