The Himachal Pradesh Venture Capital Fund will support start-ups/ innovative ideas at

different stages of their lifecycle of operations, namely:-

1. Early stage financing: - This will be the first stage financing when the
enterprise undertakes pre-operative operations, production and need additional funds for
preparing and selling its products. It involves seed/ initial finance for supporting a concept or
idea of an entrepreneur. The capital is provided for product development, R&D and initial
marketing.
a. The assistance may be provided under Early Stage Financing up to 50
% of the total proposed cost of the project.

2. Expansion or Diversification financing: - This is the second stage financing

for working capital and expansion of a business. It involves development financing so as to
facilitate the public issue. The following parameters will be considered with equal weightages
for application evaluation:-
a. Stronger Job Creation Record.
b. Superior Financial Performance.
c. Greater Export Earnings.
d. Developing More Acquisitive and Global Mind-set.

3. The HPVCFT will recommend reform in the following areas to the venture
capital undertakings through the venture capital managers:-
a. Investor Management to enhance investor confidence;
b. Taxation of AIFs for ease of doing business and ensuring certainty;
c. Measures to attract offshore and domestic venture capital funds to the
State;
d. Introducing permanent capital vehicles to increase the flow of long term
capital for a wide range of mid-market companies; and
e. Categories I & III Alternative Investment Funds.

4. Acquisition/ buyout financing:- This later stage will involve:-

a. Acquisition financing in order to acquire another firm for further
growth;
b. Management buyout financing so as to enable the operating groups/
investors for acquiring an existing product line or business; and
c. Turnaround financing in order to revitalise and revive the sick
enterprises.

Venture Capital Fund Manager:

The Venture Fund Manager will be assist the Governing Board in its decision making
process regarding management of funds by the following: -
a. Devising of an online application form
b. Track record of returns in previous Funds
c. Computation of returns
d. Investment strategy and investment objectives
e. Key Fund terms
f. Valuation, investee due diligence and documentation process
 g. Process for the transfer of units to guide investors on how they can exit the
fund during the life of the fund. This will contribute to the development of a
secondary market for fund units.
h. How liquidity issues will be dealt with at the end of the funds life if it has
not been able to exit from all its investments.

The quarterly reports by fund manager shall include: -

(a) Summary Management discussion and analysis letter.

(b) Financial Package.
(c) Balance sheet.
(d) Period-end schedule of investments.
(e) Statement of Operations.
(f) Statement of Cash flows.
(g) Partners capital account statement.

The fund management entity will also act as advisors from the outset to address the following
vital matters: -

(a) Conflicts of interest.

(b) Issues arising during the life of a fund.
(c) Issues arising at the end of the life of a fund.
(d) Whether the overall functioning of the fund is consistent with the fiduciary
responsibilities of the fund manager.

Angel Funds:

The success of angel funds requires flexibility in their operations and their ability to raise
funds, to diversify their portfolios by investing in start-ups at various stages, by diversifying
geographically and not being artificially restricted in designing their exit strategies. Fifteen
percent of the corpus of investable amount will be used as angel funds with following
features: -

(i) Period of angel investments will be up to 1 year from the date of disbursement;
(ii) Period for investing a minimum of Rs 25 lakhs per investor to the life of the fund or at
least 5 years;
(iii) Minimum investment in a portfolio company to Rs 2.5 lakhs; and
(v) At least 10% of the angel funds portfolio investments to be companies that may have
been incorporated more than 3 years prior to the investment;

Reporting by the Venture Fund Manager to Governing Board shall include

1. Summary Management Discussion and Analysis letter

a. (Provided quarterly with each package, unaudited)

i. Management discussion of key drivers of activity and performance during the
quarter that bridges the activity between the two period ends.
(a) Summary of capital activity (cash flows)
(b) Transactions closed or pending
 b. Explanation of extraordinary movements.
c. Discussion of material events in portfolio companies (that would impact the fund as a
whole) and/or with the General Partner (Including portfolio company defaults, LPA
breaches etc.).
d. Discussion of any material changes in risk factors at the fund level, including: -
i. Concentration risk at fund level.
ii. Foreign exchange risk at fund level.
iii. Leverage risk at fund level.
iv. Realization risk at fund level.
v. Extra-financial risks, including environmental, social and corporate governance
risks at the fund level.
vi. This information should be provided annually, though more immediate reporting
may be required for material events.

2. Financial Package
a. Balance Sheet (Provided quarterly, audited annually)
i. The balance sheet should include the following components: -
(a) Current period end vs. prior audited period end columns.
(b) Comparative column should be for most recent audit period.
(c) Requires comparative or prior year end schedule of investments.
(d) Inclusion of receivables and payables to affiliates.
(e) Inclusion of investments at cost and fair value.
(f) Inclusion of fund level debt.

3. Schedule of Investments (Provided quarterly with each package, unaudited)

a. Full detail on unrealized investments.
b. Detail should be at legal entity level, not LP share.
c. Name of the Investment: -
i. Name can be omitted if absolutely required, but a unique identifier must be used and
be consistent from quarter to quarter; investments should not be grouped.
d. Debt and Equity positions should be reported separately: -
i. Include number of shares if applicable.
ii. Should the investment be structured in a more complicated manner, detail may be
moved to the individual Portfolio Company Update.
e. Fund Ownership % (fully diluted).
f. Initial Investment Date.
g. Numeric Data on each investment to include: -
i. Total committed to investment.
ii. Total invested (A).
iii. Current cost (B) (including equity and debt breakdown).
iv. Reported Value (C).
v. Realized proceeds (D).

4. Statement of Operations (Provided quarterly, audited annually)

a. Show current period, year-to-date and since inception information: -
i. Since inception information is not required by certain accounting standards;
information need not be included in audited package if details are outlined in either
the Footnotes or detailed Partners Capital Account Statement.
b. Breakout investment income.
c. Separate portfolio interest and dividends independent of other interest.
 d. Breakout of expenses.
e. Separate fees into their individual components, including management fees, broken deal
fees, advisory/director fees, monitoring fees, etc.
f. Net operating gain/loss.
g. Breakout of gains/ (losses) on investments.
h. Breakout of realized/unrealized gain/loss (independent of F/X, showing F/X
independently).

5. Partners Capital Account Statement (Provided quarterly, audited annually)

a. Consolidated reporting, if applicable, for all Limited Partner investments, including
alternative investment vehicles.
b. Current period, year-to-date and since inception information.
c. Breakout of the Total Fund by LP, GP and Total.
d. Bridge the prior net asset value to the current net asset value (Disclose any adjustments
made prior to Beginning Balance).
e. Components to include: -
i. General Partners balances.
ii. Accrued carried interest should partnership liquidate.
iii. Breakout of contributions and distributions for the relevant period.
iv. Net changes in partners capital resulting from operations.
f. Commitments of Limited Partner, General Partner and Total Fund.
g. Schedule of changes in individual unfunded commitment.

6. Financial Highlights (Net IRR at the fund level)

7. Carry Detail: -
a. Fund level carry paid and/or accrued; amount escrowed if applicable.
b. Detailed description of carry calculation (waterfall) :-
i. Include table if more appropriate.
c. Related Party and Other Transactions: -
i. Detail of related party transactions and/or receivables/payables.
ii. Notation of fund level debt and other potential obligations or guarantees.
d. Compensation Arrangement: -
i. Describe the compensation structure (salary, bonus, group/individual performance
incentives, profit sharing, equity ownership, carried interest, etc.) for all the team
members.
ii. Details on the allocation of the carried interest among Principals and others
inside/outside the organization.
iii. Provide details on any separate compensation arrangements outside the Fund.
8. Subsequent Events: -
a. Included if material namely: -
i. Changes in Fund Parameters such as Commitment Period / Tenure of the Fund /
amending other clauses of PPM or Contribution Agreement.
ii. Changes in General Partners.
iii. Significant Staff Departures.
9. Risk: -
a. Details of review or assessment of conflicts of interest performed. Identify any findings,
as well as any changes or proposed actions to address the findings.

10. Executive summary Firm- Level and Fund- Level data (Fund Level data provided
quarterly, firm level data updated annually)
 a. The executive summary, preceding supplementary pages covering the details of all
active investments in the portfolio, would include the following: -
i. Firm Data: -
1. Assets under management.
2. Assets defined as total value of current investments plus unfunded
commitments.
3. Active funds.
4. Active portfolio Companies.
ii. Fund Level Data:-
1. Total commitments.
2. Total drawdowns since inception.
3. Gross drawdowns.
4. Total number of investments since inception.
5. Total distributions.
6. Gross distributions as percent of gross drawdowns.
7. Percentage of committed capital.
iii. Key Valuation Metrics: -
1. TVPI: Total Value to Paid In
2. RVPI: Residual Value to Paid In
3. DPI: Distributions to Paid In
4. Historical Fund Performance
5. Portfolio breakdown by industry and region
iv. Current metrics (table or chart of trailing-twelve months information) including
revenue, EBITDA, debt, CAGR.

9Creation of Performance Statistics: Measure of Fund Returns

Internal Rate of Return (IRR): The IRR may be thought of as an intrinsic return of a fund. In
other words, every rupee invested in the fund has to generate this particular rate of return to
generate the cash flows that are distributed form the fund.

Total Value to Paid in capital (TVPI) (Total distributions + NAV)/Total contributions: This is
a metric for the value generated by the fund till date. It is a direct measure of value, realized
and unrealized, per rupee invested till date.

Distributions to Paid in capital (DPI) (Total distribution/Total contributions): This is a multiple

of the amount distributed per rupee invested till date.

Residual value to Paid in capital (RVPI) (NAV/Total contributions): This is the residual value
of the fund (value after distributions) as a multiple of the total paid in capital.

Pooled Values of IRR, TVPI, RVPI, DPI, Horizon returns

The pooled values of the above return measures are useful benchmarks against which
the return of individual funds can be compared. These are calculated by simply aggregating the
cash flows of all the funds that are considered in the benchmark. The metrics are calculated
from the final cash flows on similar lines as the individual fund return measures are calculated.
Notes:

1. The fund will be placed at disposal.

2. Fund manager will sanction on boards comments.
3. Monitor the performance and ROI.
4. Financial and engagement terms.