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CLEMENT
Venture capital
Dr.Bimal jalan (Former Governor-RBI) - In liberal environment, let a thousand ideas of science and technology bloom and let these translated in to innovative ventures by our entrepreneurs.
WHAT IS VC FUNDING?
IS IT JUST THE STORY OF THE MAN WITH THE IDEA AND THE MAN WITH THE MONEY?
What is V.C.
VC is in the form of equity or debt made in new or exiting business where risk and return are high E.g. exiting product video mobile phone New product - GENOME/ Interface with brain. Convergence in IT hardware
What is VC
It is a Capital typically provided by outside investors for financing of new, growing or struggling businesses. A Venture Capitalist is a person who makes such investments Venture Capital Fund is a pooled investment vehicle (often a partnership) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans VC undertaking where VCF makes investment
Genesis of VC
Concept can be linked to story of Christopher Columbus when he travelled westwards instead of east wards from Europe Modern VC began after II nd world war VC in mostly Military applications. 1946 American Research and Development Corporation whose biggest success was Digital equipment. The founder of ARD was General Georges Doroit who was considered as father of VC. Rockefeller Family invested in Eastern Airlines (defunct now) which was one of the earliest
Genesis of VC
1960 bull run in IPO helped VC flourish. 1968 Digital equipment provided 101 annualized return. 1970 failure of 1000 VCs 1978 regulatory support in the form of abolition of capital gains tax etc 1980 institutional support made available but return plunged.
V.C. -Features
High risk & High return It can relate to technology or materials Long term investment Equity or Debt Non availability of conventional finance Profit through capital gains Other support through managerial /marketing
No market prices
Target Companies
Startups Early stage companies Private companies in the scale-up phase Pre IPO financing rounds
FINANCING
STAGES IN FINANCING Ist stage seed financing - for supporting a concept/idea,R&D, product development,fullscale production & marketing IInd stage for working capital & initial expansion & also bridge financing for IPO
FINANCING
IIIrd stage acquisition for management buy out or for growth & expansion or turn around financing for sick nits
EXIT ROUTE
Sell the share to promoters IPO route Mergers & Acquisitions
VC
High networth individuals with appetite for high risk / reward paradigm Institutions diversifying investment portfolios Insurance companies, pension funds, banks, etc. Funds of funds Governments acting as catalysts
VC
A typical Venture Capital Fund may invest in 20 companies Typically, 10 will fail, 4 will succeed and 6 may be okay Venture Capital funds do not avoid risk but manage it By balancing the portfolio Focusing on the people and the ideas Mentoring, Coaching, adding value All new ventures are high risk Reducing perceived risk does not reduce real risk Number of failures is hard to control To balance, the ones that win must win big Hence each investment must be structured for high returns
VC
Fund Economics
VC
Over 70 VC/Private Equity funds operating in India today . 90% are global funds rest Indian funds Profile of majority of VCs are Investment banking ..a few from industry Cumulative funds under management over the past 3 years : $ 5.6 billion ; over 50% is focussed on IT/Telecom Cumulative investments in past 3 years : $ 3 billion.. Several New Funds Announced in year 2001 targeting India
V VC
Music
Pentamedia
Venture capital has a number of advantages over other forms of finance, such as:
It injects long term equity finance which provides a solid capital base for future growth. The venture capitalist is a business partner, sharing both the risks and rewards. Venture capitalists are rewarded by business success and the capital gain. The venture capitalist is able to provide practical advice and assistance to the company based on past experience with other companies which were in similar situations. The venture capitalist also has a network of contacts in many areas that can add value to the company, such as in recruiting key personnel, providing contacts in international markets, introductions to strategic partners, and if needed coinvestments with other venture capital firms when additional rounds of financing are required. The venture capitalist may be capable of providing additional rounds of funding should it be required to finance growth.
REGULATORY
INDIAN TRUST Act 1882 or Company Act 1956 shall apply depending upon the constitution of VC Offshore funds permission from Foreign Investment promotion board and RBI CBDT governs the issues of capital gains and other tax related issues.
(c) whether the applicant is an investment company, investment trust, investment partnership, pension fund, mutual fund, endowment fund, university fund, charitable institution or any other entity incorporated outside India; or
REGULATORY
Registration with SEBI Constitution company/Body corporate/trust No other activity except VCF Minimum interment Re 5 crores and single investr Re 5 lac. Investment criteria Not more than 25% of corpus in one VCU Can invest in overseas VCU subject to RBI rules No investment in associate company 66.6% investment unlisted company and 33.3% in IPO of VCU. No investment by way of Debt or Debt instrument in a company in which already VCF has invested by way of Equity No investment in SPV created by VCF Minimum 3 years of lock in period for IPO
Regulatory
Winding up When the period of scheme in the placement memorandum is over When trustees decide to wind up 75% of investors petition for winding up When SEBI directs to wind up As per provisions of companys act winding up
(g) the applicant has not been refused a certificate by the SEBI. (h) whether the applicant is a fit and proper person. [ Applicability of Securities and Exchange Board of India (Criteria for Fit and proper Person) Regulations, 2004 4A. The provisions of the Securities and Exchange Board of India (Criteria for fit and proper person) Regulations, 2004 shall, as for as may be, apply to all applicants or the foreign venture capital investors under these regulations]
Indian experience
1986 Policy notification by GOI 5% cess on all imports to create a fund to finance VC by IDBI SEBI to regulate VCs & issuance of guidelines Major players ICICI,IDBI,ILFS etc
VC
2006 PE/VC Trends US$7.5bn invested in 2006 across 299 deals. IT & ITES retained its status as the favorite industry among PE investors, followed by manufacturing and real estate. Largest PE deal was $900M LBO of Flextronics by Kohlberg Kravis Roberts (KKR). M&A and IPO activity continued to remain strong.
deals in India during the three months ending September 2009, The amount invested during the period was significantly lower compared to the same quarter in 2008 (which had witnessed $298 million being invested across 55 deals), but higher compared to the immediate previous quarter ($64 million across 17 deals). The latest numbers take the total VC investments in the first nine months of 2009 to $201 million (across 46 deals) as against the $709 million (across 124 deals) during the corresponding period in 2008.
VC in 2009.
Among the largest investments reported investment during Q3 2009 was the Lightspeed Venture Partners-led investment of Rs. 50 crores (about $10 million) in Mumbai-based Itz Cash Card, Indias largest multi-purpose pre-paid card company. Existing investors Matrix Partners India and Intel Capital participated. Information Technology and IT-Enabled Services (IT & ITES) companies accounted for 41% of the investments during Q3 09 (42% by value), the GIVCA/Venture Intelligence research shows. Helped by the continued interest in microfinance firms, the BFSI industry attracted $25 million across five companies. Early-Stage deals (First / Second Round of VC investments into companies that are less than five years old) accounted for 60% of the VC investments (in volume terms) during Q3 09.
VC in India
"3G, rural penetration to catalyse PE investments in Teleco" Mobile VAS, Mobile Broadband and Telecom Software companies, as well as companies providing services to telcos, are among the favourite sectors of PE & VC investors within the industry, a survey by research firm Venture Intelligence reveals
ICICI Venture
Founded 1988 as JV with UTI 1998 - fully owned subsidiary of ICICI Total Assets US$ 56.3 Billion Market Capitalisation US$ 10.8 Billion
ICICI-Investment Criteria
Strong Management Team High Growth Sector Global Competitiveness Valid Business Strategy Established Technological edge Clear Exit Strategy
Series II
US$ 810 Million Fund created Invest in buyout & growth capital transaction in mid & large cap companies
Other Funds
ICICI Econet Fund
Launch in 2000 Corpus of Rs. 1,000 Million In 2001 Strategic investment by Compaq Corporation Focus on Internet & Technology
SVCL
SVCL has funded over 21 projects Project evaluation process SVCL always take a Board seat SVCL provides networking and management support as well
SVCL Relationship
Help the entrepreneur to manage his business more effectively Provide Small Indian enterprises not only with fund support but also market access Provide strategic support to assisted companies Provides Networking facility
NFSIT Portfolio
Pioneer of venture capital in India Started in 1990 World Bank initiative under the support of Gujarat Industrial and Investment Corporation (GIIC) Raised 5 Venture Capital Funds invested in 57 companies Recently launched a SME Fund
Areas of Investment
Biopharma Agri-Biotech Contract Research Industrial Biotechnology
Gujarat IT Fund
Corpus Rs. 276.2 Million Investing Institutions
SIDBI Gujarat Informatics Ltd.
Companies invested in
Net4nuts Ltd. Ecube I Solutions Ltd. Anupam Globalsoft Ltd. Icenet.net Ltd. Convergelabs Technologies Pvt. Ltd.