Académique Documents
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Biographical Notes
Dr. Sunil Mani is Researcher at the United Nations University/Institute for New
Technologies (UNU/INTECH) Keizer Karelplein 19
6211 TC Maastricht, The Netherlands, Tel: +31-43-3506331, Fax: +31-43-
3506399, E-mail: Mani@intech.unu.edu
Venture Capital and Innovation:
The Indian Experience
B. Bowonder and Sunil Mani
Abstract
This paper presents an overview of evolution of venture capital support for
innovation in India. There are three governmental supported schemes and a
large number of venture funds currently in operation. An analysis of venture
capital funding trends indicates that venture capital also has strong linkages with
innovation-based clusters. The paper also summarizes the support provided by
the venture funds to innovative firms. It has been observed that though they are
many determinants the two major elements that contributed to the success of
venture capital assisted firms are: providing market linkages and sharpening
the business plan. From the firm side, experiential base of the entrepreneurs
and clarity of the market are the factors that reduced the market uncertainty. The
analysis shows that linkages between innovation, clusters and venture support
are becoming tighter. This has got immense importance in public policy arena.
Support for creating clusters and developing high-tech entrepreneurs are likely to
be the interventions that are effective.
Keywords
1
BACKGROUND OF THE INDUSTRY
In the last decade, one of the most admired institutions among industrialists and
economic policy makers around the world has been the US venture capital
industry [Dossani and Kenney 2002]. The sensitivity of venture capital process
have long had ideas that require substantial capital to implement but lacked the
funds to finance these projects themselves [Gompers and Lerner 2002]. Venture
capital evolved as a response to this felt need. Venture capital represent one
solution to financing the high risk, potentially high-reward projects [Gompers and
Lerner 2002]. The experience of US, Taiwan and Israel show that technological
innovation and the growth of venture capital markets are closely interrelated
[Premus 1985]. It has been reported that capital markets overlook small
generally known as capital gap problem [Premus 1985, Smith and Smith 2002].
Though venture capital can meet this gap to some extent, venture capital is a
special form of venture financing. In the case of venture capital, the capital
entrepreneurship occurs in nearby every society, but venture capital can only
exist when there is a constant flow of opportunities that have great upside
2
potential [Dossani and Kenney 2002]. This study is a country overview of the
The first major analysis on risk capital for India was reported in 1983 [Chitale
1983]. It indicated that new companies often confront serious barriers to entry
into capital market for raising equity finance which undermines their future
there is a need to revive the equity cult among the masses by ensuring
inadequacies with respect to the evolution of venture capital. The role of venture
The first origins of modern venture capital in India can be traced to the setting up
India. Subsequently, Government of India gave the procedures that can be used
3
The growth of VC in India has three separate phases. The first phase was the
initial phase in which the concept of VC got wider acceptance. The first period
did not really experience any substantial growth of VCs’. The 1980’s were
system and a belief that liberalization was needed. The liberalization process
started in 1985 in a limited way. The concept of venture capital received official
Though the venture capital funds should operate as open entities, Government of
India controlled them rigidly. One of the major forces that induced Government
of India to start venture funding was the World Bank. The initial funding has
been provided by World Bank. World Bank reported that India will require $67 to
133 million per annum as venture capital. It gave a total of US $45 million for
starting VC funds in India. The most important feature of the 1988 rules was that
venture capital funds received the benefit of a relatively low capital gains tax rate
which was lower than the corporate rate [Dossani and Kenney 2002]. The 1988
guidelines stipulated that VC funding firms should meet the following criteria:
4
Between 1988 and 1994 about 11 VC funds became operational either
through reorganizing the businesses or through new entities and they are
given in Table.1.
All these followed the Government of India guidelines for venture capital activities
more like a financing operation. The main feature of this phase was that the
concept got accepted. VCs became operational in India before the liberalization
process started. The context was not fully ripe for the growth of VCs. Till 1995,
the VCs operated like any bank but provided funds without collateral. The first
regulatory problems. Many public issues by small and medium companies have
shown that the Indian investor is becoming increasingly wary of investing in the
projects of new and unknown promoters [Ramesh and Gupta 1995]. The
liberation of the economy and toning up of the capital market changed the
economic landscape. The decisions relating to issue of stocks and shares was
1991, the office of CCI was abolished in May 1992 and the powers were vested
in Securities and Exchange Board of India. The Securities and Exchange Board
5
of India Act, 1992 empowers SEBI under section 11(2) thereof to register and
regulate the working of venture capital funds. This was done in 1996, through a
government notification. The power to control venture funds has been given to
SEBI only in 1995 and the notification came out in 1996. Till this time, venture
funds were dominated by Indian firms. The new regulations became the
harbinger of the second phase of the VC growth. The notification had the
· The guidelines made it easy for both private and government firms to
Whereas this activity was restricted to ‘All India Public Sector financing
institutions, State Bank of India and other scheduled banks including the
banks operating in India and the subsidiaries of the above’, subject to RBI
· the minimum size of VC that was stipulated as Rs. 100 million (US $2
stock exchanges
6
· within the stipulation of 80 percent of the VCF investment, a venture
capitalist can invest in the equity share or equity related securities of the
· Venture capitalist can finance the companies which have already been
· Venture capitalist can invest the balance 20 percent of the VCF in any
of listed companies
During this period overseas and private domestic venture capitalists began
investing in VCF. The new regulations in 1996 helped in this. Though the
the FDI environment. To facilitate the growth of venture funds, SEBI appointed a
coincided with the IT boom as well as the success of Silicon Valley start-ups. In
7
Major recommendations of the VC committee:
The committee came to the conclusion that the venture capital industry in India is
still at a nascent stage. It also stated that with a view to promote innovation,
in India. The report prepared a vision, identified strategies for growth and how to
bridge the gap between traditional means of finance and the capital needs of the
identified five critical success factors for the growth of VC in India, namely:
· the regulatory, tax and legal environment should play an enabling role as
raising the large amounts of risk capital needed and for spurring
8
· infrastructure in the form of incubators and R&D need to be promoted
been done by countries such as the US, Israel and Taiwan. This is
commercial products.
A set of major recommendations were suggested that can help in the stimulation
the nodal regulator for VCF so as to provide uniform hassle free, single
· Venture capital funds tax pass: VCFs are a dedicated pool of capital
and therefore operates in fiscal neutrality and are treated as pass through
9
pass through at the pool level while maintaining taxation at the investor
Promotion Board / RBI (Reserve Bank of India) approvals but FVCIs have
to take FIPB / RBI approvals. It was suggested that atleast on par with
FIIs, FVCIs should be registered with SEBI and having once registered,
they should have the same facility of hassle free investments and
funds.
three year track record or the project being funded by the banks or
10
financial institutions should be relaxed to include the companies funded by
the registered VCF. Those companies which are funded by VCs and their
securities are listed on the stock exchanges outside the country, these
exchanges.
The second phase of VC growth was essentially a learning phase. The rapid
growth of VC during 1995 to 2000 made government examine the issues in the
light of the Chandrasekhar Committee. The second phase growth has been
India’s interest in attracting FDI into India. This paved the way for the next phase
of VC growth in India.
The purpose of these were to change some of the lacunae in the existing
industry viewed this as marginal changes. The major changes brought about by
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VCF is defined as fund established in the form of a Trust, a company including a
body corporate and registered with SEBI which as a dedicated pool of capital
raised in the manner specified under the Regulations; to invest in venture capital
undertakings in accordance with the Regulations. The minimum size of the fund
from any investor will not be less than INR 500,000 and the minimum corpus of
the fund at the start has to be atleast INR 50 million. The new regulations
not to exceed 25% of the corpus of the fund. The new regulations allowed VCF
to participate in a company’s initial public offering through the book building route
The new regulations allowed Foreign Venture Capital Investor to register with
SEBI. Also, SEBI registered Foreign Venture Capital Investors will be permitted
to make investment pursuant to the automatic route within the overall sectoral
ceiling of foreign investment without having to obtain the prior approval of the
Foreign Investment Promotion Board (FIPB). Along with this, with effect from
provisions of the Foreign Exchange Management Act 2000. This required that
an offshore VCF investing in India will need to consider the requirements under
the FEMA which Inter alia requires certain categories of offshore / foreign
investors to seek the prior approval of the Foreign Investment Promotion Board
The changes had a salutory effect on venture capital industry and this is the third
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phase of VC growth. Though the dot.com problem and global economic slow-
down affected VC funding, the software exports continued to surge. The growth
of IT exports over the year show that IT exports and VC growth has a strong
correlation. Unlike that in US, Government of India did not permit pension fund
to flow into VC. One of the basic differences between US SBIC and Indian pre
venture entrepreneurship has been that in that case of India there was no
VC Trends in India
Initially, only Indian financial institutions were operating VC funds. Then off-shore
funds came into VCF. In 1997, Government of India supported a quasi VC fund –
Technology Development Board. After the entry of offshore VC funds, the VCs
started evolving. This along with IT boom made innovative entrepreneurial firms
played the role of venture capitalists in India. Initial response was poor but by
1995 the VC industry picked up. The SEBI initiated interaction with industry
participants and experts in the early 1999 led to a series of changes. Strictly
speaking the results of the earlier years and current growth are not comparable
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total quantum of funds disbursed was US$20 million but in 2001-2002 it was US
$ 1.1. This was only marginally higher than what was actually disbursed in the
earlier year. Though 2001 was a relatively bad year investments in VC continued
at the same level. There has been increased interest in off-shore VC funds to
invest in India. Nearly 70 VC funds were operating in India, and they have an
asset base of US $ 5.6 billion. The amount has grown nearly twenty fold in the
past five years. It is reported that India will get about US $3 billion in 2002,
through India centric funds. Nasscom has reported that by 2007-2008 the VC
India was next to Japan in private equity investments in 2001 as shown in Table
growth of VC has been phenomenal in the Asian region [Varma 2002]. Till
recently firms were mostly obtaining license ensured profits in India. Hence, both
home grown VCs and entrepreneurs have minimal risk evaluation skills. Capital
is flowing into private equity funds after 2000. Most of the VCs are offshoots of
financial institutions in India. They have a lending mindset and look forward to
stance in India continued to be rigid. India would have attracted much more if the
14
Distribution of VC units: It is observed that 75 percent of the investments have
been placed in five states such as Maharashtra, Tamil Nadu, AP, Gujarat and
Karnataka. VC activities have been weak in most of the northern states. This
indicating that economic situation and innovation have a strong correlation. Out
of the 728 units that has been reported in 1998 about 540 units were located in
the top five states, as shown in Table.3. A comparison of the earlier trends
indicate that the gap between better off states and poor states are increasing.
study [Bowonder 2001]. The distribution of R&D centres of global firms and
innovative small firms are clustered in the same locations as shown in Fig 2 to
Fig. 5 [Bowonder 2001]. FDI in R&D has enormous spill-over effects. Locational
well, the venture firms have been found to be distributed around certain locations
[Lerner 2002]. In the recent years the clustering effects are becoming dominant
and clusters are driving innovation. The relationship between VC and clustering
is intensifying and local linkages are becoming important. The earlier policies of
15
VC Investment in Stages: An analysis of VC investments in 1998 in various
stages is presented in Table 4. It has been reported that nearly all VCs are
compared to what it was in 1998, indicating increased risk bearing attitude. The
total amount disbursed over expansion and late funding grew to about 41 percent
percent of the total disbursements. Because of the same reason, the third stage
funding is negligible. Also in India VCs did not have any preference for
turnaround investments. In US and Hong Kong this was prevalent to the extend
preferred investing in early stage ventures (70 percent of the disbursement). Till
recently, VCFs did not provide any of the following types of assistance to
· expansion capital
16
One of the first large management buy-out occurred in Oct 4, 2002. Satyam
Infoway (SIFY) is the largest Internet Service Provider (ISP) in India. Two
venture capital funds acquired 33.4% stake of SIFY for US $20 million. The two
SAIF will pick up 21.7 percent and VTS will pick up 11.7 percent. This is a
management buyout. Both the VCs have picked up the stake at a price of
given in Table. 6. In the case of US, computers and Internet are the top two
NSB US and Israel computer related products come in the top category followed
have a relatively low share. The pattern till the end of 1995 is shown in Table. 8.
The pattern till 1995 was dominated by industrial products and slowly IT and
software started picking up. The reason for the shift has been that revenue
The major VCFs operating in India are given in Table.10. Many of the VC funds
17
did not have any prior experience, as indicated in the Table. 10. Most of foreign
funds came after 1998. One of the major triggers that changed the complexion
of the venture funds in India has been the entry of Intel. Intel Capital has used
very systematic criteria for screening the candidates and they have extensive
experience in assessing VCs. Most of the Intel supported VCs are well managed
firms and they acquired capability to manage business due to the support
provided by Intel Capital. External corporate venturing has been a model used by
many firms [McNally 1997]. Intel has been aggressively using this model. The
the firms supported by them are innovative firms. This phenomena enhances the
more similar funds. These are smaller in scope and of limited coverage. In the
back. The Technology Developed Board invests in equity capital or gives soft
18
form of equity or loan the support provided to the firms so far has been
predominantly in the form of loan. They provide support to the extend of 33%
provided a commercial bank supports 33% of the total project cost. This Fund
has been one of the most successful government initiatives for supporting
innovations. The success rate has been more than 80% as the selection is based
biotechnology. This scheme has produced many firsts in India. The Fund is going
to be enlarged in scope in the near future. The Board came into existence
by the Technology Development Board during the last five years is given in
Table .11. Transportation sector is the top category. Health and medical services
has come as the second largest category. Two good examples of TDB funded
cases are that of electric car and hepatitis B vaccine development. Details are
19
Case Studies on VC assisted Firms
A number of VC assisted firms were visited by one of the authors. The following
are the firms covered in the study. After interviewing the Chief Executives of 26
firms, nine firms were selected and studied in detail. The firms visited and
20
The analysis of nine firms studied are reported below:
The vision of Tejas Networks is to create state of the art products and solutions
networking products that provide high price / performance in their class, enabling
network costs. Tejas Networks also partners with leading third party equipment
Founders and their experience: Sanjay Nayak is the Cofounder and Chief
He worked prior to this in IBM Watson Research centre. He received his Ph.D
from California Institute of Technology. Arnob Roy is the third co-founder and
earlier he worked with Synopsis India. The Tejas team consists of outstanding
Origin of the idea: Mr. Nayak and Dr. Sivarajan decided to create something new
they wanted India to develop innovative telecom products. Mostly, Indian firms
21
were in software services. They wanted to create products from India. This urge
Venture Investors: There were three venture investors for Tejas Networks in the
In the first round the three investors funded US$ 5 million. In the second round
Mr. Deshpande, Intel Capital and ILFS invested US$ 6.7 million. Intel Capital is
Products: The main products of Tejas are cost effective SDH Multiplexer
equipments designed to manage bandwidth and derive services from the optical
and hardware integration capabilities. Tejas has undertaken the design and
compete with global firms like CISCO, Nortel and Lucent. Tejas combines the
cost advantage of India and the innovative strength of its founders. The optical
products are based on the dense wave diversion multiplexing and optical
per second over distances of a few thousand kms on a single strand of fibre.
22
Tejas Networks India Ltd, an optical networking start-up launched its intelligent
optical access product in India in less than year after its start. Intel Capital
announced funding after the product was announced. The nine month company
got immediately its first customer, Tata Power to deploy the TJ-100 access
product. This is the first intelligent optical network in India. The system leverages
With the Internet infrastructure market growing at about 20 percent per annum
Tejas Networks hopes to market its TJ 100 family of products in the global
Sycamore’s optical networking products in India and the Asia Pacific. It also
develops some regionally specific networking products: The venture capital firms
STRAND GENOMICS
23
genomics, proteomics and in silico-biology. Use of the state of the art knowledge
has been able to get contract research from many global firms. It is likely to get
its second stage funding. The exact amount has not been announced.
· clustering techniques
· stringology.
All the Board members have a Ph.D degrees and rich domain experience Dr.
came from MIT. The objective of setting up Strand was to develop tools that
Venture Funding: UTI Venture Funds picked up a 17.5 percent stake for an
undisclosed sum. UTI Venture funds picked up a 17.15 percent stake in strand
shore fund.
24
Product: Strand Genomics had launched two products ‘Soochika’ is a micro-array
The objective is to provide a tool box that addresses the most common problems
faced by drug discovery scientists. The company has a total solutions approach
· visualization
· microarray analysis
building out a suite of products called ‘Oyster’ to improve the productivity of the
drug discovery process. Strand uses a service model that provides revenue on a
continuous basis. For example, Strand entered into a partnership with Gladstone
Institutes to analyze complex microarray data. Strand will use its proprietary data
identify certain genes and associated regulatory networks. Strand also entered
into partnership with Automated Cell which is a disease phenotype driven drug
discovery company. Strand provides advanced algorithmic skill sets and software
25
engineering skills to develop products and solutions for Automated Cell’s drug
disease.
Strand is a unique company with skill sets normally not available. The senior
areas of computer science and biology with the requisite skills for drug discovery.
productivity and interpreting knowledge from genomic data. The solutions that
strand provides are cost effective and scalable and hence an unbeatable
Review TR100 list in 2002. The service oriented and long term partnership
relationships make Strands’ model a fast growth and low risk model. The second
AVESTHAGEN
primarily to promote research and development services world wide making use
food and pharma products. Avesthagen focuses on contract research for global
26
firms and it is a cost effective research firm in genomics. Research as a business
awarded a Ph.D in 1993 in plant molecular biology from the University Louis
Origin of Idea: Dr Patell returned to India with high hopes and spun off
Avesthagen in April 1998 with four employers using the technology developed by
per at TIFR through the funding from Rockefeller Foundation. Avesthagen raised
US$ 2 million as venture funding from ICICI Ventures, Global Trust Bank and
Tata Industries Ltd. The dream of Dr. Patell was to invent edible vaccines and
Venture Capitalists: The three institutions that funded the first round (US$
1.5million) are:
ICICI is one of the foremost investor and stakeholder in Avesthagen. GTB has
offered a loan, which was later, converted into Avesthagen equity. Tata
27
Avesthagen has engaged Kotak Mahindra and KPMG as investment bankers to
facilitate the process of raising the second round funding. Avesthagen is looking
for a funding of $10 million in the second round. In 2001-2002, Avesthagen has
an income of US$ 1.5 million and it hopes to breakeven this year and reach a
Products and services: Avesthagen focuses on both products and services. This
business model is basically more robust, as services provide for a regular base
science companies
· providing new tools that allow the prediction of complex sequence at the
gene and protein level using customized algorithms and annotation tools.
sequence. This well help them in enhancing the rice productivity. The second,
thrust area is ‘edible vaccines’. The vaccines will be made part of the gene in a
plant food product so that it can administered easily and in a cost effective
28
manner. This firm is one of the VC assisted firms that is focusing on creation of
intellectual property. In this case, venture firms helped in assessing the business
ITTIAM SYSTEMS
Ittiam is positioned in the fastest growing segment of the core technology space:
Digital Signal Processing Systems: DSP Systems. The DSP chip market is about
US$5 Billion in the year 2000, growing at 30%. The market for DSP software and
system design is about US$9 Billion growing at more than 50% per annum.
Founders and their dreams: Mr. Srini Rajam who was the head of Texas
Instruments India Ltd and six colleagues decided to create a world class
technology company in India. The drive to come together was the passion to
experience came together. The challenge was to create “the world’s best DSP
Systems Company”. Mr Srini Rajam was the head of TI India Ltd. TI India was
one of the most innovative companies in India as it topped the best companies
Venture capital: Ittiam started in 2001 with a seed capital of US$ 5 million from
has an investment from Bank of America. After that in the second round the Bank
29
of America Fund offered US$ 5 million for another 6.6%, a price which value this
Products: Within a year of their start, Ittiam has developed multiple products in all
their target domains. This includes video imaging and audio speech products in
also announced its wireless products, which are IEEE 802.11 based wireless
LAN. Ittiam has developed solutions for both 802.11b standard which has a
Ittiam will lead the new wave of global product companies from India. The
company represents the collective aspiration of the team to lead the new wave of
Consistent with its bold vision, Ittiam is pushing the frontiers in all the key areas-
the traditional service model and has committed itself to products, both
resides in the end equipment. On the people front, Ittiam works with the
fundamental belief that the company is co-owned by all who work and share the
30
dream-irrespective of the function. The company gave shares to all its
employees.
Ittiam is one of the most innovative firms operating in India with high quality
has system focus and not chip focus. The platform integrate all the interrelated
domains. The company has a full fledged marketing group and it has entered into
niche player with the ability to innovate. There were no technologies companies
· experienced team
· market focus
Technology. Mindtree was one of the top 100 IT employers in the US within the
31
focuses on state of the art technologies and high level reusable intellectual
property.
companies got together and worked out a plan to start a new firm. The mission
was charted out as: deliver business enabling solutions and technologies by
creating partnerships with our customers in a joyous environment for our people.
The logic of their getting together was that many of today’s software services
position, namely:
· domain capability
· methodology
· quality
· innovation and
· brand positioning
Mr. Krishna Kumar was the chief Executive of Electronic Commerce Division,
Wipro. Mr. Anjan Lahiri, who was working with Cambridge Technology Partners
Technology Solutions is the third partner. Rostow Ravanan worked with Lucent
Technologies and prior to that in KPMG. Mr Ashok Sootha who was the chief
32
Executive of Wipro is the Chairman of Mindtree. Kamran Ozair who worked with
Cambridge Technology Partners was another founder. Scott Staples was also
with Cambridge Technology Partners. Mr. Kalyan Banerjee who worked as the
head of Wipro Technology Solutions Division also joined the founding team.
Vision of 2005
· to be among the top 10% in our business, in terms of profit & ROI
Venture Capitalists: The first round funding was by the Founders, Global
Technology Ventures and Walden International. The first round funding was US$
9.5million. In 2001 August Mindtree secured the second round funding. This was
· The founders
· Walden International
33
Products and Services: Mindtree is essentially a services company. It operates in
· internet Technologies
The strength of Mindtree is its ability to leverage its vast knowledge base to
prescribe tools and architectures which will work for specific business models
and industries. The collective experience, coupled with the creation of Mindtree
Labs, ensures that the solutions will have high quality and success. The focus of
Mindtree unlike the other software firms have been to leverage intellectual
property. Mindtree helps firms to improve its product design life cycle. Mindtree
service offering. These technology building blocks reduce the product design
the stages of product development, from concept to life cycle ownership. In three
34
years time Mindtree evolved into a multicultural and multinational organization.
meaning a source of eternal intellect and wisdom for all who came in contact with
In the interview with one of the founders he indicated that companies fail
not because of market, but lack of experienced teams. Mindtree has one of the
best teams with strong business leadership. The focus of the company has been
on intensive learning. It works global firms and mostly on difficult projects and
newer state of the art areas. The main contribution of venture capitalists has
NETWORK SOLUTIONS
solutions to network problems. It has become the preferred vendor for many
firms for integrated data networks. Mr.S.Sharma who started this was nominated
for the outstanding Entrepreneur of the year 2000 Award. It had an income of
projects in Asian countries such as China, India, Singapore and Thailand. While
35
that are cost effective and reliable and identifying network architectures that are
Venture capitalists: Intel capital acquired 15% of its stake in the first round
funding. This was for US$ 1.1 million. There was a sharp increase in its revenue
after 1997. During the Internet bust the management purchased the stake of
company. This has 800 people working. It is India’s largest vendor independent
Cabletron are its major clients. The growth of revenue of Network solutions is
solution provider for the large banks as well as the stock exchanges in India
The uniqueness of the firm is that none of its customers have deserted it. The
company has a prudent debt planning policy and cost management system. The
firm has three domains of expertise and operates at 8 major centres in India.
Network Solutions are shown in Fig. 7. Recently it has started providing call
36
centre support. It is one of five fastest growing IT companies in India according a
and retaining its client base. One of the value added services it provides is
The learning has been hierarchical as shown in Fig. 8. The venture support by
Intel Capital helped Network Solutions in enhancing the reputation. The support
Reva is the India’s first electric car designed by Reva Electric Car Company
(RECC) and is the short form for Revolutionary Electric Vehicle Alternative.
environment friendly urban transportation by offering the best value and highest
quality electric vehicles in the world. Recently they have been able to get an
Founders Reva is the creation of the Maini group headed by Sudershan Maini.
products for the auto industry to electric "in-plant" material handling equipment,
the idea of a small car for India for 30 years but the idea conceptualized and took
a form only after Chetan Maini, his son joined Amerigon an U.S. based company
37
has a B.S., (Mechanical Engg) from University of Michigan and M.S.,
(Mechanical Engg) from Stanford University worked for General Motors (U.S.A.)
Reva Electric Car Company Private Ltd. He was the team leader of the solar car
team that won the GM sun race and stood 3rd in the world solar challenger in
Australia. He was also the project leader for the hybrid electric car project at
Car Company (P) LTD has worked for General Motors (USA) and Amerigon Inc.
(USA). Chetan Maini’s experience with Maini precision products, his core
business, which produces high quality parts for OEM’s in India and overseas
came very handy. The group got its first taste of electric powered vehicles at
material people across shop floors. The company is committed to make available
facilities, which offer the customer maximum comfort at a minimal cost and make
Origin of the Idea: Though the first electric vehicle was built in 1834, it was the
vehicles were faster and cheaper with a greater range. Ready availability of
vehicles. It was only in the 1970’s when the world was hit with the oil crisis,
people realized the increasing need for alternative energy technologies for
38
the interest in Electric vehicles. Mr. Maini wanted to eliminate urban air pollution
and he looked for new technologies that can be cost effective. His dream was to
develop the first electric car in India. The REVA project was started in 1994.The
first Reva proto type was ready in mid 1996. It was internally funded. This
ARAI, Pune.
Evolution of the idea: RECC is a joint venture between Bangalore based Maini
Reva has built its reputation on leading rather than following technological
change. In line with their motto to introduce technology ahead of the world to
and integrated systems for electric vehicles of all types. This has developed the
Tudor India Limited, a subsidiary of the largest and oldest Battery Company in
the world (located in the USA), provided the Prestolite batteries specially
and Power supplies. The Charger for Reva, which was developed by MPS, is
39
now being made in India through a technical collaboration agreement they have
with the Maini Group. The main contribution of RECC is designing, developing
and manufacturing electric cars that are cost effective and easy to manufacture.
Learning strategies: Maintaining quality had always been an important issue for
the Maini group. Modeled on the zero principle – zero defects, zero time delays
and zero inefficiencies - the Group has crafted a unique quality image for itself,
both in India and abroad. The Maini group’s recognition for quality and reliability
include the ISO- 9000 Certificate for 3 of its group companies. All the
components of Reva are thoroughly inspected and only after due verification are
forwarded to the next stage of manufacture. Even though the first prototype of
Reva was ready in Mid-1996, it was introduced in to the market only after
R & D Strategy: The Maini group has always viewed technology and innovation
as the main driver of growth and profitability. The group has always focused on
innovation, technology, quality and reliability. The group has 2 in-house R&D
of India). Reva has a 25 strong R&D team which is constantly striving to improve
the quality of product it is working to come out with a new car by the year-end.
40
The company is also working on an enviable project of drive system for General
Motors. Keeping in trend with the international standards REVA spends almost
technologies that are patented. Apart from its design Reva deploys the following
· running chassis,
· energy management system, and
· climate Control system.
except for few sophisticated machines. This battery could be charged using a
220-volt, 15-amp power source. 227-kg is the payload. Reva was developed as
engine car which has more than 7000 component’s Reva has only 1000
assembly stage. This construction method reduced capital costs by 40%. Opting
batteries rather than new-generation lithium types. The car is shown in Fig. 9.
Maini Info Solutions, a subsidiary of the Maini Group. On the financial front Reva
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According to the company Government support for electric vehicle industry is not
venture loan of INR 185 million for the development and manufacturing.
transportation for all ages. The company has targeted to sell 1,500-2,000 cars in
environments due to increased mobility, zero pollution, less parking space and
quiet operation and it is particularly tailor-made for countries like India due to low
running and maintenance cost. The feedback shows that for most buyers, Reva
is their second car, which they prefer to use in-city, while their regular vehicle is
used for long-distance trips. The company is also working on a platform for larger
electric cars.
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The deluxe version is expected to be launched by the end of this year while AC
version, with 15-20 per cent lower range than present 80 km, is also in the
pipeline. The 75 team strong R&D team at RECC is also working on heater
version and another one with cooled seats. There are also plans to expand the
Reva platform by launching another vehicle by year-end. In the five years since
its inception, the Reva project has cost US$20 million, with an additional US$5
Learning from the case study: The case was aimed at understanding the electric
vehicle industry in general and Reva Electric Car Company in particular. This
from the Maini group was tremendously helped by Chetan Maini’s previous
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SHANTA BIOTECHNICS PVT LTD.
Hepatitis B Vaccine. This is named Shanvac. Shanta Biotechnics was the first
he started a battery making unit for supplying high power batteries to the Indian
Airforce. He had the urge to do something for India and also the urge to be an
entrepreneur. Mr. Varaprasad Reddy wanted to start a new industry that is more
challenging. Both innovation and entrepreneurship were his dreams. When Mr.
Europe someone mentioned about the need for vaccines in developing countries.
This immediately became a trigger for action, and he worked relentlessly. His
dream was to introduce affordable products that can have significant impact.
Venture capitalists: Mr. Reddy was looking for a venture capitalist. The Foreign
Minister of Oman H.E.Yusuf Bin Alwai visited Shantha Biotech when he came to
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Hyderabad. He liked the project and invested USD 1.3 million as an angel
investor. Then the project took off. In the meanwhile Technology Development
Board gave a loan of INR 85 million (USD 1.7 million), as the first stage and SBI
Mutual Funds invested US$11 million and acquired 6.9% stake in Shanta
Biotechnics. Subsequently TDB again gave a load of INR 180 million. In 2002
Product and services: Shantha has a state of the art facility is equipped with
Vaccine after five years of intense research. They developed India’s first
affordable cost. Shantha Biotechnics has a strength of 376 people out of which
in the last quarter of sept 2002. In the next 2 years Shantha will commercialize
Shanta Biotechniques has a joint venture with East West Labs, USA for the
different types of cancer. The targets that are being planned are
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· non small cell lung cancer
· breast cancer
· pancreatic cancer
· melanoma
· Shantha Biotech has tied up for Pfizer for marketing shantha’s products
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Shantha Biotechnics is planning to go for an IPO in the near future. Before that
they are building the product pipeline. For manufacturing Shantha Biotechnics
has entered into a joint venture agreement with Biocon, located at Bangalore.
The venture capitalist helped in getting a large investment from a Bank for
KSHEMA TECHNOLOGIES
Kshema technologies was founded in 1997. It is one of the Indias’ first venture
capital funded software solutions companies. With an annual rate of more than
Founders: Kshema is promoted by A.R. Koppar, A.Mutalik and L.B. Joseph who
The first two are engineers. They earlier worked at Wipro at senior levels. The
· Citibank
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Global Technology Ventures have invested 50.88%, I L & F S Venture Capital
Corporation Ltd 12.69%, Citibank holds 4.61%. The software revenues in 2002
was Rs 560 million. Profit after taxation was Rs 122 million. Inspite of the poor
Product and services: Kshema’s Software Services is a firm that has 45 clients
technologies for handheld devices etc are some of the major technologies of
Kshema has been involved in some of the world’s first technology prototypes in
this area. Some of the pioneering work Kshema has done are
sequencing etc are some of the applications. Kshema has recently developed a
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image enhancing and spot identification system to map coordinates of the protein
Kshema has strong motivation systems for inducing learning. Kshema operates
every stage in its software development cycle. The three venture firms have been
infrastructure.
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CONCLUSIONS
The venture capital industry has started creating innovative firms in India. During
the last five years many new entrepreneurial firms have ventured into new
product development and contract research for global firms. Till then Indian firms
weak in new product development. Firms like Avesthagen, Strand Genomics and
Bharat Biotechnics have achieved high revenue levels through revenue from
contract research as well. Firms like Tejas Networks, Reva and Ittiam have
become product developers for the global market. Mindtree and Kshema have
summary of the firms covered are presented in Table 12. Venture Capital
assisted firms are still in its infancy. Management buyouts and external corporate
venturing have started emerging indicating that off-shore funds are started
considering India as a potential opportunity. This will reduce the capital gap for
awareness about the role of venture capital has been very limited. There
use of venture funds. The distortions in the capital market due to over
regulations and multiple controls are also a problem that is hindering the
growth of VCs.
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2. Expertise needed for managing new ventures and managing venture
funds is yet to evolve in India. Most of the off-shore Funds have a strong
been able to provide support and business contacts. From the personal
interviews it is evident that off-shore funds are able to add more value to
a commercial success.
3. Most of the new ventures have benefited from venture capital, especially
concentrated into five clusters. The cost of monitoring and the cost of skill
acquisition are lower in clusters, especially for innovation. Entry costs are
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makers. This is essential because only when the cultural context is
because the information costs are lower. Policies for promoting dispersion
namely
6. Bank operated venture capital funds are relatively risk averse and they
services and retail business but not innovative products. The real growth
of venture capital in India started after the entry of off-shore venture funds.
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Venture capital growth has occurred in clusters in India like in US, Israel,
UK and Taiwan.
9. In developing countries venture funds are not fully evolved and, it may be
necessary to start public venture funds. Public venture funds can act as
countries public policy should support and evolve institutional systems for
funds is one of the critical success factors that has helped Technology
venture funds state that high technology is their priority only firms started by
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References
P. Gompers and J Lerner [2002], The Venture Capital Cycle, MIT Press,
Cambridge.
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S. Ramesh and A. Gupta [1995], Venture Capital and the Indian Financial
Situation, Oxford University Press, Bombay.
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