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INSTITUTE OF PROFESSIONAL EDUCATION AND

RESEARCH
PGDM- 2010-2012


ASSIGNMENT
ON
~WORKING AND CURRENT STATUS OF VENTURE
CAPITAL IN INDIA AND WAY AHED


Submitted to: Submitted by:
ProI. R.K Joshi Anil Patidar
Sumit Soni
Mayank Daga
Ravi Aggrawal
Jobin Abrahim
Talib Ali

VENTURE CAPITAL
Concept of Venture Capital
The term venture capital comprises oI two words that is, 'Venture and 'Capital. Venture is a
course oI processing, the outcome oI which is uncertain but to which is attended the risk or
danger oI 'loss. 'Capital means recourses to start an enterprise. To connote the risk and
adventure oI such a Iund, the generic name Venture Capital was coined. Venture capital is
considered as Iinancing oI high and new technology based enterprises. It is said that Venture
capital involves investment in new or relatively untried technology, initiated by relatively new
and proIessionally or technically qualiIied entrepreneurs with inadequate Iunds. The
conventional Iinanciers, unlike Venture capitals, mainly Iinance proven technologies and
established markets. However, high technology need not be pre-requisite Ior venture capital.
Venture capital has also been described as unsecured risk Iinancing`. The relatively high-risk oI
venture capital is compensated by the possibility oI high returns usually through substantial
capital gains in the medium term. Venture capital in broader sense is not solely an injection oI
Iunds into a new Iirm, it is also an input oI skills needed to set up the Iirm, design its marketing
strategy, organize and manage it. Thus it is a long term association with successive stages oI
company`s development under highly risk investment conditions, with distinctive type oI
Iinancing appropriate to each stage oI development. Investors join the entrepreneurs as co-
partners and support the project with Iinance and business skills to exploit the market
opportunities. Venture capital is not a passive Iinance. It may be at any stage oI
business/production cycle, that is, start up, expansion or to improve a product or process, which
are associated with both risk and reward. The Venture capital makes higher capital gains through
appreciation in the value oI such investments when the new technology succeeds. Thus the
primary return sought by the investor is essentially capital gain rather than steady interest income
or dividend yield.

History of Venture Capital in India
The concept oI Venture capital is very recent as compared to USA, UK, Europe, Israel etc.
Venture Capital Iunctions were run by development Iinancial institutions such as the IDBI
(Industrial Development Bank oI India), ICICI (Industrial credit and Investment Corporation oI
India) and State Financial corporations. Publicly raised Iunds were the main source oI Venture
Capital. This source oI Iinancing was however threatened by market Iits vagaries and Iollowing
the raising oI minimum paid up capital requirements Ior being listed at stock exchanges ,
problems were in store Ior small Iirms with Ieasible projects.
The 7th Iive year plan as well as the Fiscal policy oI the Government oI India acknowledged the
necessity Ior Venture Capital.1973 also Iostered venture capital as a source oI Iunding new
entrepreneurs and technology which was given by the report oI the Committee on Development
oI small and medium entrepreneurs. The government oI India, relying on the World bank`s study
oI the inspection oI the potential oI development oI Venture Capital in the private sector took a
policy initiative and communicated guidelines Ior Venture Capital Funds in 1988 but these were
restrictive allowing the setting up oI Venture Capital Funds by banks or Iinancial institutions
only.
1988 marked the establishment oI the Technology Development and InIormation Company oI
India Ltd. (TDICI) promoted by the ICICI and UTI (Unit Trust oI India) and was immediately
Iollowed by the Gujarat Venture Finance Ltd. However, there was no signiIicant Venture Capital
activity till the mid 90`s ; unIriendly policy and regulatory Iramework being the major reasons.

The growth of VC in India has four separate phases:
Phase I
The Iirst origins oI modern venture capital in India can be traced to the setting up oI technology
Development Fund in the year 1987-88, through the levy oI access on all technology import
payments. Technology Development Fund was started to provide Iinancial support to innovative
and high risk technological programmers through the Industrial Development Bank oI India. The
Iirst phase was the initial phase in which the concept oI VC got wider acceptance. The Iirst
period did not really experience any substantial growth oI VCs`. The 1980`s were marked by an
increasing disillusionment with the trajectory oI the economic system and a belieI that
liberalization was needed. The liberalization process started in 1985 in limited way. The concept
oI venture capital received oIIicial recognition in 1988 with the announcement oI the venture
capital guidelines. During 1988 to 1992 about 9 venture capital institutions came up in India.
Though the venture capital Iunds should operate as open entities, Government oI India controlled
them rigidly. One oI the major Iorces that induced Government oI India to start venture Iunding
was the World Bank. The initial Iunding has been provided by World Bank. The most important
Ieature oI the 1988 rules was that venture capital Iunds received the beneIit oI a relatively low
capital gains tax rate which was lower than the corporate rate. The 1988 guidelines stipulated
that VC Iunding Iirms should meet the Iollowing criteria:
Between 1988 and 1994 about 11 VC Iunds became operational either through reorganizing the
businesses or through new entities.. Most oI these were operated more like a Iinancing operation.
The main Ieature oI this phase was that the concept got accepted. VCs became operational in
India beIore the liberalization process started. The context was not Iully ripe Ior the growth oI
VCs. Till 1995; the VCs operated like any bank but provided Iunds without collateral. The Iirst
stage oI the venture capital industry in India was plagued bin experienced management,
mandates to invest in certain states and sectors and general regulatory problems. According to
1988 VC guideline, any organization requiring to start venture Iunds have to Iorward an
application to CCI (Controller oI Capital Issues).Subsequent to the liberalization oI the economy
in 1991, the oIIice oI CCI was abolished in May 1992 and the powers were vested in Securities
and Exchange Board oI India. The Securities and Exchange Board oI India Act, 1992 empowers
SEBI under section 11(2) thereoI to register and regulate the working oI venture capital Iunds.
This was done in1996, through a government notiIication. The power to control venture Iunds
has been given to SEBI only in 1995 and the notiIication came out in 1996. Till this time,
venture Iunds were dominated by Indian Iirms. The new regulations became the harbinger oI the
second phase oI the VC growth.

Phase II
Entry oI Foreign Venture Capital Iunds (VCF) between 1995 -1999The second phases oI VC
growth attracted many Ioreign institutional investors. During this period overseas and private
domestic venture capitalists began investing in VCF. The new regulations in 1996 helped in this.
Though the changes proposed in 1996 had a salutary eIIect, the development oI venture capital
continued to be inhibited because oI the regulatory regime and restricted the FDI environment.
To Iacilitate the growth oI venture Iunds, SEBI appointed a committee to recommend the
changes needed in the VC Iunding context. This coincided with the IT boom as well as the
success oI Silicon Valley start-ups. In other words, VC growth and IT growth co-evolved in
India.

Phase III
From 2000 onwards,VC becomes risk averse and activity declines. Not surprisingly, the
investing in India came 'crashing down when NASDAQ lost 60oI its value during the second
quarter oI 2000 and other public markets (including those in India) also declined substantially.
Consequently, during 2001-2003, the VCs started investing less money and in more mature
companies in an eIIort to minimize the risks. This decline broadly continued until 2003.

Phase IV
From 2004 onwards, Global VCs Iirms actively investing in India Since India`s economy has
been growing at 7-8 a year, and since some sectors, including the services sector and the
high-end manuIacturing sector, have been growing at 12-14 a year, investors renewed their
interest and started investing again in 2004.The number oI deals and the total dollars invested in
India has been increasing substantially.


Structure of VC
Most venture capital Iunds have a Iixed liIe oI 10 years, with the possibility oI a Iew years oI
extensions to allow Ior private companies still seeking liquidity. The investing cycle Ior most
Iunds is generally three to Iive years, aIter which the Iocus is managing and making Iollow-on
investments in an existing portIolio. This model was pioneered by successIul Iunds in Silicon
Valley through the 1980s to invest in technological trends broadly but only during their period oI
ascendance, and to cut exposure to management and marketing risks oI any individual Iirm or its
product.
In such a Iund, the investors have a Iixed commitment to the Iund that is initially unIunded and
subsequently "called down" by the venture capital Iund over time as the Iund makes its
investments. There are substantial penalties Ior a Limited Partner (or investor) that Iails to
participate in a capital call.

Venture capitalists
A venture capitalist (VC) is a person or investment Iirm that makes venture investments, and
these venture capitalists are expected to bring managerial and technical expertise as well as
capital to their investments.
A core skill within VC is the ability to identiIy new technologies that have the potential to
generate high commercial returns at an early stage. VCs also take a role in managing
entrepreneurial companies at an early stage, thus adding skills as well as capital and thereby
potentially realizing much higher rates oI returns. Inherent in realizing abnormally high rates oI
returns is the risk oI losing all oI one's investment in a given startup company. As a consequence,
most venture capital investments are done in a pool Iormat, where several investors combine
their investments into one large Iund that invests in many diIIerent startup companies. By
investing in the pool Iormat, the investors are spreading out their risk to many diIIerent
investments versus taking the chance oI putting all oI their money in one start up Iirm.
It can take anywhere Irom a month or so to several years Ior venture capitalists to raise money
Irom limited partners Ior their Iund. At the time when all oI the money has been raised, the Iund
is said to be closed and the 10 year liIetime begins. Some Iunds have partial closes when one halI
oI the Iund has been raised. "Vintage year" generally reIers to the year in which the Iund was
closed and may serve as a means to stratiIy VC Iunds Ior comparison.

Compensation to Venture Capitalist:
Venture capitalists are compensated through a combination oI management Iees and carried
interest:
O Management fees An annual payment made by the investors in the Iund to the Iund's
manager to pay Ior the private equity Iirm's investment operations
.
In a typical venture
capital Iund, the general partners receive an annual management Iee equal to up to 2 oI
the committed capital.
O Carried interest A share oI the proIits oI the Iund (typically 20), paid to the private
equity Iund`s management company as a perIormance incentive. The remaining 80 oI
the proIits are paid to the Iund's investors
.
Strong Limited Partner interest in top-tier
venture Iirms has led to a general trend toward terms more Iavorable to the venture
partnership, and certain groups are able to command carried interest oI 25-30 on their
Iunds.

Main alternatives to venture capital
1.Because oI the strict requirements venture capitalists have Ior potential investments, many
entrepreneurs seek seed Iunding Irom angel investors, who may be more willing to invest in
highly speculative opportunities, or may have a prior relationship with the entrepreneur.
2. Many start-ups seek to selI-Iinance sweat equity until they reach a point where they can
credibly approach outside capital providers such as venture capitalists or angel investors. This
practice is called "bootstrapping"
3. Crowd Iunding is emerging as an alternative to traditional venture capital. Crowd Iunding is
an approach to raising the capital required Ior a new project or enterprise by appealing to large
numbers oI ordinary people Ior small donations. it is receiving renewed attention Irom
entrepreneurs such as independent Iilm makers, now that social media and online communities
make it possible to reach out to a group oI potentially interested supporters at very low cost.
4.In industries where assets can be securitized eIIectively because they reliably generate Iuture
revenue streams or have a good potential Ior resale in case oI Ioreclosure, businesses may more
cheaply be able to raise debt to Iinance their growth. Good examples would include asset-
intensive extractive industries such as mining, or manuIacturing industries. OIIshore Iunding is
provided via specialist venture capital trusts which seek to utilise securitization in structuring
hybrid multi market transactions via an SPV (special purpose vehicle): a corporate entity that is
designed solely Ior the purpose oI the Iinancing.

Features of Venture Capital
1. High Risk: By deIinition the Venture capital Iinancing is highly risky and chances oI Iailure
are high it provides long term start up capital to high risk-high reward ventures. Venture capital
assumes Iour types oI risks, these are:
Management risk - Inability oI management teams to work together.
Market risk - Product may Iail in the market.
Product risk - Product may not be commercially viable.
Operation risk - Operations may not be cost eIIective resulting in increased cost decreased gross
margins

2. High Tech: As opportunities in the low technology area tend to be Iew oI lower order, and hi-
tech projects generally oIIer higher returns than projects in more traditional areas, 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 Iinance. Venture capital is available Ior
expansion oI existing business or diversiIication to a high-risk area. Thus technology Iinancing
had never been the primary objective but incidental to venture capital

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

4. Participation in Management: Venture capital provides value addition by managerial
support, monitoring and Iollow up assistance. It monitors physical and Iinancial progress as well
as market development initiative. It helps by identiIying key resource person. They want one seat
on the company`s board oI directors and involvement in the major decision aIIecting the
direction oI company. This is a unique philosophy oI 'hands on management where Venture
capitalist acts as complementary to the entrepreneurs. Based upon the experience on other
companies, a venture capitalist advises the promoters on project planning, monitoring, Iinancial
management, including working capital and public issue. Venture capital investor cannot
interIere in day today management oI the enterprise but keeps a close contact with the promoters
or entrepreneurs to protect his investment.

5. 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 oI the later stage investment takes only a Iew years. The process oI having
signiIicant returns takes several years and calls on the capacity and talent oI venture capitalist
and entrepreneurs to reach Iruition.

6. Illiquid Investment: Venture capital investments are illiquid, that is, not subject to repayment
on demand or Iollowing a repayment schedule. Investors seek return ultimately by means oI
capital gains when the investment is sold at market place. The investment is realized only on the
listing oI security or it is lost iI enterprise is liquidated Ior unsuccessIul working. It may take
several years beIore the Iirst investment starts to locked Ior seven to ten years. Venture capitalist
understands this illiquidity and Iactors this in his investment decisions

Key Players in Venture Capital:
1. Angels and angel clubs: Angels are wealthy individuals who invest directly into companies.
They can Iorm angel clubs to coordinate and bundle their activities. Besides the money, angels
oIten provide their personal knowledge, experience and contacts to support their investees. With
average deals sizes Irom USD 100,000 to USD 500,000 they Iinance companies in their early
stages. Examples Ior angel clubs are Media Club, Dinner Club , Angel's Forum.

2. Small and Upstart Venture Capital Funds: These are smaller Venture Capital Companies
that mostly provide seed and start-up capital. The so called "Boutique Iirms" are oIten
specialized in certain industries or market segments. Their capitalization is about USD 20 to
USD 50million. As Ior the small and medium Venture Capital Iunds
Strong competition will clear the marketplace. There will be mergers and acquisitions leading to
a concentration oI capital. Funds specialized in diIIerent business areas will Iorm strategic
partnerships. Only the more successIul Iunds will be able to attract new money.

3. Medium Venture Funds: The medium venture Iunds Iinance all stages aIter seed stage and
operate in all business segments. They provide money Ior deals up to USD 250 million. Single
Iunds have up to USD 5 billion under management.

3. Large Venture Funds:As the medium Iunds, large Iunds operate in all business sectors and
provide all types oI capital Ior companies aIter seed stage. They oIten operate internationally and
Iinance deals up to USD 500 million The large Iunds will try to improve their position by
mergers and acquisitions with other Iunds to improve size, reputation and their Iinancial muscle.
In addition they will to diversiIy. Possible areas to enter are other Iinancial services by means oI
M&As with Iinancial services corporations and the consulting business. For the latter one the
Iunds have a rich resource oI expertise and contacts in house. In a declining market Ior their core
activity and with lots oI tumbling companies out there is no reason why Venture Capital Iunds
should oIIer advice and consulting only to their investees.

4. Corporate Venture Funds: These Venture Capital Iunds are set up and owned by technology
companies. Their aim is to widen the parent company's technology base in an win-win-situation
Ior both, the investor and the investee. In general, corporate Iunds invest in growing or maturing
companies, oIten when the investee wishes to make additional investments in technology or
product development. The average deals size is between USD 2 million and USD 5 million The
large Iunds will try to improve their position by mergers and acquisitions with other Iunds to
improve size, reputation and their Iinancial muscle. In addition they will to diversiIy.
5. Financial funds: A solution Ior Iinancial Iunds could be a shiIt to a higher securisation oI
Venture Capital activities. That means that the parent companies shiIt the risk to their customers
by creating new products such as stakes in a Venture Capital Iund. However, the success oI such
products will depend on the overall climate and expectations in the economy. As long as the
sown turn continues without any signoII recovery customers might preIer less risky alternatives.

Working of VC /Venture Capital Investment Process:
Venture capital investment involve Iollowing steps
1. Deal Origination: In generating a deal Ilow, the VC investor creates a pipeline oI deals or
investment opportunities that he would consider Ior investing in. Deal may originate in various
ways. ReIerral system, active search system, and intermediaries. ReIerral system is an important
source oI deals. Deals may be reIerred to VCFs by their parent organizations, trade partners,
industry associations, Iriends etc. Another deal Ilow is active search through networks, trade
Iairs, conIerences, seminars, Ioreign visits etc. Intermediaries is used by venture capitalists in
developed countries like USA, is certain intermediaries who match VCFs and the potential
entrepreneurs.
2. Screening: VCFs, beIore going Ior an in-depth analysis, carry out initial screening oI all
projects on the basis oI some broad criteria. For example, the screening process may limit
projects to areas in which the venture capitalist is Iamiliar in terms oI technology, or product, or
market scope. The size oI investment, geographical location and stage oI Iinancing could also be
used as the broad screening criteria.
3. Due Diligence: Due diligence is the industry jargon Ior all the activities that are associated
with evaluating an investment proposal. The venture capitalists evaluate the quality oI
entrepreneur beIore appraising the characteristics oI the product, market or technology. Most
venture capitalists ask Ior a business plan to make an assessment oI the possible risk and return
on the venture. Business plan contains detailed inIormation about the proposed venture.
The evaluation oI ventures by VCFs in India includes:
Preliminary evaluation: The applicant required to provide a brieI proIile oI the proposed venture
to establish prima Iacie eligibility.
Detailed evaluation: Once the preliminary evaluation is over, the proposal is evaluated in greater
detail. VCFs in India expect the entrepreneur to have:- Integrity, long-term vision, urge to grow,
managerial skills, commercial orientation.
VCFs in India also make the risk analysis oI the proposed projects which includes: Product risk,
Market risk, Technological risk and Entrepreneurial risk. The Iinal decision is taken in terms oI
the expected risk-return trade-oII as shown in Figure.

4. Deal Structuring: In this process, the venture capitalist and the venture company negotiate
the terms oI the deal, that is the amount and price oI the investment. The agreement also include
the venture capitalist's right to control the venture company and to change its management iI
needed, buyback arrangements, acquisition, making initial public oIIerings (IPOs), etc. Earned
out arrangements speciIy the entrepreneur`s equity share and the objectives to be achieved.

5. Post Investment Activities: Once the deal has been structured and agreement Iinalized, the
venture capitalist generally assumes the role oI a partner and collaborator. He also gets involved
in shaping oI the direction oI the venture. The degree oI the venture capitalist's involvement
depends on his policy. It may not, however, be desirable Ior a venture capitalist to get involved
in the day-to-day operation oI the venture. II a Iinancial or managerial crisis occurs, the venture
capitalist may intervene, and even install a new management team.

6. Exit: Venture capitalists generally want to cash-out their gains in Iive to ten years aIter the
initial investment. They play a positive role in directing the company towards particular exit
routes. A venture may exit in one oI the Iollowing ways:
a) Initial Public OIIer(IPO)
b) Acquisition By another Company
c) Purchase oI Venture Capitalist share by Promoters
d) Purchase oI Venture Capitalist Share by Outsiders









Screening







Evaluation




Approval






Some important Venture Capital Funds in India:

1.APIDC Venture Capital Limited, Hyderabad
2. Can bank Venture Capital Fund Limited, Bangalore
3. Gujarat Venture Capital Fund 1997, Ahmedabad
4. Industrial Venture Capital Limited, Chennai
Venture Capital
Investment Process
Market
Product
Expected
Return
Decision
5. Auto Ancillary Fund, New Delhi
6. Gujarat Venture Capital Fund 1995, Ahemdabad
7. Karnataka InIormation Technology Venture Capital Fund, Bangalore
8. InIormation Technology Fund, Mumbai
9. Tamilnadu InIoTech Fund, Mumbai
10. National Venture Fund Ior SoItware and InIormation Technology Industry, Mumbai


















Regulatory and legal framework
Venture Capital Undertaking: Venture Capital Undertaking means domestic company, whose
shares are not listed on a recognized stock exchange in India. Which is engaged in business
including providing services, production or manuIacture oI articles or things, or does not include
such activities or sectors which are speciIied in the negative list( includes real estate, non-
banking Iinancial services, gold Iinancing, activities not permitted under the Industrial Policy oI
the Government oI India) by the Board with the approval oI the Central Government by
notiIication in the OIIicial Gazette in this behalI.

1. Investment conditions and restrictions:
Minimum contribution and fund size: The minimum investment in a Venture Capital Fund
Irom any investor will not be less than Rs. 5 lacs and the minimum corpus oI the Iund beIore the
Iund can start activities shall be at least Rs. 5 crores.
Investment Criteria: The earlier investment criteria have been substituted by a new investment
criteria which has the Iollowing requirements:
a) Disclosure oI investment strategy.
b) Maximum investment in single venture capital undertaking not to exceed 25 oI the corpus oI
the Iund.
c) Investment in the associated companies not permitted.
d) At least 66.67 oI the investible Iunds to be invested in unlisted equity shares or equity linked
instruments.
e) Not more than 33.33 oI the investible Iunds may be invested by way oI:
1) Subscription to initial public oIIer oI a venture capital undertaking whose shares are proposed
to be listed subject to lock-in period oI one year;
2) Debt or debt instrument oI a venture capital undertaking in which the venture capital Iund has
already made an investment by way oI equity.
3) PreIerential allotment oI equity shares oI a listed company subject to lock in period oI one
year.
4) The equity shares or equity linked instruments oI a Iinancially weak company or a sick
industrial company whose shares are listed.

It has also been provided that Venture Capital Fund seeking to avail beneIit under the relevant
provisions oI the Income Tax Act will be required to divest Irom the investment within a period
oI one year Irom the listing oI the Venture Capital Undertaking.
Prohibition on listing:
No venture capital Iund shall be entitled to get its units listed on any recognized stock exchange
till the expiry oI three years Irom the date oI the issuance oI units by the venture capital Iund.


Disclosure and Information to Investors: In order to simpliIy and expedite the process oI Iund
raising, the requirement oI Iiling the Placement memorandum with SEBI is dispensed with and
instead the Iund will be required to submit a copy oI Placement Memorandum/ copy oI
contribution agreement entered with the investors along with the details oI the Iund raised Ior
inIormation to SEBI. Further, the contents oI the Placement Memorandum are strengthened to
provide adequate disclosure and inIormation to investors. SEBI will also prescribe suitable
reporting requirement Irom the Iund on their investment activity.

QIB status for Venture Capital Funds: The venture capital Iunds will be eligible to participate
in the IPO through book building route as QualiIied Institutional Buyer subject to compliance
with the SEBI (Venture Capital Fund) Regulations.

Relaxation in Takeover Code: The acquisition oI shares by the company or any oI
the promoters Irom the Venture Capital Fund under the terms oI agreement shall be treated on
the same Iooting as that oI acquisition oI shares by promoters/companies Irom the state level
Iinancial institutions and shall be exempt Irom making an open oIIer to other shareholders.

Investments by Mutual Funds in Venture Capital Funds: In order to increase the resources
Ior domestic venture capital Iunds, mutual Iunds are permitted to invest upto5 oI its corpus in
the case oI open ended schemes and upto 10 oI its corpus in the case oI close ended schemes.
Apart Irom raising the resources Ior Venture Capital Funds this would provide an opportunity to
small investors to participate in Venture Capital activities through mutual Iunds.

Government of India Guidelines: The Government oI India (GOI) Guidelines Ior Overseas
Venture Capital Investment in India dated September 20, 1995 will be repealed by the GOI on
notiIication oI SEBI Venture Capital Fund Regulations.


Registration of Venture Capital Fund
1. Application for Grant of Certificate:
1.Any company or trust or a body corporate proposing to carry on any activity as a venture
capital Iund on or aIter the commencement oI these regulations shall make an application to the
Board Ior grant oI a certiIicate.

2.Any company or trust or a body corporate, who on the date oI commencement oI these
regulations is carrying any activity as a venture capital Iund without a certiIicate shall make an
application to the Board Ior grant oI a certiIicate within a period oI three months Irom the date oI
such commencement.

3. An application Ior grant oI certiIicate under sub-regulation (1) or sub regulation
(2) shall be made to the Board in Form A and shall be accompanied by a nonreIundable
application Iee as speciIied in Part A oI the Second Schedule to be paid in the manner speciIied
in Part B thereoI.

4.Any company or trust or a body corporate reIerred to in sub-regulation (2) who Iails to make
an application Ior grant oI a certiIicate within the period speciIied therein shall cease to carry on
any activity as a venture capital Iund.

5.The Board may in the interest oI the investors issue directions with regard to the transIer oI
records, documents or securities or disposal oI investments relating to its activities as a venture
capital Iund.

6. The Board may in order to protect the interests oI investors appoint any person to take charge
oI records, documents, securities and Ior this purpose also determine the terms and conditions oI
such an appointment.

2. Eligibility Criteria:
For the purpose oI the grant oI a certiIicate by the Board the applicant shall have to IulIill in
particular the Iollowing conditions:

(a) iI the application is made by a company :

(i) Memorandum oI association as has its main objective, the carrying on oI the activity oI a
venture capital Iund.
(ii) It is prohibited by its memorandum and articles oI association Irom making an invitation to
the public to subscribe to its securities.

(iii) Its director or principal oIIicer or employee is not involved in any litigation connected with
the securities market which may have an adverse bearing on the business oI the applicant.

(iv) Its director, principal oIIicer or employee has not at any time been convicted oI any oIIence
involving moral turpitude or any economic oIIence.


(b) iI the application is made by a trust

(i) The instrument oI trust is in the Iorm oI a deed and has been duly registered under the
provisions oI the Indian Registration Act, 1908 (16 oI 1908).

(ii) The main object oI the trust is to carry on the activity oI a venture capital Iund.

(iii) The directors oI its trustee company, iI any or any trustee is not involved in any litigation
connected with the securities market which may have an adverse bearing on the business oI the
applicant.

(iv) The directors oI its trustee company, iI any, or a trustee has not at any time, been convicted
oI any oIIence involving moral turpitude or oI any economic oIIence.


(c) iI the application is made by a body corporate

(i)it is set up or established under the laws oI the Central or State Legislature.

(ii) The applicant is permitted to carry on the activities oI a venture capital Iund.

(iii) The applicant is a Iit and proper person.

(iv) The directors or the trustees, as the case may be, oI such body corporate have not been
convicted oI any oIIence involving moral, turpitude or oI any economic oIIence.

(v) The directors or the trustees, as the case may be, oI such body corporate, iI any, are not
involved in any litigation connected with the securities market which may have an adverse
bearing on the business oI the applicant.


3.Criteria for fit and proper person:
For the purposes oI determining whether an application or the venture capital Iund is a Iit and
proper person the Board may take into account the criteria speciIied in Schedule II oI the
Securities and Exchange Board oI India
(Intermediaries) Regulations, 2008.

4.Furnishing of information, clarification:
The Board may require the applicant to Iurnish such Iurther inIormation as it may consider
necessary.


5. Consideration of application:
An application which is not complete in all respects shall be rejected by the Board:
Provided that, beIore rejecting any such application, the applicant shall be given an opportunity
to remove, within thirty days oI the date oI receipt oI communication, the objections indicated by
the Board:
Provided Iurther that the Board may, on being satisIied that it is necessary to extend the period
speciIied in the Iirst proviso, extend such period by such Iurther time not exceeding ninety days.


6. Procedure for grant of certificate:

(1) II the Board is satisIied that the applicant is eligible Ior the grant oI certiIicate, it shall send
intimation to the applicant.
(2) On receipt oI intimation, the applicant shall pay to the Board, the registration Iee speciIied in
Part A oI the Second Schedule in the manner speciIied in Part B thereoI.
(3) The Board shall on receipt oI the registration Iee grant a certiIicate oI registration in Form B.


7.Conditions of certificate: The certiIicate granted under regulation 7 shall be subject to the
Iollowing conditions, namely:

(a) The venture capital Iund shall abide by the provisions oI the Act an these regulations.
(b) The venture capital Iund shall not carry on any other activity other than that oI a venture
capital Iund.
(c) The venture capital Iund shall Iorthwith inIorm the Board in writing iI any inIormation or
particulars previously submitted to the Board are Iound to be Ialse or misleading in any material
particular or iI there is any change in the inIormation already submitted.



.Procedure where certificate is not granted:
(1) AIter considering an application made under regulation 3, iI the Board is oI the opinion that
a certiIicate should not be granted, it may reject the application aIter giving the applicant a
reasonable opportunity oI being heard.
(2) The decision oI the Board to reject the application shall be communicated to the applicant
within thirty days.



10. Effect of refusal to grant certificate:
(1) Any applicant whose application has been rejected under regulation 9 shall not carry on any
activity as a venture capital Iund.
(2) Any company or trust or a body corporate reIerred to in sub-regulation (2) oI regulation 3,
whose application Ior grant oI certiIicate has been rejected under regulation 9 by the Board shall,
on and Irom the date oI the receipt oI the communication under sub-regulation (2) oI regulation
9, cease to carry on any activity as a venture capital Iund.
(3) The Board may in the interest oI the investors issue directions with regard to the transIer oI
records, documents or securities or disposal oI investments relating to its activities as a venture
capital Iund.
(4) The Board may in order to protect the interests oI the investors appoint any person to take
charge oI records, documents, securities and Ior this purpose also determine the terms and
conditions oI such an appointment.



General Obligation and Responsibilities:

1. Prohibition on inviting subscription from the public:
No venture capital Iund shall issue any document or advertisement inviting oIIers Irom the
public Ior the subscription or purchase oI any oI its units.

2. Private placement:
A venture capital Iund may receive monies Ior investment in the venture capital Iund only
through private placement oI its units.
3. Placement memorandum or subscription agreement:
(1) The venture capital Iund shall
(a) Issue a placement memorandum which shall contain details oI the terms and conditions
subject to which monies are proposed to be raised Irom investors; or
(b) Enter into contribution or subscription agreement with the investors which shall speciIy the
terms and conditions subject to which monies are proposed to be raised.
(2) The Venture Capital Fund shall Iile with the Board Ior inIormation, the copy oI the
placement memorandum or the copy oI the contribution or subscription agreement entered with
the investors along with a report oI money actually collected Irom the investor.


4. Maintenance of books and records:

(1) Every venture capital Iund shall maintain Ior a period oI eight years books oI account,
records and documents which shall give a true and Iair picture oI the state oI aIIairs oI the
venture capital Iund.
(2) Every venture capital Iund shall intimate the Board, in writing, the place where the books,
records and documents reIerred to in sub-regulation (1) are being maintained.


5. Power to call for information:

(1) The Board may at any time call Ior any inIormation Irom a venture capital Iund with respect
to any matter relating to its activity as a venture capital Iund.
(2) Where any inIormation is called Ior under sub-regulation (1) it shall be Iurnished within the
time speciIied by the Board.


6. Submission of reports to the Board:

The Board may at any time call upon the venture capital Iund to Iile such reports as the Board
may desire with regard to the activities carried on by the venture capital Iund.


7.Winding-up:

(1) A scheme oI a venture capital Iund set up as a trust shall be wound up.
(a) When the period oI the scheme, iI any, mentioned in the placement memorandum is over.
(b) II it is the opinion oI the trustees or the trustee company, as the case may be, that the scheme
shall be wound up in the interests oI investors in the units.
(c) II seventy-Iive per cent oI the investors in the scheme pass a resolution at a meeting oI unit
holders that the scheme be wound up; or
(d) II the Board so directs in the interests oI investors.

2) A venture capital Iund set up as a company shall be wound up in accordance with the
provisions oI the Companies Act, 1956 (1 oI 1956).
|(2A) A venture capital Iund set up as a body corporate shall be wound up in accordance with the
provisions oI the statute under which it is constituted.|

3) The trustees or trustee company oI the venture capital Iund set up as a trust or the Board oI
Directors in the case oI the venture capital Iund is set up as a company (including body
corporate) shall intimate the Board and investors oI the circumstances leading to the winding up
oI the Fund or Scheme under sub regulation.


Effect of winding-up:
(1) On and Irom the date oI intimation under sub-regulation (3) oI regulation 23, no Iurther
investments shall be made on behalI oI the scheme so wound up. (2) Within three months Irom
the date oI intimation under sub-regulation (3) oI regulation 23, the assets oI the scheme shall be
liquidated, and the proceeds accruing to investors in the scheme distributed to them aIter
satisIying all liabilities.


Notwithstanding anything contained in sub-regulation (2) and subject to the conditions, iI any,
contained in the placement memorandum or contribution agreement or subscription agreement,
as the case may be, in specie distribution oI assets oI the scheme, shall be made by the venture
capital Iund at any time, including on winding up oI the scheme, as per the preIerence oI
investors, aIter obtaining approval oI at least 75 oI the investors oI the scheme.


Inspection and Investigations:
Board`s right to inspect or investigate.
(1) The Board may appoint one or more persons as inspecting or investigating oIIicer to
undertake inspection or investigation oI the books oI account, records and documents relating to
a venture capital Iund Ior any oI the Iollowing reasons, namely:

(a) To ensure that the books oI account, records and documents are being maintained by the
venture capital Iund in the manner speciIied in these regulations.
(b) To inspect or investigate into complaints received Irom investors, clients or any other person,
on any matter having a bearing on the activities oI the venture capital Iund.
(c) To ascertain whether the provisions oI the Act and these regulations are being complied with
by the venture capital Iund.
(d) To inspect or investigate into the aIIairs oI a venture capital Iund, in the interest oI the
securities market or in the interest oI investors.


Notice before inspection or investigation:
(1) BeIore ordering an inspection or investigation under regulation 25, the Board shall give not
less than ten days notice to the venture capital Iund.
(2) Notwithstanding anything contained in sub-regulation (1) where the Board is satisIied that in
the interest oI the investors no such notice should be given, it may by an order in writing direct
that the inspection or investigation oI the aIIairs oI the venture capital Iund be taken up without
such notice.
(3) During the course oI an inspection or investigation, the venture capital Iund against whom the
inspection or investigation is being carried out shall be bound to discharge its obligations as
provided in regulation 27.


Communication of findings etc., to the venture capital fund:
The Board may aIter consideration oI the investigation or inspection report and aIter giving
reasonable opportunity oI hearing to the venture capital Iund or its trustees, directors issue such
direction as it deems Iit in the interest oI securities market or the investors including directions in
the nature oI:

(a) Requiring a venture capital Iund not to launch new schemes or raise money Irom investors Ior
a particular period.
(b) Prohibiting the person concerned Irom disposing oI any oI the properties oI the Iund or
scheme acquired in violation oI these regulations.
(c) Requiring the person connected to dispose oI the assets oI the Iund or scheme in a manner as
may be speciIied in the directions.
(d) Requiring the person concerned to reIund any money or the assets to the concerned investors
along with the requisite interest or otherwise, collected under the scheme.
(e) Prohibiting the person concerned Irom operating in the capital market or Irom accessing the
capital market Ior a speciIied period.



Procedure for action in case of Default:
Liability for action in case of default: Without prejudice to the issue oI directions or measure
under regulation 29, a venture capital Iund which

(a) Contravenes any oI the provisions oI the Act or these regulations.
(b) Fails to Iurnish any inIormation relating to its activity as a venture capital Iund as required by
the Board.
(c) Furnishes to the Board inIormation which is Ialse or misleading in any material particular.
(d) Does not submit periodic returns or reports as required by the Board.
(e) Does not co-operate in any enquiry, inspection or investigation conducted
by the Board.
(I) Fails to resolve the complaints oI investors or Iails to give a satisIactory reply to the Board in
this behalI.



Conclusion:
1. High expectations to achieve liquidity .
2. Requirement to invest large amounts oI money.
3. Money is more expensive than other sources .
4. Strong domain knowledge (insight, contacts) .
5. Company building experience
6.Company building experience (strategic vision, recruiting, tactical execution) .
7. Deep pockets (scale) and a network oI Iinancing sources .
8. Validates business; gives it instant credibility.


Suggestions
1. Proper training should be required to the people who want to work in a Iield oI Venture
Capital. For that the Training institutions should be set up.
2. In India the awareness oI investing in Venture Capital Fund is less as compare to Investing in
Share Market, So awareness should be created among the Investors.
3. Venture Capital Investing in Some emerging area like green energy, waste management and
Agriculture ect. Should be initiate and make proper awareness among the investors.
4. There should be make mandatorily to the Venture Capital Funds that the Iull 100 capital oI
Iund should be invest in newly start venture.

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