VENTURE CAPITAL

SUBMITTED BY:
ANJALI JOSHI(03)
SATISH KUMAR(44)
 Private Equity &
Venture Capital
“Private Equity” means capital to companies not quoted on a stock
market ,in exchange for an equity participation.

Venture Capital (VC) is a sub-class of Private Equity

characterized by investments made for the purpose of developing,
launching, and expanding new products or service offerings.
Venture Capital
 Long term risk capital to finance high technology
projects which involve risk but at the same time
as high potential for growth.

Definition (VCC) –
 “A financing institution which joins an
entrepreneur as a co-promoter in a project and
share the risks and rewards of the enterprise”

 The term ‘venture capital’ is understood in many

ways.
Contd..
Venture capital is a form of equity financing especially
designed for funding high risk and high reward projects
with the objective of earning a high rate of return.
1.It promoted by technically or professionally qualified
but unproven entrepreneur
2. It seeking to harness commercially unproven
technology
3. High risk venture
Attributes of a Great VC
• Bets on people not trends
• Driven by the big idea
• Looking for a ‘Winner’
• Not afraid of failure
• Understand how to manage a portfolio of risk
• Serves as a fantastic coach
• Does her best work outside of the board
room
• Not waiting for validation from other VCs
Features of Venture Capital Financing
 Form of equity participation, convertible debt or long
term loan

 High risk but high growth projects

 Commercialization of new ideas or technologies. (not

for trading, agency, etc.)

 Joins as a co-promoter and shares profits and losses

Contd..
 Continuous guidance

 VC disinvests his holdings

 Inputs needed during the setting up of the business

 Small and medium scale industries

What is involved in the investment
process?
 Is the product or service commercially viable?
 Does the company have potential for sustained

growth?
 Does management have the ability to exploit this

potential and control the company through the growth

phases?
 Does the possible reward justify the risk?
 Does the potential financial return on the investment

meet their investment criteria?

Scope of Venture Capital
 Venture capital take different forms at different stages of the project
 Banks and other financial institutions provide finance facilities only
from 2nd or 3rd stage
 Financing of Venture capital
 Development of an idea (seed finance)
 Implementation stage (start up finance)
 Fledging stage (additional finance)
 Establishment stage (establishment finance)
Stage v/s Return
METHOD OF VENTURE FINANCING
 Equity
 Conditional Loan
 Income Note
 Other Financing Methods
Assessing Portfolio Risk
Disinvestment Mechanism
Objective of VC’s to sell of the investments made by him at substantial
gains.
Objective of investment is not profit but capital appreciation at the time of
disinvestment
Options available
 Promoter’s buy back
 Public issue
 Sale to other venture capital funds
 Management buy outs
Advantages of Venture Capital
Advantages to Investing Public
 Reduce risk significantly against unscrupulous
management
 VCC representing directors will ensure that the affairs
of the business are conducted prudently

Advantages to Promoters
 Convincing only officials of the venture fund
 Efforts required are less compared to those of
entrepreneurs choosing to raise capital through public
issue
Advantages (Contd..)
General advantages
 Intermediary between investors (high returns) and

entrepreneurs

 Development of economy

 Acts as a cushion to support business borrowings

 New products/process
 Venture Capital Financing Stages

There are typically six stages of financing offered in Venture

Capital:
A. EARLY STAGE FINANCING
 Seed capital and research and development projects
 Start ups
 Second Round Finance
B. LATER STAGE FINANCING
 Development Capital, expansion finance, replacement
capital, turn around, Buy out.
Factors Affecting Investment Decision
 Strong mgt team
 A Viable Idea
 Business Plan
 Project Cost and Return
 Future Market Prospect
 Existing Technology
 Miscellaneous Factors
Venture Capital in India
It can be divided into following categories:-

 Specialized financial institution and their financing

schemes
A. Risk Capital Schemes of IFCI
B. Technology Development &
information company of India (TDICI)
of ICICI
C. SEED Capital Scheme of IDBI
 Funds Promoted by State Level Institutions
(a) Andhra Pradesh Industrial Development
Corporation Ltd. (APIDC)- VCs Ltd.
(b) Gujrat Venture Finance Ltd. (GVFL)
 Funds Promoted by Public Sector Banks Such as

Canara Bank VC Fund

Private Agencies:- It includes as the:
1. Credit Capital Venture fund
2. 20th Century VC fund
3. India Investment fund
4. Indus VC fund
5. SBI Capital Venture Capital fund
 Overseas Venture Capital fund: It look for
investment in areas ensuring high and guaranteed
returns such as tourism, hospitals, air transport, IT,
Comm., etc.
 Difficulties in India:

1.The restrictive legal and financial framework is one of

the main reason for the lack of development of venture
capital.
2. There are no private pool of capital of finance risk
venture in India.
Small companies have no access to share capital or long
term debenture capital.

 Need for growth:- India process a pool of young

educated and technically qualified entrepreneurs with
real innovative mind. Vast potential of our country need
to be properly tapped for continuous development.
SEBI(VENTURE CAPITAL FUND)
REGULATIONS, 1996
I). Registration of venture capital funds:

1. Application of grant of Certificate

2. Eligibility Criteria:
(i) if the application made by the
Company
(ii) if the application by the trust
(iii) if the application made by the
body corporate
SEBI Regulations (Contd..)

II) Investment conditions and restrictions:

Minimum investment in a VC fund:
1.) A Venture Capital fund may raise
monies from any investor whether
Indian, foreign, or non-resident
Indian.
2.) No Venture Capital fund set up as a
company.
SEBI Regulations (Contd..)

III) General Obligation and responsibilities:-

Prohibition on investing subscription from
the public.
Private Placement
Maintenance of Books and Records
Submission of Reports to the Board
Winding Up
SEBI Regulations (Contd..)

IV) Inspection and Investigation:-

1. To ensure that the books of account, records and documents

are being maintained by the venture capital
2. Investigate into complaints received from investors.

V) Liability for action in Case of Default

1. Contravenes any of the provisions of the act
2. Fails to furnish any information relating to its activity as a
venture capital.
THANK YOU!!!