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Introduction
Venture Capital has emerged as a new financial method of financing during 20th century. Venture capital is the capital provided by the professionals who invest in young rapidly growing or changing companies that have potential for high growth.
Meaning
Venture capital means funds made available for startup firms and small businesses with exceptional growth potential. Venture capital is money provided by professionals who alongside management invest in young, rapidly growing companies that have the potential to develop into significant economic contributors.
Participation in Management
Achieve Social Objective Investment is Illiquid
Venture Capitalist
Venture Capitalists generally:
Finance new and rapidly growing companies Assist in the development of new products or services Add value to the company through active participation.
History
The concept of the venture capital was originated in USA in 1950s Rockfeller Group financed the new technology companies. The concept become popular during 1960s and 1970s. The American Research and Development was formed as the first Venture Capital firm which financed over 100 companies and made profit over 35% of its capital
Modes of Finance
Equity
Conditional Loan
Convertible loans
Early Stages
Start ups
It is the second stage in the venture capital cycle. An entrepreneur often needs finance when the business is just starting. The start up stage involves starting a new business. Venture capitalist however, assesses the managerial ability and the capacity of the entrepreneur, besides the skills, suitability and competence of the managerial team are also evaluated.
Early stage
Second round financing
It is the capital provided for marketing and meeting the growing working capital needs of an enterprise that has commenced the production but does not have positive cash flows sufficient to take care of its growing needs.
Start Up
5-9
Very High
First Stage
3-7
High
Financial Stage
Risk Perception
Activity to be financed
1-3
Medium
Turnarounds
2-5
high
Bridge finance
6 months to 1 year
low
Exit route
Initial public offer(IPOs) Trade sale Promoter buy back Acquisition by another company
Huge
The concept of venture capital was formally introduced in India in 1987 by IDBI. The government started to create the venture fund. ICICI started VC activity in the same year Later on ICICI floated a separate VC company - TDICI
2) Those promoted by State Government controlled development finance institutions. For example: - Punjab InfoTech Venture Fund - Gujarat Venture Finance Ltd (GVFL) - Kerala Venture Capital Fund Pvt Ltd. 3) Those promoted by public banks. For example: - Can bank Venture Capital Fund - SBI Capital Market Ltd
4)Those promoted by private sector companies. For example: - IL&FS Trust Company Ltd - Infinity Venture India Fund 5)Those established as an overseas venture capital fund. For example: - Walden International Investment Group - HSBC Private Equity management Mauritius Ltd
Rules by SEBI:
VCF are regulated by the SEBI (Venture Capital Fund) Regulations, 1996. The following are the various provisions: A venture capital fund may be set up by a company or a trust, after a certificate of registration is granted by SEBI on an application made to it. On receipt of the certificate of registration, it shall be binding on the venture capital fund to abide by the provisions of the SEBI Act, 1992.
A VCF may raise money from any investor, Indian, Non-resident Indian or foreign, provided the money accepted from any investor is not less than Rs 5 lakhs. The VCF shall not issue any document or advertisement inviting offers from the public for subscription of its security or units
SEBI regulations permit investment by venture capital funds in equity or equity related instruments of unlisted companies and also in financially weak and sick industries whose shares are listed or unlisted
At least 80% of the funds should be invested in venture capital companies and no other limits are prescribed. SEBI Regulations do not provide for any sectoral restrictions for investment except investment in companies engaged in financial services.
A VCF is not permitted to invest in the equity shares of any company or institutions providing financial services. A Scheme of VCF set up as a trust shall be wound up when the period of the scheme if any, is over or 75% of the investors in the scheme pass a resolution for winding up or If SEBI so directs in the interest of the investors
BANGALORE
All IT led companies, IT & ITES, Biotechnology Software services, ITES , Telecom
DELHI
CHENNAI
HYDERABAD PUNE
IT , Telecom
IT & ITES, Pharmaceuticals Bio-technology, IT , BPO
450
14000
400
387
350
12000
299
300
10000
280
250
8000
7500 6390
200
6000
146
170
150
4000
100
2000
50
0
2005
No of deals
2006
2007
10/03/2013
35
Difficulties in India
1. The restrictive legal and financial framework 2. The scope of Vcs in India is very limited 3. No Private bank is willing to devote resources to the venture capital projects. 4. There are long procedures to follow in govt. based Vc firms 5. No tax exemption on highly risky projects
Conclusion
The existing set up of venture capital in India needs to be strengthened the entry of private sector must be encouraged. Tax exemptions must be given on the highly risky projects. Foreign investors must be attracted in the venture capital investment. Overall we can say that venture capital is necessary for the underdeveloped countries for the balanced growth.