INDIAN FINANCIAL SYSTEM

CIA - III

VENTURE CAPITAL

SUBMITTED BY:
ARIHANT SETHIA (0911351)
SURAJ KUMAR (0911322)
AYUSH AGARWAL (0911307)
ROHIT MAHESWARI (0911372)
VENTURE CAPITAL
 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
 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)

 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!!!