Submitted by

Swapnil Ghadi
Rohan Chavan Tejas Mohite Vikram Shinde 42 41 29 30 49 12 68 65

Prateek Nawale
Vijay Patil Vivek Mirgule

Mitesh Nissar

Venture Capital
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.
Venture capital is also called as RISK CAPITAL. It is provided as seed funding to early stage, High Potential Companies.

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

Features

Venture capital is usually in the form of equity participation. It can be in the form of convertible debt or long term loan. Investment in high risk but high growth projects. It is available for commercialization of new ideas or technologies. (not for trading, agency, etc.) Joins as a co-promoter and shares profits and losses. Contd.

Continuous involvement in the form of guidance. VC disinvests his holdings once the venture has reached the full potential. It is not only the injection of money to the business but also the inputs needed during the setting up of the business Investment is usually made in small and medium scale industries

Scope of Venture Capital

Venture capital take different forms at different stages of
the project. there are four stages of financing of venture capital.

1. Development of an idea (seed finance) This is the first stage, in this VC provide seed capital for Contd.

2. Implementation stage (start up finance) In this stage there is a need of funding for manufacture a product or provide service.
3. Fledging stage (additional finance) In this stage VC provides funding for developing marketing infrastructure. 4. Establishment stage (establishment finance) At this point VC provides capital for expansion & diversification.

Disinvestment Mechanism
Objective of VCs to sell of the investments made by him
at substantial gains. investment is not profit but capital appreciation at the time of disinvestment. Options available
Promoters
Public Sale

buy back

issue

to other venture capital funds buy outs

Management

Advantages
Advantages to Investing Public Reduce risk significantly against unscrupulous management.
VCC

representing directors will ensure that the affairs of the business are conducted prudently.
representative will be able to analyze the business position.

VCC

Contd.

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.

Contd.

General advantages Reduce time lag between technological innovation & its commercial exploitation.
Intermediary

between investors (high returns) and entrepreneurs of economy

Development

Acts

as a cushion to support business borrowings products/process

New

Government Guidelines
1. The public sector financial institutions, SBI, scheduled banks, foreign banks & their subsidiaries are eligible for setting up the Venture capital fund with a minimum size of Rs.10 crore & a debt equity ratio of 1:1.5, if they desire to raise fund from public then the promoters will be required to contribute at least 40% of capital. Foreign equity upto 25%. 2. The Venture capital companies & venture capital funds can be set up as joint venture between stipulated agencies & non institutional promoters but the equity holdings of such promoters should not exceed 20%. Contd.

3. Venture capital fund can assist the enterprises a total investment not more than Rs.10 crore. 4. The VCC or VCF should be managed by professionals & should be independent from the parent organisation.

5. The VCC/VCF will not be allowed to undertake activities such as trading broking, money market operations etc. they will be allowed to invest in leasing to the extent of 15% of the total fund.
6. Listing of VCC/VCF can be according to prescribe norms & underwriting of issues at the promoters discretion. Contd.

7. A person holding a position or full time chairman/president, chief executive, managing director or executive /whole time director in a company will not be allowed to hold the same position in VCC/VCF.
8. The Venture capital assistance should be extended to, (i) The enterprise having investment upto Rs.10 crores.

(ii) The technology involved should be new & untried.

(iii) The promoters should be new, professionally or technically qualified with inadequate resources. (iv) The enterprise should be established in the company from employing qualified person for maintenance of accounts.

Method of Venture Financing

Equity Participation Conventional Loan Conditional Loan Income Note

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. Promoted by State Level Institutions (a) Andhra Pradesh Industrial Development Corporation Ltd. (APIDC)- VCs Ltd. (b) Gujarat Venture Finance Ltd. (GVFL). Contd.

Funds

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
Funds promoted by companies in private sector Indus venture capital fund. Credit capital venture fund (India) Ltd. 20th century venture capital corporation Ltd.

i.

ii.
iii.

Venture Capital Financing by Industry (2006)

Industry
Industrial products & machinery
Computer software Consumer related Medical Food & food processing Electronics

No. Amount (Rs. Mm)

208
87 58 44 50 41

2599.32
1832.00 1412.74 623.22 500.06 436.54

Communication
Bio-technology Energy related

16
30 19

385.09
376.46 249.56

Computer hardware
Misc.

25
113 691

203.36
1380.85 10,000.46

Suggestions for the growth of Venture Capital Funds

1. Exemption/concession for capital gains. 2. Development of stock markets. 3. Fiscal incentives. 4. Private sector participation. 5. Review of existing laws. 6. Limited partnership.

7. Public issue through OTCEI.

Conclusion
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. For that there is a need of more Venture Capital funds to support those new ideas, new technology to develop.