Growth of Venture Capital

WHAT IS VENTURE CAPITAL
Money provided by investors to startup firms and

small businesses with perceived long-term
growth potential.
FEATURES OF VENTURE
CAPITAL
Long-time horizon
Lack of liquidity
High risk
High-tech
Equity participation and capital gains
Participation in management
ADVANTAGES OF VENTURE CAPITAL
They can provide large sum of equity

finance
Able to bring wealth and expertise to
your company
Easier to secure future funding from
other sources
The business is not obligated to repay
the money
DISADVANTAGES OF VENTURE
CAPITAL
Lengthy and complex process (needs

detailed business plan, financial
projections and etc.)
In the deal negotiation stage, you will
have to pay for legal and accounting
fees
Investors become part owners of your
business - founder loss of autonomy or
control
Stages & Risk of financing

Financial Stage
Seed Money
Start Up
First Stage
Period (Funds
locked in years)
7-10
5-9
3-7
Risk Perception
Extreme
Very High
High
Activity to be
financed
For supporting a
concept or idea
or R&D for
product
development
Initializing
operations or
developing
prototypes
Start
commercials
production and
marketing
Financial Stage
Second Stage
Period (Funds
locked in years)
3-5
Risk Perception
Sufficiently high
Third Stage
1-3
Medium
Fourth Stage
1-3
Low
Activity to be
financed
Expand market
and growing
working capital
need
Market
expansion,
acquisition &
product
development for
profit making
company
Facilitating public
issue
VC INVESTMENT PROCESS
Deal origination
Screening
Due diligence
(Evaluation)
Deal structuring
Post investment
activity
Exit plan
METHODS OF VENTURE FINANCING
The financing pattern of the deal is the most

important element.
Following are the various methods of venture
financing:
Equity
Conditional loan
Income note
Participating debentures
Quasi equity
Exit route
Initial public offer(IPOs)

Trade sale
Promoter buy back
Acquisition by another company
VENTURE CAPITAL FUNDING IN

INDIA
Promoted
By
State
Level
Financial
Institution
s
All India
Financial
Institutions
Private
Sector
Institution
s
Commerci
al Banks
Indian
IFCI
Venture
Capital
Funds
Ltd.
IDBI
Venture
Capital
Fund
ICICI
Venture
Fund
Manageme
nt
Company
Ltd.
SIDBI
Venture
Capital
Ltd.
Foreig
n
Venture capital funds in India
VCFs in India can be categorized into following five

groups:
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
4)Those promoted by private sector

companies.
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
Rules by SEBI
VCF are regulated by the SEBI (Venture Capital

Fund) Regulations, 1996.
The following are the various provisions:
A venture capital fund may be set up by a company

or a trust, after a certificate of registration is
granted by SEBI on an application made to it. On
receipt of the certificate of registration, it shall be
binding on the venture capital fund to abide by the
provisions of the SEBI Act, 1992.
A VCF may raise money from any investor,

Indian, Non-resident Indian or foreign,
provided the money accepted from any
investor is not less than Rs 5 lakhs. The
VCF shall not issue any document or
advertisement inviting offers from the
public for subscription of its security or
units
SEBI regulations permit investment by
venture capital funds in equity or equity
related instruments of unlisted companies
and also in financially weak and sick
industries whose shares are listed or
unlisted
At least 80% of the funds should be

invested in venture capital companies
and no other limits are prescribed.
SEBI Regulations do not provide for any

sectorial restrictions for investment
except investment in companies engaged
in financial services.
REASONS FOR GROWTH OF VENTURE

CAPITAL
High Technology
Human Resource Capital
Scientific & Technical Research
Government Initiative
SEBI Initiative
How does the Venture Capital work?
Venture capital firms typically source the majority of

their funding from large investment institutions.
Investment institutions expect very high ROI

VCs invest in companies with high potential where
they are able to exit through either an IPO or a
merger/acquisition.
Their primary ROI comes from capital gains although

they also receive some return through dividend.
Venture capital industry wise

segmentation
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, Biotechnology
DELHI
Software services, ITES , Telecom
CHENNAI
IT , Telecom
HYDERABAD
IT & ITES, Pharmaceuticals
PUNE
Bio-technology, IT , BPO
THE END

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WHAT IS VENTURE CAPITAL

Money provided by investors to startup firms and

ADVANTAGES OF VENTURE CAPITAL

They can provide large sum of equity

Lengthy and complex process (needs

Stages & Risk of financing

METHODS OF VENTURE FINANCING

The financing pattern of the deal is the most

Initial public offer(IPOs)

VENTURE CAPITAL FUNDING IN

Venture capital funds in India

VCFs in India can be categorized into following five

1) Those promoted by the Central Government

controlled development finance institutions. For

2) Those promoted by State Government controlled

4)Those promoted by private sector

VCF are regulated by the SEBI (Venture Capital

A venture capital fund may be set up by a company

A VCF may raise money from any investor,

At least 80% of the funds should be

SEBI Regulations do not provide for any

REASONS FOR GROWTH OF VENTURE

How does the Venture Capital work?

Venture capital firms typically source the majority of

Investment institutions expect very high ROI

Their primary ROI comes from capital gains although

Venture capital industry wise

Top cities attracting venture capital

Software services, BPO, Media,

All IP led companies, IT & ITES, Biotechnology

Software services, ITES , Telecom

IT & ITES, Pharmaceuticals

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