INTRODUCTION

Venture capital means funds available for startup firms and small businesses with exceptional growth potential. Venture capital is money provided by professionals who alongside management invest in young, rapidly growing

companies that have the potential to develop into significant economic contributors. Venture capitalists raise money from investors and use it to

fund businesses with innovative ideas that conventional

moneylenders such as banks would not touch.

Venture Economics, defines

venture capital as 'providing seed, start-up and first stage

financing'

and

also 'funding the expansion of companies that have already

demonstrated their business potential but do not yet have access to the public securities market or to credit oriented institutional funding source

WHAT IS VENTURE CAPITAL

It means Venture capital is a form of equity financing especially designed 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. Venture Capital is a form of "risk capital". In other words, capital that is invested in a project (in this case - a business) where there is a substantial element of risk relating to the future creation of profits and cash flows. Risk capital is invested as shares (equity) rather than as a loan and the investor requires a higher rate of return" to compensate him for his risk.

Concepts
: Is a new long term investment in growth-oriented small/medium firms, exploit market opportunities and capital gains.

Venture Capital Fund

: Deals in a business which providing services, production or manufacture, not listed.

Venture Capital Undertaking

: Act a financial intermediary by collecting funds from investors looking for high potential returns and giving it to entrepreneurs who need institutional capital

Venture Capital Institution

Features of Venture Capital:

The three primary characteristics of venture capital funds which may them act suitable as a source of finance at time of risk are: (1) It is equity or quasi equity investments; because the investor assumes risk. There is no security for his investment. Venture capital funds by participating in the equity capital institutionalize the process of risk taking .. (2) It is long-term investment : Secondly, venture capital is long-term investment involving both money and time. However duration vary because of type of venture & companys financial regimen.

 3) It is an active from of investment & risk : The most distinguishing feature of Venture Capital is that it meets the needs of a business wherein the probability of loss is quite high because of the uncertainties associated with the enterprise, but the returns expected are also higher than normal. The entrepreneur intends to enter into an untrodden field. Thus, the Venture Capitalist invests in a business where uncertainties have yet to be quantified into risks & underlying oppurtunities . VentureCapital is thus termed as high risk, high return capital

To sum up the features of venture capital generally are,

Long time horizon Financing new and rapidly growing companies; Purchase of equity shares; Assist in transformation of innovative technology based ideas into products and services; and value to company by active participation; Assume risks in the expectation of large rewards; and possess a long-term perspective.

TYPES OF VENTURE CAPITAL FIRMS

Venture Capital can be divided into many different types according to the characteristics of the shareholders and sources of investment -- such as private equity firms, banks, financial institutions, private corporations, the government or insurance companies. HOWEVER FOLL0WING Venture forms funds in India can be classified As..

. :

ON THE BASIS OF THE TYPE OF PROMOTERS

Financial institutions led by ICICI ventures, ILFS, etc. Private venture funds like Indus, etc. Regional funds: Warburg Pincus, JF Electra (mostly operating out of Hong Kong). Regional funds dedicated to India: Draper, Walden, etc. Offshore funds: Barings, TCW, HSBC, etc. Corporate ventures: venture capital subsidiaries of corporations. Angels: high net worth individual investors. Merchant bankers and NBFCs who specialize in "bought out" deals also fund
companies.

ON THE BASIS OF GEOGRAPHICAL FOCUS

ON THE BASIS OF INDUSTRY SPECIALTY

IT and IT-enabled services Software Products (Mainly Enterprise-focused) Wireless/Telecom/Semicond uctor Banking Media/Entertainment Bio Technology/Bio Informatics Pharmaceuticals Contract Manufacturing Retail

Regional Global

A venture capitalist
(also known as a VC) is a person or investment firm that makes venture investments, and these venture capitalists are expected to bring managerial and technical expertise as well as capital to their investments

Advantages of Venture Capital

Advantages to Investing Public 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 & thus VCC representing directors will ensure that the affairs of the business are conducted prudently Advantages to Promoters Convincing Efforts required are less compared to those of entrepreneurs choosing to raise capital through public issue.

(Contd..)
GENERAL ADVANTAGES ( capitalist) The venture capitalist also has a network of contacts in many areas that can add value to the company. The venture capitalist may be capable of providing additional rounds of funding should it be required to finance growth. Venture capitalists are experienced in the process of preparing a company for an initial public offering (IPO) of its shares onto the stock exchanges or overseas stock exchange such as NASDAQ. They can also facilitate a trade sale..

The Investment Process

Deal Flow Generation Assessment & Selection Deal making

Monitoring

Exit

Development of venture capital In India: framework

Development In India
The concept was introduced in India in 1987, whereby Venture capital was introduced in India in mid eighties by All India Financial Institutions with the inauguration of Risk Capital Foundation (RCF) sponsored by IFCI with a view to encourage the technologists and the professional to promote new industries It was operated by Industrial Development Bank of India. In the same year Industrial Credit and Investment Corporation of India was also started venture capital activity.

Conti....
Consequently the government of India promoted the venture capital during 1986-87 by creating a venture capital fund in the context of structural development and growth of small-scale business enterprises. Since then several venture capital firms/funds (VCFs) are incorporated by Financial Institutions (FIs), Public Sector Banks (PSBs), and Private Banks and Private Financial companies. The Indian Venture Capital Industry (IVCI) is just about a decade old industry as compared to that in Europe and US. In this short span it has nurtured close to one thousand ventures, mostly in SME segment and has supported building technocrat/professionals all through. The VC industry, through its investment in high growth companies as well as companies adopting newer technologies backed by first generation entrepreneurs, has made a substantial contribution to economy. In India, however, the potential of venture capital investments is yet to be fully realized. There are around thirty venture capital funds, which have garnered over Rs. 5000 Crores. As of yet ..

Indian Private Equity and Venture Capital Association (IVCA)

Indian Private Equity and Venture Capital Association (IVCA)

is a member based national organization that represents venture capital and private equity firms, promotes the industry within India and throughout the world and encourages investment in high growth companies.
IVCA members comprise venture capital firms, institutional investors, banks, incubators, corporate advisors, accountants, lawyers, government bodies, academic institutions and other service providers to the venture

STRUCTURE OF VENTURE CAPITAL INDUSTRY

The Venture capital firms in India can be categorized into the following groups:
1) All India Developmental Financial Institutions : sponsored Venture Capital Funds promoted by the all-India development financial institutions such as Technology Development and Information Company of India Limited(TDICI) by ICICI, Risk Capital Technology Financial Corporation Limited (RCTCF) by IFCI and Risk Capital Fund by IDBI.

2) State Finance Corporations sponsored Venture Capital Funds promoted by the state level
developmental financial institutions such as Gujarat Venture Capital Limited (GVCL) and Andhra Pradesh Industrial Development Corporations Limited (APIDC-VCL). , Punjab Infotech Venture Fund Kerala Venture Capital Fund Pvt Ltd Venture Capital 3) Bank-sponsored Venture Capital Funds bank finance and SBI Caps. promoted by public sector banks such as Canara

Conti

4) Private Venture Capital Funds promoted by the foreign banks/private sector companies and financial institutions such as Indus Venture Capital Funds, Credit Capital Venture Funds and Grindlays India Development Fund, IL&FS Trust Company Ltd 5)Those established as an overseas venture capital fund. For example: - Walden International Investment Group - HSBC Private Equity management Mauritius Ltd

Rules & regulations of VC in India

AS PER SEBI

AS PER INCOME TAX ACT,1961

Rules by SEBI:
VCF are regulated by the SEBI (Venture Capital Fund) Regulations, 1996. The following are the various provisions: A venture capital fund may be set up by a company or a trust, after a certificate of registration is granted by SEBI on an application made to it. On receipt of the certificate of registration, it shall be binding on the venture capital fund to abide by the provisions of the SEBI Act, 1992.

Contd
A VCF may raise money from any investor, Indian, Non-resident Indian or foreign, provided the money accepted from any investor is not less than Rs 5 lakhs. The VCF shall not issue any document or advertisement inviting offers from the public for subscription of its security or units. SEBI regulations permit investment by venture capital funds in equity or equity related instruments of unlisted companies and also in financially weak and sick industries whose shares are listed or unlisted. At least 80% of the funds should be invested in venture capital companies and no other limits are prescribed. SEBI Regulations do not provide for any sectoral restrictions for investment except investment in companies engaged in financial services.

Contd
A VCF is not permitted to invest in the equity shares of any company or institutions providing financial services. The securities or units issued by a venture capital fund shall not be listed on any recognized stock exchange till the expiry of 4 years from the date of issuance . A Scheme of VCF set up as a trust shall be wound up : (a) when the period of the scheme if any, is over (b) If the trustee are of the opinion that the winding up shall be in the interest of the investors (c) 75% of the investors in the scheme pass a resolution for winding up or, (d) If SEBI so directs in the interest of the investors.

Rules by income tax regulations

The Income Tax Act provides tax exemptions to the VCFs under Section 10(23FA) subject to compliance with Income Tax Rules. Restrict the investment by VCFs only in the equity of unlisted companies. VCFs are required to hold investment for a minimum period of 3 years

Top cities attracting venture capital investments

CITIES SECTORS

MUMBAI

Software services, BPO, Media, Computer graphics, Animations, Finance & Banking All IP led companies, IT & ITES, Bio-technology

BANGALORE

DELHI
CHENNAI HYDERABAD PUNE

Software services, ITES , Telecom IT , Telecom

IT & ITES, Pharmaceuticals Bio-technology, IT , BPO

Successful Stories of VC