 THE STUDY ON VENTURE CAPITAL IN NAVI MUMBAI.

A Project submitted to

University of Mumbai for partial completion of the degree of

Bachelor of management studies

Under the faculty of commerce

By

Anurag Pushpraj Singh

Under the guidance of

Mrs.Indrayani Uthale

KLE SOCIETY’S

College of Commerce and Science

2019-2020
 DECLARATION

I, Anurag Pushpraj Singh the student of BACHELOR OF MANAGEMENT

STUDIES Semester VI (2019-2020) hereby declare that I have completed the project on
THE STUDY ON VENTURE CAPITAL IN NAVI MUMBAI. The information submitted is
true and original to the best of my knowledge.

Signature of student

(Anurag Singh)

KLE SOCIETY’S COLLEGE OF COMMERCE AND SCIENCE

 CERTIFICATE

This is to certify that ANURAG PUSHPRAJ SINGH of, BACHELOR OF MANAGEMENT

STUDIES Semester VI (2019-2020) has successfully completed the project on THE STUDY ON
VENTURE CAPITAL IN NAVI MUMBAI
under the guidance of

Mrs Indrayani Uthale.

NAME AND SIGNATURE OF NAME AND SIGNATURE OF PRINCIPAL

INTERNAL GUIDE

Mrs Indrayani Uthale DR. G.D GIRI .

NAME AND SIGNATURE OF

External guide
 ACKNOWLEDGEMENT

To list who all have helped me is difficult because they are so numerous and the depth is so enormous.
I would like to acknowledge the following as being idealistic channels and fresh dimensions in the
completion of this project.
I take this opportunity to thank the KLE SOCIETY’S Collage of Commers and Science for giving
me chance to do this project.
I would like to thank my PRINCIPAL Dr.G.D Giri Sir for providing the necessary facilities required
for completion of this project.
I take this opportunity to thank our Coordinator Prof. Dr.Geeta Kohade for his moral support and
guidance.
I would also like to express my sincere gratitude towards my project guide Mrs. Indrayani Uthale
whose guidance and care made the project successful.
I would like to thank my College Library, for having provided various reference books and
magazines related to my project.
Lastly, I would like to thank each and every person who directly or indirectly helped me in the
completion of the project especially my Parents and Peers who supported me throughout my project.
 Index
Chapter No Topic Page No.

1 Introduction of project 1-7

2 Introduction to venture capital 8-21

3 Introduction to Industry 22-42

4 Research methodology 43-45

5 Data analysis and Interpretation 46-53

6 Finding, Suggestions, Conclusions and 54-58

Recommendations

7 Bibliography 59
 CHAPTER 1
INTRODUCTION OF PROJECT

[6]

INTRODUCTION

For many businesses, particularly in the early stages before profits become predictable,
traditional sources of capital such as banks and public equity are unavailable. For such
businesses, venture capital may be the best hope to raise the money needed to succeed. Venture
capital financing is an alternative source of financing business projects, particularly those that are
high- technology, high risk and high return based.

During the last few years, the importance of venture capital in fostering new firms has grown
tremendously, not only in India, but also in the international context, both in developed and in
emerging economies. In recent years, venture capital (VC)investments across national borders
have started to trend upwards. Venture capitalist a specific type of finance provided by certain
firms who invest in the young companies that are not quoted on the stock market. Venture capital
investments generally involve a long time-frame, an element of risk, a partnership with
management and returns in the form of capital gains rather than dividends.

Thereare many people with new business ideas and entrepreneurial talent. They have new or
untried technology based business proposals, but fail to attract funding from conventional source
due to high risk factors. Therefore, there is a need for a separate institutional setup that can take
care of the interests of such business proposal. This organizational setup has come to known as
venture capital firm, venture capital fund, venture capital team or simply venture capitalist. These
institutions finance innovations and ideas that lead to high- risk and high –return projects. This
unit explores the concept of venture capital, its types, characteristics, structure and its origin. It
further presents the current status of venture capital worldwide as well as in India

[7]

1.1 CONCEPT & SIGNIFICANCE OF STUDY

'Venture Capital' is an important source of finance for those small and medium-sized firms which
have very few avenues for raising funds. Although such a business firm may possess a huge
potential for earning large profits in the future and establish itself into a larger enterprise. But the
common investors are generally unwilling to invest their funds in them due to risk involved in
these types of investments. In order to provide financial support to such entrepreneurial talent
and business skills, the concept of venture capital emerged.

SIGNIFICANCE OF STUDY

Venture capitalist not only support high technology projects they also finance any risky idea,
they provide funds (a) if one needs additional capital to expand his existing business or one has
& new promising projects to exploit (b) if one cannot obtain a conventional loan the requirement
terms would create a burden during the period the firm is struggling to grown.

It is ambition of many talented people in India to set up their own venture if they could get
adequate & reliable support. Financial investment provides loans &equity .but they do not
provide management support, which is often needed by entrepreneurs. But the venture capital
industries provide such support along with capital also. Venture capitalist acts a partner not a
financier.

[8]
1.2 OBJECTIVES OF STUDY

 To Understand the concept of venture capital

 Study venture capital industry in India
 Study the evaluation & need of venture capital industry in India
 To analyse growth of venture capital investment in different sectors of economy
  To lookout for market shares of different economic sectors in terms of venture capital
investment
 To study the problem faced by venture capitalist in India
 To analyse the differentiation between Venture Capital & Private Equity

[9]
1.3: SCOPE & LIMITATION OF STUDY

Scope of study:

 The study is about Venture capital Finance in India. So any kind of financing other than
Venture Capital is out of scope. Also, data of any country other than India is out of scope
of this study.
  Only studies of Venture Capital Investments are in scope. Factors responsible for such
investments are out of scope
 Venture capital is growing business of recent origin in India of industrial financing in
India , due to this it has greater possible growth in present scenario
 The study will be conducted for gaining for practical knowledge about venture capital
finance and various operation to reach them in right manner

Limitation of study :

 The biggest limitation was time because the time was not sufficient as there was lot of
information to be got & to have it interpretation.
 The data required was secondary & that was not easily available  Study by its nature is
suggestive & not conclusive

[10]
1.4:LITERATURE REVIEW

Although there is limited literature available for Venture Capital Finance in Indian context, there
are extensive texts available on Venture capital all over the world. Following are some insightful
work done by different academicians and researchers in the same line.

I M Panday
“The process of developing venture capital in India” - Technovation, Volume 18,
This study investigates the process of developing venture capital in a developing country —
India. The discussion documents the experiences of the largest venture capital firm in India
(TDICI) in initiating and developing the concept of venture capital as well as learning the
venture capital business. The history of modern venture capital in India is of recent origin; it only
goes back to the mid-eighties. In the initial years, venture capital firms (VCFs) in India
encountered a number of problems in developing their businesses. From the in-depth case study
of TDICI, it is found that the firm went through the initial constraint of not knowing the venture
capital business well, and learnt through experience. It faced problems in raising funds and
evaluating prospective ventures. It initially focused its investment in the high-technology
business, but gradually shifted the focus towards other potentially high-growth, high- profitable
businesses, not just high-tech businesses. It is also noticed that TDICI undertook a number of
business development initiatives to popularize the venture capital business in India. It introduced
a simple organisational structure for facilitating quick decision- making, and developed
innovative funding and financing mechanisms

Dossani, R. and Kenney “Creating an Environment for Venture Capital in India”-

M. World Development,
The institution of venture capitalism is a difficult one to initiate through policy intervention,
particularly in developing countries with unstable macroeconomic environments and histories of
state involvement in the use of national capital and in the composition of production. India has
all these constraints.

[11]
The emergence of a thriving software services industry after 1985 created the rawmaterial that
venture capital could finance, thus achieving a criticalprecondition for venture capital's growth. It
was followed by efforts to create a venture capital industry. After several setbacks, some success
has been achieved largely due to a slow
process of moulding the environment of rules and permissible institutions. The process was
assisted by the role of overseas Indians in Silicon Valley's success in the 1990s. Yet, in termsof
what is needed, most of the work remains to be done. Inevitably, this will be the result of joint
work by policymakers and practitioners.

Asim Mishra “Indian Venture Capitalists (VCs): Investment Evaluation Criteria”

- ICFAI Journal of Applied Finance,
This paper analyses the validity of venture evaluation model in India by directly comparing the
relative importance of evaluation criteria on the funding decision with the relative importance to
factors influencing venture's empirical performance. In the light of the differences in investment
opportunities around India, and the nature of industrial development in South East Asia in
general, the author anticipated that the investment criteria employed by Venture Capital Firms
(VCFs) in India would differ. A questionnaire was administered to venture capitalists (regular
members of Indian Venture Capital Association) to determine the criteria they use to decide on
funding new ventures. The response rate was 100%. A list of forty two criteria was developed on
previously developed lists. The criteria fell into six groups: the entrepreneur's personality, the
entrepreneur's experience, characteristics of the product or service, characteristics of the market,
financial consideration and characteristics of venture management team.

[12]
 CHAPTER 2
INTRODUCTION TO VENTURE
CAPITAL

[13]
2.1:Introduction

Meaning of venture capital

Venture Capital is money provided by professionals who invest in rapidly growing companies
that have the potential to develop into significant economic contributors.. A Venture Capitalist is
an individual or a company who provides Investment Capital, Intellectual, Management
Expertise, Networking & marketing support while funding and running highly innovative
&prospective areas of products as well as services. Thus, the investments made by Venture
Capitalists consisting;

Venture capital is a risk financing in the form of equity or quasi-euity. It gives the business funds
based on their potential and their interest as perceived by the investor. Venture Capital firms
invest funds on any business with a professional outlook; they focus on their primary segment
which varies among different specializations (e.g. e-commerce, Oil & Gas, Healthcare,
Manufacturing, Health/life sciences, etc.).

Definition
“The support by investors of entrepreneurial talent with finance and business sills to exploit
market opportunities and thus obtain capital gains.”
According to SEBI regulations, venture capital fund means a fund established in the form of a
company or trust, which enhances money through loans, issue of securities, or donations and
makes or proposes, to make investments in accordance with these regulation. The s funds so
collected are available for investment in potentially highly profitable projects at a high risk of
financial loss

[9]
Significance of venture capital

1. Promotes products:
New products with modern technology become commercially feasible mainly due to the financial
assistance of venture capital institutions.
2. Encourages customers:
The financial institutions provide venture capital to their customers not as a mere financial
assistance but more as a package deal which includes assistance in management, marketing,
technical and others. 3. Brings out latent talent:
While funding entrepreneurs, the venture capital institutions give more thrust to potential talent
of the borrower which helps in the growth of the borrowing concern.
4. Promotes exports:
The Venture capital institution encourages export oriented units because of which there is more
foreign exchange earnings of the country. 5. Creates more employment opportunities:
By promoting entrepreneurship, venture capital institutions are encouraging self employment and
this will motivate more educated unemployed to take up new ventures which have not been
attempted so far.
6. Brings financial viability:
Through their assistance, the venture capital institutions not only improve the borrowing concern
but create a situation whereby they can raise their own capital through the capital market. In the
process they strengthen the capital market also.
7. Helps technological growth:
Modern technology will be put to use in the country when financial institutions encourage
business ventures with new technology.

[10]
8. Helps development of Backward areas:

By promoting industries in backward areas, venture capital institutions are responsible for the
development of the backward regions and human resources.

9. Helps growth of economy:

By promoting new entrepreneurs and by reviving sick units, a fillip is given to the economic
growth. There will be increase in the production of consumer goods which improves the standard
of living of the people.
 2.2: Features of Venture Capital

High Risk

High tech

Equity participation & capital gains

Participation in Management

Length of Investment

Illiquid investment
 [11]

 High risk

By definition the venture capital financing is highly risky and chanced of failure and high as it
provides long term start up capital to risk high reward ventures. Ventures capital assumes four
type of risks, these are:

o Management risk inability of management teams to work together o

Market risk product may fail in the market. o Product
risk product may not be commercially viable.
o Operation risk operation may not be cost effective resulting in
increased cost damaged gross margin.

 High tech

As opportunities in the low technology area to be few of lower order, and hi tech projects
generally offer returns than projects in more traditional area,venture capital investments are made
in high tech. Areas using new technologies or producing innovative goods by using new
technology . not just high technology , any high risk ventures where the entrepreneur has
conviction but little capital gets venture finance. Venture capital is available for expansion of
existing business diversification to a high risk area. Thus technology financing had ever been the
primary objectives but incidental to venture capital.
  Equity participation & capital gains

Investments are generally in equity and quasi equity participation through direct purchase of
shares, options, convertible debentures where the debt holder has the option to convert the loan
instruments into stock of the borrower or a debt with warrants to equity investment. The funds in
the form of equity help to raise term loans that are cheaper source of funds. In the early stage of
business, because dividends can be delayed , equity investments implies that investors bear the
risk of venture and would earn a return commensurate with success in the form of capital gains.

[12]
 Participation in management

Venture capital provides value addition by managerial support, monitoring and follow up
assistance. it monitors physical and financial progress as well as market development initiative.
It helps by identifying key resources person. They want one seat on the company’s board
directors and involvement, for better or worse, in the major decision affecting the direction of
company. This is unique philosophy of hands on management where venture capitalist acts as
complementary to the entrepreneurs .based upon the experience other companies ,a venture
capitalist advice the promoters on project planning, monitoring, financial management ,
including working capital and public issue . Venture capital investors cannot interfere in day
today management of the enterprise but keeps a close contact with the promoters or
entrepreneurs to protect his investments.

 Length of investment

Venture capitalist help companies grow , but they eventually seek to exit the investment in three
to seven years. An early stage investment may take seven to ten years to mature, while most of
the later stage investment takes only a few years. The process of having significant returns takes
several years and calls on the capacity and talent of venture capitalist and entrepreneurs to reach
fruition.

 Illiquid investment
Venture capital investments are illiquid, that is not subject to repayment on demand of following
a repayment schedule. Investors seek return ultimately by means of capital gain when the
investment is sold at market place. The investment is realizes only on enlistment of security or it
is lost if enterprise is liquidated for unsuccessful working. it may take several years before the
first investment starts too locked for seven to ten years. Venture capitalists understands this
illiquidity and factors this in his investment decisions

[13]
2.3: STAGES&PROCESS OF VENTURE CAPITAL FINANCING
Stages for finance Time (years) Uses for the finance

Seed money stage 7-10 Financing needed to prove an idea and bring a concept or
develop it ( could be a service or a product

Start-up financing 5-10 Financing needed to develop the start up with better
market penetration through promotions marketing and
other product development techniques

Second round 3-7 Funds for taking care of working capital for a firm that
financing is still losing money through have its products or
services out in market.

Expansion financing 1-3 Financing for a firm that is breaking even and has a strong
venture thereby is contemplating an expansion projects

Development capital 1-3 Financing of an enterprise which has overcome the highly
risky stage and has recorded profits but cannot go public

Buy – out 1-3 Financing a firm for its acquisition activity of a product
line or service business

Turnaround 3-5 Re-establishing a business

Seed or Early Stage
The first stage of a business is known as seed- capital stage. Venture capitalists are more often
interested in providing seed finance i.e. making provision of very small amounts for finance
needed to turn into a business. Research and development activities are required to be undertaken
before a product is to be launched. External finance is often required by the entrepreneur during
the development of the product. The financial risk increases progressively as the research phase
moves into the development phase,

[14]

where a sample of the product is tested before it is finally commercialized “venture capitalists/
firms/ funds are always ready to undertake risks and make investments in such R & D projects
promising higher returns in future.
Start-up Stage
Newly formed companies without significant operating history are considered to be in the startup
stage. Most venture capitalist fund this stage of a company’s development with their own funds
as well as investments from angel investors. Angels are wealthy individuals, friends, or family
members that personally invest in a company. Angels are the most common source of first round
funding for technology businesses. They often will back companies that are at the concept stage
and have a limited track record with respect to customers and revenue. These investors tend to
invest only in local companies or for people that they already know personally.

Second Round Financing

It refers to the stage when product has already been launched in the market but has not earned
enough profits to attract new investors. Additional funds are needed at this stage to meet the
growing needs of business. Venture capital funds (VCF) provide larger funds at this stage than at
other early stage financing in the form of debt. The time scale of investment is usually three to
seven years.
Expansion Stage
Venture capitalists perceive low risk in ventures requiring finance for expansion purposes either
by growth implying bigger factory, large warehouse, new factories, new products or new markets
or through purchase of existing businesses. The time frame of investment is usually from one to
three years. At this stage, it may be necessary to finance the additional working capital
requirement in view of expansion of business activities. This stage of financing is also known as
bridge financing. Bridge financing is a short- term financing provided until long term financing
is arrange

[15]

Later Stage Financing

This is the stage at which the project has established itself and business wants to expand further.
Those established businesses which require additional financial support but cannot raise capital
through public issue approach venture capital funds for financing expansion, buyouts and
turnarounds or for development capital.
• Development Capital:
It refers to the financing of an enterprise which has overcome the highly risky stage and has
recorded profits but cannot go public, thus needs financial support. Funds are needed for the
purchase of new equipment/ plant, expansion of marketing and distributing facilities, launching
of product into new regions and so on. The time scale of investment is usually one to three years
and falls in medium risk category.
• Buy Outs:
It refers to the transfer of management control by creating a separate business by separating it
from their existing owners. It may be of twotypes i.e. Management buyouts (MBOs) and
Management buy-ins (MBIs). In Management Buyouts (MBOs) venture capital institutions
provide funds to enable the current operating management/ investors to acquire an existing
product line/business. On the other hand, Management Buy-ins is funds provided to enable an
outside group of manager(s) to buy an existing company. It involves three parties: a management
team, a target company and an investor. MBIs are more risky than MBOs and hence are less
popular because it is difficult for new management to assess the actual potential of the target
company. Usually, MBIs are able to target the weaker or under-performing companies.
• Turnaround:
Is a situation in which a sick company recovers its ground. Such form of venture capital
financing involves medium to high risk and a time scale of three to five years. It involves buying
the control of a sick company which requires very specialized skills. It may require rescheduling
of all the company’s borrowings, change in management or even a change in ownership. A very
active “hands on” approach is required in the initial crisis period where the venture capitalists
may appoint its own chairman or nominate its directors on the board.

[22]
Venture Capital Investment Process

Venture capital investment process is different from normal project financing. In order to
understand the investment process a review of the available literature on venture capital finance
is carried out. Once the company has decided to take the venture capital funding for your
business.It is very important for it to follow the appropriate process to raise funds. In India,the
typical venture capital fund raising process involves the following steps:

Prepartion of Business Plan

Identification of the right Venture

Capitalist

Meeting the Venture Capitalist

Due Diligence

Signing the Term Sheet

Execution with venture capital

support
 I. Preparation of a business plan:
The process of obtaining venture capital financing starts with the finalisation of business plan.
Normally, a venture capitalist invests in an innovative business that has lots of potential to grow
in the future. Therefore, before approaching any venture capitalist, you should have a properly
drafted business plan that includes at least the following:
• a description of the opportunity and market size;
• profiles of the management team;
• a review of the competitive landscape and solutions;
• detailed financial projections
• a capitalisation table and
• an executive summary of the business proposal along with the business plan.
[17]
II. Identification of the right venture capitalist:
Once the detailed business plan is ready, the next step is to identify a suitable venture capital
institute for funding. Selection of a venture capital firm depends on the ability and experience of
the venture capitalist to deal in the industry concerned.
III. Meeting the Venture Capitalist:
The investment banker approaches venture capitalists and starts making presentations to them.
The purpose of these presentations is to bring the promoters of the company and the investors
face-to-face. In the follow-up meetings, the company tries to convince the investors about the
investment. IV. Due diligence:
This entails a rigorous process that determines whether or not the venture capital fund or other
investors will invest in the company. The process involves asking and answering a series of
questions to evaluate the business and legal aspects of the opportunity. The due diligence process
should select potential winners, identify the key risks associated with the investment and develop
a risk mitigation plan with the company management as part of a potential investment. Once the
process is complete, the investor will use the outcomes of the process to finalise the internal
approval process and complete the investment. V. Signing the term sheet:
A Term Sheet (TS), as the name implies, covers the key terms of the investment. If the due
diligence phase is satisfactory, the VC will offer a term sheet. This is a non-binding document
that spells out the basic terms and conditions of the investment agreement. The term sheet is
generally negotiable and must be agreed upon by all parties, after which the legal documentation
can be completed by three to four weeks. After the legal due diligence funds will be made
available.
VI. Execution with venture capital Support:
Once the term sheet is signed ,the venture capitalist becomes actively involved in the
company’s activities. Venture capitalists normally do not make their entire investment in a
company at once; they do this only in “rounds.” As the company meets previously agreed
milestones, further rounds of financing are made available, with adjustments in price as the
company executes its plan.
[18]
2.4: FACTORS CONSIDERED IN VENTURE CAPITAL FINANCING.
Team for
Management

Plans for Business

and Trade Market Targeting

Monetary and
Financial Returns Product / Service

Competitive
positioning

• Management Team

The pivotal elements for entrepreneurial achievement are a radiant business person with a top
notch administration group and an astounding business sector opportunity. On the off chance that
they are adequately awed with the advancement a new business has made, investors will now and
then enlist a key individual from the group.. The best investors have broad contacts with the
potential possibility for administration positions in their portfolio organizations. Target Market.
The target market should be fragmented, accessible, and growing rapidly.
 Product/Service

The product or service should be better than competing products or services, and it should be
protected with patent registration or copyright Registration, as appropriate. It does not have to be
the first product in its market segment Again, it is important to stress that a company with a
working prototype—or better yet, satisfied customers—has a much better chance of raising
venture capital than does an entrepreneur with just an idea and a business plan.

[19]

• Competitive Positioning

There is no dominant competitor in the market niche. Distribution channels are open. And the
company has an experienced marketing manager with expert knowledge of market segment.
Solid Works positioned its CAD/CAM software in a niche where it was difficult for
wellestablished competitors, especially Parametric Technology, to move in without cannibalizing
their business models.

• Financial Returns

The potential money related return is imperative, however great funding does not rely upon
refined monetary calculations. Financial speculators have a dependable guideline for right on
time and development stage organizations—they will contribute just if the organization can
possibly return no less than seven times their interest in five years.

• Business Plan

Each business visionary looking for cash from business’ angels attendants or expert investors
must have a capable composed strategy for success. In any case, regardless of how great a
marketable strategy might be, it won’t inspire speculators about as much as an item or
administration that is as of now being sold to clients. An excess of business people spend an
excessive amount of exertion refining and cleaning their marketable strategies as opposed to
actualizing their organizations.

[20]

2.5: ADVANTAGE & DISADVANTAGE OF VENTURE CAPITAL

ADVANTAGES OF VENTURE CAPITAL

• It injects long term equity finance which provides a solid capital base for future growth.
• The venture capitalist is a business partner, sharing both the risks and rewards. Venture
capitalists are rewarded by business success and the capital gain.
• The venture capitalist is able to provide practical advice and assistance to the company
based on past experience with other companies which were in similar situations.
• The venture capitalist also has a network of contacts in many areas that can add value to
the company, such as in recruiting key personnel, providing contacts in international
markets, introductions to strategic partners, and if needed co-investments with other
venture capital firms when additional rounds of financing are required.
• The venture capitalist may be capable of providing additional rounds of funding should it
be required to finance growth

DISADVANTAGES OF GOING TO VENTURE CAPITAL FINANCE

• The agreement of funding is passed on a contract which could be partial ownership or
other profit sharing which if not properly negotiated by the entrepreneur he might lose
ownership of his whole business or idea and future to them.
• Intrusion and control : the VC gets the right to drive the firm thereby can take strategic
decision or can drive them to his advantage if the deal is not guided properly.

[21]

CHAPTER 3
INTRODUCTION TO INDUSTRY
 [22]
INTRODUCTION TO INDUSTRY

3.1: A BRIEF HISTORY

One of the first steps toward a professionally-managed venture capital industry was the passage
of the Small Business Investment Act of 1958. The 1958 Act officially allowed the U.S. Small
Business Administration (SBA) to license private "Small Business Investment Companies"
(SBICs) to help the financing and management of the small entrepreneurial businesses in the
United States. It is commonly noted that the first venture-backed start-up is Fairchild
Semiconductor (which produced the first commercially practical integrated circuit), funded in
1959 by what would later become Venrock Associates.

During the 1960s and 1970s, venture capital firms focused their investment activity primarily on
starting and expanding companies. More often than not, these companies were exploiting
breakthroughs in electronic, medical, or data-processing technology. As a result, venture capital
came to be almost synonymous with technology finance.
The public successes of the venture capital industry in the 1970s and early 1980s (e.g., Digital
Equipment Corporation, Apple Inc., Genentech) gave rise to a major proliferation of venture
capital investment firms. The number of firms multiplied, and the capital managed by these firms
increased ten folds over the course of the decade.

Growth in the venture capital industry remained limited throughout the 1980s and the first half of
the 1990s.The late 1990s were a boom time for venture capital. Initial public offerings of stock
for technology and other growth companies were in abundance, and venture firms
The revival of an Internet-driven environment in 2004 through 2007 helped to revive the venture
capital environment. Currently, Venture Capital Environment is at all time high leading to
emergence of all together new businesses. Innovations are sprouting at fast speed and VC
investments are helping them for realizing full potential of Entrepreneurs.

[23]
Strengths and Challenges of India
India is an attractive market with a challenging business environment. Its appeal lies in its
competitive labour costs, lucrative domestic market, and its skilled workforce. Foreign investors
also applaud its strong management and business education system, as well as its improving
telecommunications infrastructure. However, the country’s weaknesses are its under-developed
infrastructure and a restrictive operative environment.
Key Strengths
 Local Labour Costs
 Domestic Market
 Business and Management Education
 Skilled Services Workforce
 Telecommunications Infrastructure
Key Challenges
 Legislative and administrative environment
 Transport and logistics infrastructure
 Corporate Taxation
 Ease of doing business
 3.2 GROWTH OF VENTURE CAPITAL IN INDIA
Growth of Venture Capital Industry Up
to 1996-The Early Years:

 Funds that were mobilized for venture investment were small in value.
 The venture capitalists in those times were mostly from a banking background.
 Banks approached the subject of venture funding much likely they approached debt
financing of a project.
 The accent was on the asset-side of the balance sheet. And the focus on innovation and
business building was low.
 Value creation as a focus had not yet been fully discovered, and exit strategies were
being thought more around the life-term of the fund  Valuations were low.
 No competition between VCs.
 Indian entrepreneurs had not yet discovered the venture capital route to funding and
growth and it reflected in the small amounts that were invested.
 There was little or no active participation of venture capitalists in entrepreneurial
activities such as financial structuring, business strategy  Business enhancement
through networks.
1997 to 2000-The Rock ‘n’ Roll Years:
 The SEBI guidelines of 1996 acted as huge incentive for domestic and foreign venture
capital companies to focus their attention on India.
 The range of venture capitalists now spanned incubators, angel investors, classic venture
capitalists and even private equity players. And the lines between them had begun to
blur.
 Venture capitalists were instrumental in introducing risk taking too many, members of
the professional class.
2001 Onwards-The Reality Years:
 The number of people who had got in to venture capital game was truly impressive.
 In addition to the seasoned players, there were finance and noon finance professionals of
different hues entering the industry and people with little or no experience running the
companies.
 Venture capital community is finally recognizing that the evolution and business is an
ongoing process. This added to the return of the business maturation cycle of five to
seven years, portends a less frenetic and more sustained pace of venture activity.
 Domestic Venture Capital firms have realised the potential of Indian Entrepreneurs.
 Legislative support has seen tremendous reforms.
 According to surveys by International agencies like Deloitte, EY; Foreign Investors
attractiveness among India is increasing.
 3.3 Evaluation of venture capital industry in India
The concept of venture capital finance originated was started in 1950 in the US in early 1950s
and subsequently spread all over the world. The concept of Venture capital in India is very
recent as compared to USA, UK, Europe, Israel etc. Earlier, Venture Capital functions were
performed by development financial institutions such as the IDBI (Industrial Development
Bank of India), ICICI Bank, and State Financial corporations. Publicly raised funds (equity,
bonds etc.) were the main source of Venture Capital. The 7 th five year plan as well as the fiscal
policy of the Government of India acknowledged the necessity for venture capital. Year 1973
also fostered venture capital as a source of funding new entrepreneurs and technology which
was given by the report of the Committee on Development of small and medium entrepreneurs.
The first full- fledged private sector venture capital was the Credit Capital Venture Funds
(India) Ltd sponsored by the Credit Capital Finance Corporation, merchant bank, in 1989. Until
then, venture capital financing had been the in the hand of financial institutions and commercial
banks.
• Year 1988 marked the establishment of the Technology Development and Information
Company of India Ltd. (TDICI) promoted by the ICICI and UTI (Unit Trust of India)
and was immediately followed by the Gujurat Venture Finance Ltd.
• In the year 1996, Security Exchange Board of India introduced the SEBI (Foreign
Venture Capital and Private Equity Funds investing in India) in order to regulate as well
as facilitate Foreign Venture Capital and Private Equity Funds investing in India.
• A number of private sector organizations established venture capital funds. Some of the
popular ones in India are IFCI Venture Capital Funds, SIDBI Venture Capital, IDBI’s
Venture Capital Funds, Technology Development and Information Company of India
Ltd, Risk Capital and Technology Finance Corporation Ltd., SBI Capital Venture
Capital Fund, Canbank Venture Capital Fund, 20th Century Capital Funds, Indus
Venture Capital Funds, APIDC Venture Capital Ltd, India Investment Fund, IL&FS
Venture Corporation Ltd, IFB Venture Capital Finance Ltd, HSBC Private Equity
Management Mauritius Ltd, Alliance Venture Capital Advisors Ltd, Marigold Capital
Management Ltd and Gujarat Venture Capital Finance Ltd.
[26]
The venture capital companies operating at present can be divided into four groups:
 Promoted by all-India development financial institution

 Promoted by state level financial institution

 Promoted by commercial banks

 Private venture capital fund

 Promoted by All-India development financial institution

The IDBI started a Venture Capital in 1976 as per the long term fiscal policy of government of
India, with an initial of Rs. 10 Cr. Which raised by imposing a chess of 5% on all payment made
for the import of technology know-how projects requiring funds from Rs.5 Lacks to Rs 2.5 Cr.
Were considered for financing. Promoters contribution ranged from this fund was available at a
concessional interest rate of 9% (during gestation period ) which could be increased at later
stage.
The ICIC provided the required impetus to Venture Capital activities in India, 1986 it started
providing venture capital finance in 1998 it promoted, along with the Unit Trust of India (UTI)
Technology Development and Information Company of India (TDICI) as first venture capital
company registered under the companies act, 1956.
The risk capital foundation established by the industrial finance corporation of India (IFCI) in
1975 was converted in 1988 into the Risk Capital and Technology Finance Company (RCTC) as
a subsidiary company of the IFCI the rate provides assistance in the form of conventional loans,
interest free conditional loans on profit and risk sharing basis or equity participation in extends
financial support to high technology projects for technological up graduations .the RCTC has
been renamed as IFCI Venture Capital Funds Ltd. (IVCF)
 Promoted by state level financial institution
In India , the state level financial institutions in some states such as Madhya Pradesh, Gujarat,
Uttar Pradesh etc, have done an excellent job and have provided venture capital to small scale
enterprise . Several successful entrepreneurs have been the beneficiaries of the liberal funding
environment.
[27]
In 1990, the Gujarat Industrial Investment Corporation promoted the Gujarat Venture Financial
Ltd (GVFL) along with other promoters such as the IDBI , the World Bank etc, the GVFL
provides financial assistance to business in the firm of equity, conditional loans or income notes
for technologies development and innovative products. It also provides finance assistance to
entrepreneurs.
 Promoted by commercial banks
Canbank Venture Capital Fund, State bank Venture Capital Fund and Grind lays bank Venture
Capital Fund have been set up the respective commercial banks to undertake venture capital
activities.
The State Bank Venture Capital funds provides financial assistance for bought out deal as well as
new companies in the form of equity which it disinvests after the commercialization of the
projects.
Canbank Venture Capital Funds provides financial assistance for proven but yet to be
commercial exploited technologies. It provides assistance both in the form of equity and
conditional loans

 Private venture capital Fund

Several private sector venture capital funds have been established in India such as the 20 th
Century Venture Capital Company, Indus venture capital Funds, infrastructure Leasing and
financial Services Ltd
Some of the companies that have received funding through this route include:
o Mastek, one of the oldest software house in India o Ruskansoftware, Pune
based software consultancy o SQL star , Hyderabad based training and software
development consultancy o Satyam Infoway the first private ISP in India o
Hinditrom , makers of embedded software o Selectia provider of interaction
software selection

o Yantra, ITL infosy’s Us subsidiary , solution for supply chain management o

Rediff on the Net, India website featuring electronic shopping news chat etc.

[28]
 3.4 PROBLEMS IN THE VCs IN THE INDIAN CONTEXT:

One can ask why venture funding is so successful in USA but faced a number of problems in
India. The biggest problem was a mind set change from ‘collateral funding’ to high risk high
return funding. Most of the pioneers in the industry were people with credit background and
exposure to manufacturing industries. Exposure to fast growing intellectual property business
and services sector was almost zero. All combined to a slow start to the industry. The other issue
that led to such a situation includes
SCALABILITY:

The Indian software segment has recorded an impressive growth over the last few years and
earns larger avenues from its export earnings, yet our share in the global market is less than 1 per
cent. Within the software industry the value chain ranges from body shopping at the bottom to
strategic consulting at the top. Higher value addition and profitability as well as significant
market presence take place at the higher end of the value chain. If the industry has to grow
further and survive the flux it would only be through innovation. For any venture idea to succeed
there should be a product that has a growing market with a scalable business model. The IT
industry (which is most suited for venture funding because of it sides nature) in India till recently
had a service centric business model. Products developed for Indian Markets lack scale.

MINDSETS:

Venture capital as an activity was virtually non existence in India. Most venture capital
companies went to provide capital on a secured debt basis, to established businesses with
profitable operating histories. Most of the venture capital units were off-shoots of financial
institutions and banks and the lending mindset continued. True venture capital is capital that is
used to help launch products and ideas of tomorrow. Abroad, this problem is solved by the
presence of angel investors. They are typically wealthy individuals who not only provide venture
finance but also help entrepreneurs to shape their business and Make their venture successful

[29]
RETURNS, TAXES AND REGULATIONS:

There is a multiplicity of regulators like SEBI and RBI. Domestic venture funds are set up under
the Indian Trusts Act of 1882 as per SEBI guidelines, while offshore funds routed through
Mauritius follow RBI guidelines. Abroad, such funds are made under the Limited Partnership
Act, which brings advantages in the terms of taxation. The government must allow pension funds
and insurance companies to invest in venture capitals as in USA where corporate contributors to
venture funds are large

EXIT
The exit routes available to the venture capitalists were restricted to the IPO route. Before
deregulation, pricing was dependent on the erstwhile CCI regulations. In general all issues were
under period. Even now SEBI guidelines make it difficult for pricing issues for an easy exit.
Given the failure if the OTCEI and the revised guidelines, small companies could not hope for a
BSE / NSE listing. Given the dull market for mergers and acquisitions, strategic sale was also not
available.

VALUATION:
The recent phenomenon is valuation mismatches. Most promoters have sky high valuation
expectations. Given this, it is difficult for deals to reach financial closure as promoters do not
agree to a valuation. This coupled with the fancy for software stocks in the bourses means that
most companies are proponing their IPOs. Consequently, the number and quality of deals
available to the venture funds gets reduced

[30]
 3.5Methods of Venture Financing

Venture capital is typically available in three forms in India, they are:

Equity

Conditional
Quasi Equity Loan
Methods
of venture
Financing

Participating
Income Note
Debeture

• Equity
All VCFs in India provide equity but generally their contribution does not exceed49
percent of the total equity capital. Thus, the effective control and majority ownership of the firm
remains with the entrepreneur. They buy shares of an enterprise with an intention to ultimately
sell them off to make capital gains.
• 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; actual rate
depends on other factors of the venture such as gestation period, cost-flow patterns, riskiness and
other factors of the enterprise.
• Income Note
It is a hybrid security which combines the features of both conventional loan and conditional
loan. The entrepreneur has to pay both interest and royalty on sales, but at substantially low rates.

[31]
 • \Participating debenture :
Such security carries charge in 3 phases. In the start up phase, before the venture attains
operations to a minimum level, no interest is charged, after this, low rate of interest is charged up
to a particular level of operation .Once the venture is commercial a high rate of interest is
required to be paid.

• Quasi equity:
Quasi equity instruments are converted into equity at a later date. Convertible instruments are
normally converted into equity at the book value or at certain multiple of EPS, that is at a
premium to par value at a later date. The premium automatically rewards the promoter for their
initiative and hand work since it is performance related, it motivates the promoters to work
harder so as to minimize dilution of their control on the company. The different quasi equity
instruments are follows:
o Cumulative convertible preference shares.
o Partially convertible debentures o Fully convertible
debentures.

3.6 REGULATION OF VENTURE CAPITAL

At present the venture capital activity in India under the purview of different sets of regulations
namely:

• The SEBI ( Venture Capital Funds) regulations ,1996 [regulations] lays down the overall
regulatory framework for registration and operations of venture capital funds in India
• The Indian Trust Act, 1882 or the company Act, 1956 depending on whether the fund is
set up as a trust or a company.
• The foreign investment Promotion Board (FIPB) and the RBI in case of an offshore fund.
These funds have to secure the permission of the FIPB while setting up in India and need
a clearance from the RBI for any repatriation of income.

[32]
 • The Central Board of Direct Taxation (CBDT) governs the issues pertaining to income
tax on the proceed from VC funding activity. The long term capital gain tax at around
10% in India and the relevant clauses to VC may be found in section 10(sub section 23)

Major regulatory framework for venture capital industry

VC & FVCI

SEBI RBI FIPB TAX

SEBI (VCF) Reg. 1996 • FEMA ,1999 • FDI policy • IT Act

SEBI(FVCI) Reg.2000 • Transfer or • Investment • DTAA
issue of security approvals  Singapore
SCR Act.1956 by a person • PressNotes  Mauritius
SEBI (SAST) Reg. 1997 resident outside  others
India regulation
SEBI (DIP) Guidelines, 2000
2000
SEBI Act,1992

Major regulatory frameworks for venture capital industry, In addition to the above , offshore
funds also require FIPB/RBI approval for investment in domestic funds as well as in Venture
Capital Undertakings (VCU). Domestic funds with offshore contribution also require RBI
approval for the pricing of securities to be purchased in VCU likewise, at the time of
disinvestment , RBI approval is required for the pricing of the securities.

[33]
 Definition of venture capital fund : the venture capital fund is now defined a fund established
in the form of trust, a company including a body corporate and registered with SEBI which:

• has a dedicated poll of capital

• raised in the manner specified under the regulations
• to invest in venture capital undertaking in accordance with the regulations.

Definition of venture capital undertaking : venture capital undertaking means a domestic

company :-

• whose share are not listed on a recognized stock exchange in India

• which is engaged in business including such activities or sectors which are specified in
the negative list by the Board with the approval of the Central Government by
notification in the official in this behalf.

In India, the SEBI is the regulator of Venture Capital Funds. It has issued necessary regulations
for the purpose. Before May 2012, Venture Capital Funds Regulations
1996 and foreign venture Capital Investors regulations 2000 used to regulate the Venture Capital
Funds in India. But, from May 2012, above regulations have been replaced by Alternative
Investment Funds Regulations, 2012 issued by SEBI. These regulations shall be called the
Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012. But
the Venture Capital Funds registered before May 2012 will continue to be regulated by old
regulations. Salient provisions of SEBI (Alternative Investment Funds) Regulations, 2012 are as
follows:-

 Alternative Investment Fund means any fund established or incorporated in India in the
form of a trust or a company or a limited liability partnership or a body corporate which,-
 is a privately pooled investment vehicle which collects funds from investors, whether
Indian or foreign, for investing it in accordance with defined investment policy for the
benefit of its investors; and

[34]
 is not covered under the Securities and Exchange Board of India (Mutual Funds)
Regulations, 1996, Securities and Exchange Board of India (Collective Investment
Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund
management activities
• Venture capital fund means an Alternative Investment Fund which invests in unlisted
securities of start-ups, emerging or early-stage venture capital undertakings mainly
involved in new products, new services, technology or intellectual property right based
activities or a new business model;
• Venture capital undertaking means a domestic company:
a. which is not listed on a recognised stock exchange in India at the time of making
investment; and
b. Which is engaged in the business for providing services, production or
manufacture of article or things and does not include following activities or
sectors: (a) non-banking financial companies; (b) gold financing; (c)
activities\not permitted under industrial policy of Government of India; (d) any
other activity which may be specified by the Board in consultation With
Government of India from time to time;
• The funds registered as venture capital fund under Securities and Exchange Board of India
(Venture Capital Funds) Regulations, 1996 shall continue to be regulated by the said
regulations till the existing fund or scheme managed by the fund is wound up and such
funds shall not launch any new scheme after notification of these regulations.
• Alternative Investment Funds shall seek registration in one of the categories mentioned
hereunder and in case of Category I Alternative Investment Fund, in one of the
subcategories thereof:
a. Category I Alternative Investment Fund which invests in start-up or early stage
ventures or social ventures or SMEs or infrastructure or other sectors or area which
the government or regulators consider as socially or economically desirable and shall
include venture capital funds, SME Funds, social venture capital infrastructure funds
and such other Alternative Investment Funds as may be specified; [35]
 b. Category II Alternative Investment Fund which does not fall in Category I and III and
which does not undertake leverage or borrowing other than to meet day-today
operational requirements and as permitted in these regulations;
c. Category III Alternative Investment Fund which employs diverse or complex trading
strategies and may employ leverage including through investment in listed or unlisted
derivatives.

All Alternative Investment Funds shall inform the Board in case of any change in the Sponsor,
Manager or designated partners or any other material change from the information provided by
the Alternative Investment Fund at the time of application for registration. In case of change in
control of the Alternative Investment Fund, Sponsor or Manager, prior approval from the Board
shall be taken by the Alternative Investment Fund.
1. The Sponsor and Manager of the Alternative Investment Fund shall act in a judiciary
capacity towards its investors and shall disclose to the investors, all conflicts of interests
as and when they arise or seem likely to arise. Manager shall establish and implement
written policies and procedures to identify monitor and appropriately mitigate conflicts
of interest throughout the scope of business.
2. Managers and Sponsors of Alternative Investment Fund shall abide by high level
principles on avoidance of conflicts of interest with associated persons, may be
specified by the Board from time to time.

[36]
 3.7Differentiation between venture capital & private equity
Difference Private Equity (PE) Venture Capital (VC)

PE investors mostly invest in Venture capitalists invest in new

established and mature companies businesses or start-ups that have a
that are either losing their business high potential for growth in the
Nature of Investment or not making sufficient profits due future.
to inefficiency.

VC firms only invest about 50

Ownership A PE fund usually owns 100 percent or less of a company’s
percent of the equity of the equity. There are a number of VC
companies they invest in, which firms that invest in multiple
gives them complete control of the businesses to spread out their risk,
companies’ affairs after the buyout.

Private equity firms have a mix of The venture capitalists only make
Capital Structure
equity and debt in their investment equity investment

Company Type

PE firms can buy businesses across VC firms mainly keep their focus
all industries and sectors. on technology companies, such as
bio-tech or clean-tech

Management Focus The main focus of private equity VC firms tend to follow the
firms is on the corporate approach of management
governance, i.e., a system of rules capability, wherein the collection of
and practices through which a capabilities is exercised to generate
business is controlled, directed, and profit and to have a competitive
managed advantage over other firms in the
market.
[37]
 A team of individuals in a PE firm VC firms, on the other hand, have
consists of former investment a diverse mix of individuals on
banking analysts. Any individual, their teams, usually consisting of
business development individuals,
including consultants, can join a
former bankers, former
PE firm, but the firms usually
Team of Individuals entrepreneurs, consultants, etc.
prefer someone with experience in
devising a leveraged buyout
model.

Risk As far as PE funds are concerned, VCs are high-risk investments.

the risk revolves around a number Venture capitalists expect that
of small investments equating to a most of the start-ups they invest in
large total investment size. If one might fail. At the same time, if a
investment fails, the entire fund single investment becomes
will fail.
successful, it can make the entire
portfolio of investment profitable
by generating substantial returns.

Return In the case of PE funds, high In the case of VC firms, returns

returns can be earned without are mostly affixed to the top
making an investment in performing businesses; wherein,
wellknown or large companies. one big winner can cover up the
losses suffered in other
investments.

[38]
 3.8 Introduction to company
InnoVen capital
Headquarter: Mumbai, Maharashtra
Categories: Finance
Description: InnoVen capital India is the first and leading Venture debt provider to investor
backed starts up across sectors and stages Website: http://www.innovencapital.com/
Founded : 2008
Aliases: SVB India a Finance, InnoVen capital India
Type: Corporate venture capital and venture Debt that does later stage venture and Debt
Financing investments
Sectors: Sales and Marketing, network Security, Internet
Regions: India, Southeast Asia

InnoVen Capital is Asia's leading venture lending firm with offices in Mumbai and Singapore.
Started in India in 2008, the platform was re-branded InnoVen Capital following a buyout of the
business led by Temasek Holdings and UOB Group in 2015. InnoVen Capital currently has
investor commitments of US$200 million.
In India, InnoVen Capital is positioned as the first and largest venture debt provider to venture
capital backed start-ups in India across stages of growth and sectors. The Company has a credit
rating of ‘IND AA-’ for its term borrowing and ‘IND A1+’ for its commercial paper issuances.
The Singapore office established in late-2015 serves the needs of our clients across the South
East Asian market including Malaysia, Indonesia and Thailand in sectors across e-commerce,
financial technology, logistics and big data.

[39]
Ajay Hattangdi and VinodMurali, two executives who set up India's largest venture debt provider
InnoVen Capital along with Singapore's sovereign wealth fund Temasek, have put in their
papers, according to four sources briefed on the matter.
Debt from a venture lender like Innoven helps start-ups extend the runway between two equity
rounds of funding. This has especially been true in the last two years for Innoven, which operates
through a non-banking finance company (NBFC).

Investment highlights in year 2016- 2017

• Agriculture tech, Artificial Intelligence and Logistics were voted as most under hyped
sectors whereas Hyper local and Digital Payments were voted over hyped in 2016
Digital Payments and Artificial Intelligence were voted likely to be hot in 2017
• Agri-tech, Artificial Intelligence and Logistics were voted as most under hyped sectors
whereas Hyper local and Digital Payments as over hyped ones . Digital Payments and
Artificial Intelligence were expected to be hot sectors in 2017

Sector wise investment trend in 2016- 2017

Sector wise investment (Rs. MM) in 2016

Other 116.2
Financial Services 24.9
Social Network 29.8
Education 31.5
Consumer Services 42.1
Healthcare and lifesciences 54.5
Sector wise investment (Rs.
Marketing and Advertising 62.5 MM) in 2016
Logistics 100.7
E-Commerce 116.5
Food 149.2
IT / ITES 194.7
Consumer Internet and Mobile 211.6

0 50 100 150 200 250

[40]
 sector wise investment in % 2017
travel 2
logistics 12
life science 1
loT 1
hyperlocal 21
healthcare 4
food 9
fintech 4
sector wise investment in % 2017
enterprise software 3
education 1
ecommerce 11
digital payments 20
business analytics 6
artificial intelligence 12
agriculture tech 6
0 5 10 15 20 25

• Artificial Intelligence and Logistics were voted as moderate investment sectors whereas Hyper
local and Digital Payments were voted most investment in 2017

• Digital Payments and Artificial Intelligence were voted likely to be more in 2017.

[48]
City wise investment trends in2016- 2017

City wise investment in % 2016

mumbai 10

NCR 36

benguluru 20 City wise investment in %

2016
chennai 5

hyderabad 9

Other 21

0 10 20 30 40

city wise investrment in % 2017

others 17

NCR 21

chennai 6
city wise investrment in % 2017

bengaluru 36

mumbai 19

0 10 20 30 40

[42]
 CHAPTER 3
RESEARCH METHODOLOGY

[43]

RESEARCH METHODOLOGY
REDMEN & MORY defines “research as a systematized effort to gain now knowledge”
Research Methodology is a way to systematically solve the research problem. In it, step-by-step
methods are followed to solve a particular problem. It refers to a search for knowledge. It can
also be defined as a scientific and systematic search for pertinent information on a specific topic.
The study is carried out around different sources of data regarding Venture Capital Finance in
India. The data is analysed using different functions of Microsoft Office Excel 2 and Microsoft
Office Word . It is systematic and intensive study directed towards a more complete knowledge
of the subject studied
RESEARCH DESIGN

Acc. To Kerlinger, “research design is the plan structure & strategy of investigation conceived
so as to obtain answers to research questions and to control variance.
Research Design is the way in which the research is carried out. Research Design is the
arrangement of conditions for the collection and analysis of data in a manner that aims to
combine relevance to the research purpose with economy in procedure. Its found that research
design is purely and simply the framework for a study that guides the collection and analysis of
required data.
Research design is broadly classified into
• Exploratory research design
• Descriptive research design
• Casual research design
This research is a Exploratory research. The major purpose of this research is description of
state of affairs as it exists at present.

[44]
Data Collection Techniques and Tools

The study is based on secondary data on Venture Capital Investments. The data is collected from
different publications and online resources including
 SEBI’s Handbook of Statistics on Indian Securities Markets
 SEBI’s website
 Indian Venture Capital Association reports
 Bain & Company’s reports
 Deloitte and E&Y survey results
 Trading Economics website
many other books, publications, reports and articles.

[45]
 CHAPTER 4
DATA ANALYSIS AND
INTERPRETATION

Analysing Growth of Venture Capital Finance in India

Year Total VC Investment ( in Rs. Corers)

2014 71061

2015 72849

2016 72175

2017 64670

[46]
 When values of Venture Capital Investments in India from 2014 -2017 are plotted on a Line
Graph, following curve is obtained

Analysis of Venture Capital Investments in different sectors of Economy

Year

------------ 2014 2015 2016 2017

Sectors of Economy

Information Technology 5868 6412 5776 5561

Telecommunication 7549 7301 6063 7257

pharmaceuticals 874 743 494 756

[47]
biotechnology 337 348 425 362

Media / entertainment 1381 1356 1039 1294

Service sector 4180 4664 3638 4592

Industrial product 2020 1663 1230 1665

Real estate 11315 10583 8238 10587

others 37656 39778 37768 40101

Information Technology
6500
6400
investment Rs in crore

6300
6200
6100
6000
5900 information
technology
5800
5700
5600
5500
2013 2014 2015 2016 2017 2018
year

To understand the scenario of growth in each sector, line graphs have been obtained using
values

Information Technology (IT) has been high growth factor compared to other sectors all these
years.

We can infer that IT is going to be one of the high growth sectors attracting large amount of
Venture
Capital in all the above years

[48]
 Telecommunication
10000
investment Rs in crore

8000

6000

4000 telecommunication
Linear (telecommunication)
2000

0
2013 2014 2015 2016 2017 2018
year

• Telecommunication sector has seen some of the biggest investments in 2014 and
2015 making it Hot Favourite sector of Venture Capital Investment in those years.
• In 2016 the investment is high where in 2017 the investment is very low compared
to these years.

• In year 2014 the biggest investment is Pharmaceuticals sector where as in 2015 the
investment is low compared to 2014 .
• In 2016 the investment is high compared to other year
• In 2017 the investment is very low compared to other years .

[49]
[50]
 Industrial Products sector is a
source of high employment
Industrial Product opportunities for less skilled
2500 labour.
R
s
2000
The sector has not seen much
i
growth in terms of venture
n 1500
capital investments. Because
industrial product less investment of VC in this
c
1000 sector.
r Linear (industrial
o product)
r 500 In these years 2017 is
low
e investment as compared to
s 0
2013 2014 2015 2016 2017 2018 other years.
year

[51]
 Real Estate
R 14000
s
12000
i 10000
n 8000

6000 Real Estate

c
r 4000 Linear (Real Estate)
o 2000
r
0
e
2013 2014 2015 2016 2017 2018
s
year

As India is developing country and Real Estate is an utmost important need of any developing
nation. Real Estate sector has always seen reasonable growth and is still attracting investment.
The investment is falling in year 2017

R
Others
s 40500

40000
i
n 39500

39000
C others
R 38500 Linear (others)
o
38000
r
e 37500
s 2013 2014 2015 2016 2017 2018
year

In 2014-2017 the investment is low as compared to 2015-2016. The growth Venture capital
investment is down in others sector

[52]
INTERPRETATION

There are different sectors of Economy in India. Out of all above mentioned Economic Sectors,
few sectors are attracting more Venture Capital Funds than others. With analysis of each sector
we can categorize them by rate of growth of investments over 9 years.
• Information Technology and Biotechnology have continuously seen High Growth and
are predicted to do so in coming years. For Entrepreneurs these sectors can be fruitful to
start their venture in.
• Service sector, Industrial product & telecommunication growth have been areas of
Moderate Growth and may do better in coming years. For Entrepreneurs these sectors
can be fruitful but they must keep caution while starting their venture in.
• Real Estate is very Slow Growth in terms of VC investments in these areas. One must
have strong know how of these sectors while starting any business.
• Pharmaceuticals and Media & Entertainment are Sectors of Declining Growth in VC
Investments. One may have hurdles in getting investments for ventures in these sector

[53]
 FINDINGS

During the preparation of my report I have analyzed many things which are followings:
• A number of people in India feel that financial institution are not only conservatives but
they also have a bias for foreign technology & they do not trust on the abilities of
entrepreneurs.
• Some venture fails due to few exit options. Team ignorant of international standards. The
team usually a two or three man team. It does not possess the required depth in top
management. The team is often found to have technical skills but does not possess the
overall organization building skills team is often short sited.
• Biotechnology Sector gets maximum share of Total Venture Capital Investments among
different sectors of Economy in 2015, followed by Telecommunications and Information
Technology.
• Among different sectors of economy, Information Technology and biotechnology are
sectors with high growth rate of Venture Capital Investment and is expected to do well in
comings years as well.
• In terms of Venture Capital investments made industrial product are growing at medium
pace. Telecommunications have seen decline only in recent years, the most obvious reason
for it is the policy paralysis and scams around this sector in India. Yet due to adoption of
4G technology there is still a possibility for rise in the trend.

Venture capitalists in India consider the entrepreneur’s integrity & urge to grow as the most
critical aspects or venture evaluation.

[54]
SUGGESTIONS
• The investment should be in turnaround stage. since there are many sick industries in
India and the number is growing each year, the venture capitalist that have specialized
knowledge in management can help sick industries. It would also be highly profitable if
venture capitalist replace management either good ones in the sick industries.
• It is recommended that the venture capitalist should retain their basic feature that is
tasking high risk. The present situation may compel venture capitalist to opt for less
risky opportunities but is against the spirit of venture capitalism. The established fact is
big gains are possible in high risk projects
• There should be a greater role for the venture capitalists in the promotion of
entrepreneurship. The venture capitalists should promote entrepreneur forums, clubs, and
institutions of learning to enhance the quality of entrepreneurship .

[55]
CONCLUSION
Venture capital financing has become a part of the popular business in India. VC investments are
growing at an l rate and one who is starting or expanding his business can look it as a good
option of financing its venture. With our analysis we can infer that there will be an increase in
Venture Capital Investments in 2018 and 2019.

Role of venture capital in the development of economy

A number of empirical literature have been devoted to examine the role venture capital
investment plays in economic development. Results have shown that these investments help to
enhance and sustain growth, support innovation and contribute to job creation. In this part, we
present some empirical evidence on the economic impact of VC investment on these three areas.
Employment
In (2010) finds that more readily available venture capital is likely to lower the unemployment
rates and subsequently, lower the share of long-term unemployed so investors study the
relationship between VC investment and employment using panel data for the countries and find
the job creation in the economy. venture capital plays a crucial role in bringing about
employment growth as it provides a source of financing for new firms, innovations and structural
change. Innovation:
Many venture capital company is headquarter in foreign country & also established in India . so
the foreign technology advancement used in the all company which is situated in the world so
the country can exchange their ideas & themes all over & innovate the new activity which
would gets profits of investors & firms. the new innovation is created by the country & also the
management team can knowledge about the new technology& their innovation
Growth and Value Creation
VC contribution to economic growth through innovation and development of absorptive
capacity. VC has indirect impact on the growth of the aggregate economic performance through
improving the economic effect of private and public R&D spending and the absorptive capacity
of the stock of knowledge generated by universities and firm.

[56]
Role of venture capital in the development of business
Venture capital is growingly becoming popular in different parts of the world because of the
crucial role it plays in fostering industrial development by exploiting vast and overcoming
threats.
• Venture capital provides finance as well as skills to new enterprises and new ventures of
existing ones based on high technology innovations.
• venture capitalist develops a business plan (in partnership with the entrepreneur) which
will detail the market opportunity, the product, the development and financial needs.
• While launching the innovation the venture capitalist will seek to establish a time frame
for achieving the predetermined development marketing, sales and profit targets.
• the venture capitalist is expected to perform not only the role of a financier but also a
skilled faceted intermediary supplying a broad spectrum of specialist services- technical,
commercial, managerial, financial to the business
• Venture capitalists role extends even as far as to see that the firm has proper and adequate
commercial banking and receivable financing
• Venture capitalist assists the entrepreneurs in locating, interviewing and employing
outstanding corporate achievers to professionalize the firm.

[57]
ANNEXURE
Venture capital firms
Top venture capital firm in India
• Accel India
• Sequoia Capital India
• Blume Ventures
• Kalaari Capital
• Aarin Capital
Top venture capital firm in world
• Kleiner Perkins Caufield & Byers
• Benchmark Capital
• Bessemer Venture Partners
• Lightspeed Venture Partners
• New Enterprise Associates
• Index Ventures
• Khosla Ventures
• Meritech Capital Partners

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BIBLOGRAPHY
1. BOOKS
 • I.M. Panday-venture capital development process in India
• I.M.Panday- venture capital the Indian experience
• Bhole L.M. “Financial institutions and market” , TMH Publication
• Shanmugham, R. “Financial services”, wikely Indian Publication

2.Web Sources

• Meher, R. (2011), “Venture Capital: Challenges and scope ahead in India”, available at:
http://www.chimc.in/Volume1.2/Volume1Issue-2/ RidhimaMeher.pdf.
• “Venture Capital- An Introduction” , available at: http://
www.entrepreneur.com/encyclopedia/venture-capital
• Venture capital-Theoretical concept, available at : http://
www.psnacet.edu.in/courses/MBA/Financial%20services/8.pdf
• SEBI Regulations- Alternate Investment Fund Regulations 2012, available at:
http://www.sebi.gov.in/cms/sebi_data/attachdocs/ 1337601524196.pdf

[59]

QUESTIONNARIE
1. When was your organization Established ?
2. Rank the sectors in which you invest in the order of magnitude og investments,
starting from “ 1 ” “ 1 "
IT
ITES
Telecommunication
Medical including pharmaceuticals
Industial machinery , engineering and
manufacturing

Biotechnology
Hospitality
Food and beverages
Life sciences
Energy
Education
Media & Entertainment
Services
Reatail
Any other (specify)

3. Rank the stages at which you invest in order of magnitude starting from “ 1 “ , “ 1 “
being the stage at which you invest maximum
Seed stage
Start up stage
Early stage
First stage
Second stage
Third stage
Mezzaine and bridge finance
Turnaround finance
 Acquisition finance

4. What is average deal size ?

5. What has been your success rate ?
6. For how long do you remain invested in the undertaking funded by you before
making an exit ?
7. Has the number of years that you remain invested undertakings increased in recent
tines
 Yes