VENTURE CAPITAL

IS IT JUST THE STORY OF THE MAN WITH

THE IDEA AND THE MAN WITH THEMONEY?
Definition

 The European Venture Capital Association describes

it as risk finance for entrepreneurial growth oriented
companies. It is investment for the medium or long
term return seeking to maximize medium or long
term for both parties. It is a partnership with the
entrepreneur in which the investor can add value to
the company because of his knowledge, experience
and contact base
Venture Capital in India

 Phase I - Formation of TDICI in the 80’s and regional

funds as GVFL & APIDC in the early 90s.
 Phase II - Entry of Foreign Venture Capital funds
(VCF) between 1995-1999
 Phase III - (2000 onwards). Emergence of successful
India-centric VC firms
 Phase IV – (current) Global VCs and PE firms actively
investing in India
 150 Funds active in the last 3 years (Government,
Overseas, Corporate, Domestic)
Growth of Venture Capital
Characteristics

 Spirit of partnership
Risk - Reward sharing
 High Risk: Mgt , Product, Market, Operation Risks
 Active participation and value addition
 Long term perspective
 High Tech
 Illiquid investment
Regulatory and Legal Framework

• Registration of Venture Capital Funds

• Minimum contribution and fund size
• Disclosure and Information to Investors
• QIB status for VC funds
• Investments by Mutual funds in VC funds
• Separate guidelines for Foreign VC investors
• Prohibited from inviting subscription from the public
Venture Capital Providers

 Specialised financial institutions and their

financing schemes
 Funds promoted by state level institutions.

 Funds promoted by public sector banks.

 Private agencies.

 Overseas venture capital funds.

Conventional v/s VC Funding

CONVENTIONAL VENTURE CAPITAL

Passive role Active role

Fixed obligation Performance linked return

Term loans Equity / Quasi equity

Risk averse High risk appetite

Short and medium term Long term

perspective
Conventional business High growth business

Security backed Unsecured /need based

Threat from Substitutes
Advantages

 It injects long term equity finance which provides a

solid capital base for future growth.
 Is a business partner, sharing both the risks and
rewards.
 Provide practical advice and assistance to the
situations.
 Also has a network of contacts in many areas that can
add value to the company
 Capable of providing additional rounds of funding
should it be required to finance growth.
Investment Process

 The Venture Capital Investment Process:

1. Deal origination
2. Screening
3. Due diligence Evaluation)
4. Deal structuring
5. Post-investment activity
6. Exist
Contd…
Methods of Venture Financing

 Equity
 Conditional Loan

 Income Note

 Other Methods
Investment by Industry
THANK YOU…