FUNDING MAKE IN

INDIA
Financial Services Assignment

Submitted to:

Submitted by:

Prof Shanbag

Gaurav Mukim
2014094

Questions:
1. What are the different ways to increase the flow of equity capital?
2. Why has venture capital funding proved to be far more reliable source of capital than
IPOs or foreign portfolio money?
3. What tangible and intangible benefits do PE and venture funds provide to investee
companies?
4. What critical issues in the PE Industry need to be addressed in order to support the 'Make
in India' initiative?

Solution:
1. Ways to increase flow of Equity capital in INDIA:
Venture Capital: Collecting funds from high net worth investors and domestic
institutions .This business is done by the venture capitalist firms. They provide funds
to the company if its business can prove that it has a solid track record and a potential
return on investment.
Personal Capital: Fund Business by your own savings or raise capital from friends
,relatives
Public Capital :Force retail investors to invest money in these emerging companies
via Initial Public offering
Foreign capital flows
2. Why has venture capital funding proved to be far more reliable source of capital than
IPOs or foreign portfolio money?
Source of capital for emerging companies: Venture capital is the only significant
source of capital for start-ups and young-and-growing companies. Almost 90 per cent
of PE transactions are in unlisted companies. Such deals account for about 70 per cent
of the PE capital deployed. In deals under 60 Crores, about 85 per cent of the PE
capital is deployed in unlisted companies.
Helps the business grow: Where venture money plays an important role is in the
next stage of the innovation life cyclethe period in a companys life when it begins
to commercialize its innovation. We estimate that more than 80% of the money
invested by venture capitalists goes into building the infrastructure required to grow
the businessin expense investments (manufacturing, marketing, and sales) and the
balance sheet (providing fixed assets and working capital).

Increased Capital available for Companies: In the past 10 years, the VC/PE
industry in India has provided $80 billion in equity funding to over 2800 enterprises
spread across 12 sectors. These funds, investing at a run rate of $7-10 billion
annually, have supplied twice the capital supplied by the IPO market in the last five
years..
Gives shape to the traditional start ups: Venture capital fills the void between sources
of funds for innovation (chiefly corporations, government bodies, and the
entrepreneurs friends and family) and traditional, lower-cost sources of capital
available to ongoing concerns.
Investment by Venture Capitalist are long term, this contributes to stable flow of
capital for the companies
no repayments or interest

3. Tangible and Intangible benefits:

Venture capitalists provide some tangible as well as intangible benefits by providing
them strategic and managerial inputs enhances their profit opportunities, thus making
them competitive enough for global marketplace.

Export Income It can be observed from data and facts that the export income of PEBacked companies grew by about FY05-FY13as compared to 16% growth of export
income in non-PE backed companies
The PE backed companies engaged more in cross border Merger and Acquisition
deals and delivered a higher rate of revenue and operating profits in the years
following funding by VC
Suffice Capital: PC-backed firms generate higher employment as they have
sufficient capital to expand and move up the operation chain .
Governance Standards: Professional PE and VC investor are known to improve the
governance standards of Family owned businesses.
Employment: The PE-backed firms have almost 3 to 4 times the employment growth
of non PE firms i.e. 13%
Credibility: VC brings down the probability of loan default by imposing greater
credit discipline.

4. Critical Issues
There are mainly three critical issues to be addressed:
Reducing complexity in taxation by restoring the tax pass through for all PE/VE
Funds
Post the new AIF regulations passed in 2012,tax pass through was granted to only a
subcategory of category 1 AIFs unlike under the venture capital funds regulation in
which the tax pass through was granted to all the venture capital firms.

Allowing and facilitating domestic capital pools to invest in PE/AC

Easing the operations of India focused foreign investors in India by clarifying nonapplicability of permanent establishment.