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BY

FIJAS KING

CINCILA

HEENA

LAKSHYA

JEYARAJ

JITUPARNA

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The venture capital investment helps for thegrowth of innovative entrepreneurships in India

Venture capital means risk capital

The risk envisaged may be very high may be so

high as to result in total loss or very less so as toresult in high gains

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In the 1920 s and 30 s, the wealthy familiesof and individual investors provided thestartup money for companies that would

later become famousEastern Airlines and Xerox are the morefamous ventures they financedIn its early years VC may have been

associated with high technology, over theyears the concept has undergone a changeand as it stands today it implies pooledinvestment in unlisted companies

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Venture capital means funds made availablefor startup firms and small businesses withexceptional growth potential.

Venture capital is money provided by professionalswho alongside management invest in young, rapidlygrowing companies that have the potential todevelop into significant economic contributors.

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Investment made in equity, investors wait for 5-7years to reap the benefits of capital gainInvestments are made in innovative projectsInvestors does not interfere in day-to-day businessCapital need not be repaid in the course of business

but realized through exist route (stock exchange)

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It injects long term equity finance whichprovides a solid capital base for futuregrowth.

The venture capitalist is a business partner,sharing both the risks and rewards. Venturecapitalists are rewarded by business successand the capital gain.

The venture capitalist is able to providepractical advice and assistance to thecompany based on past experience withother companies which were in similarsituations.

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The venture capitalist also has a network of contacts in many areas that can add valueto the company.

The venture capitalist may be capable of providing additional rounds of fundingshould it be required to finance growth.

Venture capitalists are experienced in theprocess of preparing a company for aninitial public offering (IPO) of its shares ontothe stock exchanges or overseas stockexchange such as NASDAQ.They can also facilitate a trade sale.

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Deal origination

Screening

Due diligence(Evaluation)

Deal structuring

Post investment activity

Exit plan

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Venture capital

Less fluid

Requires high return rate

Invested based on long-run future

Concerned with product and market

potential

Venture capitalist and partner are

co-workers

Traditional capital

More fluid

Bears lower return

Invested based on immediate future

Concerned with past performance

Loaning bank is creditor

Requires collateral

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The concept of venture capital wasformally introduced in India in 1987 byIDBI.

The government levied a 5 per cent cesson all know-how import payments tocreate the venture fund.

ICICI started VC activity in the same year

Later on ICICI floated a separate VCcompany - TDICI

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VCFs in India can be categorized into followingfive groups:

1) Those promoted by the Central Governmentcontrolled development finance institutions. Forexample:- ICICI Venture Funds Ltd.

- IFCI Venture Capital Funds Ltd (IVCF)- SIDBI Venture Capital Ltd (SVCL)

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2) Those promoted by State Government controlleddevelopment finance institutions.For example:- Punjab Infotech Venture Fund- Gujarat Venture Finance Ltd (GVFL)

- Kerala Venture Capital Fund Pvt Ltd.

3) Those promoted by public banks.For example:

- Canbank Venture Capital Fund- SBI Capital Market Ltd

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4)Those promoted by private sectorcompanies.For example:

- IL&FS Trust Company Ltd- Infinity Venture India Fund

5)Those established as an overseas venture capital fund.For example:

- Walden International Investment Group

- HSBC Private Equitymanagement Mauritius Ltd

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AS PER SEBI

AS PER INCOME TAX ACT,1961

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VCF are regulated by the SEBI (VentureCapital Fund) Regulations, 1996.The following are the various provisions:

A venture capital fund may be set up by acompany or a trust, after a certificate of registration is granted by SEBI on anapplication made to it. On receipt of thecertificate of registration, it shall bebinding on the venture capital fund to abideby the provisions of the SEBI Act, 1992.

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A VCF may raise money from any investor,Indian, Non-resident Indian or foreign,provided the money accepted from anyinvestor is not less than Rs 5 lakhs. The VCFshall not issue any document oradvertisement inviting offers from the publicfor subscription of its security or units

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SEBI regulations permit investment byventure capital funds in equity or equityrelated instruments of unlisted companiesand also in financially weak and sickindustries whose shares are listed or unlisted

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At least 80% of the funds should be investedin venture capital companies and no otherlimits are prescribed.

SEBI Regulations do not provide for anysectoral restrictions for investment exceptinvestment in companies engaged in financialservices.

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A VCF is not permitted to invest in the equityshares of any company or institutionsproviding financial services.

The securities or units issued by a venturecapital fund shall not be listed on anyrecognized stock exchange till the expiry of 4years from the date of issuance .

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A Scheme of VCF set up as a trust shall bewound up

(a) when the period of the scheme if any, isover

(b) If the trustee are of the opinion that thewinding up shall be in the interest of theinvestors

(c) 75% of the investors in the scheme pass aresolution for winding up or,

(d) If SEBI so directs in the interest of theinvestors.

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The Income Tax Act provides tax exemptions tothe VCFs under Section 10(23FA) subject tocompliance with Income Tax Rules.

Restrict the investment by VCFs only in the equityof unlisted companies.

VCFs are required to hold investment for aminimum period of 3 years.

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The Income Tax Rule until now provided thatVCF shall invest only upto 40% of the paid-upcapital of VCU and also not beyond 20% of thecorpus of the VCF.

After amendment VCF shall invest only upto25% of the corpus of the venture capital fundin a single company.

There are sectoral restrictions under theIncome Tax Guidelines which provide that a VCFcan make investment only in specifiedcompanies.

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6.94

7.73

11.5

4.32

27.954.82

11.43

12.92

3.369.03

Percentage

IT & ITES

Energy

Manufacturing

Media & Ent.

BFSI

Shipping & logistics

Eng. & Const.

Telecom

Health care

Others

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CITIES SECTORS

MUMBAI Software services, BPO, Media,Computer graphics, Animations,Finance & Banking

BANGALORE All IP led companies, IT & ITES, Bio-technology

DELHI Software services, ITES , Telecom

CHENNAI IT , Telecom

HYDERABAD IT & ITES, Pharmaceuticals

PUNE Bio-technology, IT , BPO

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1160 937591 470

16502200

7500

14234

6390

280

110

78

56

71

146

299

387

170

0

50

100

150

200

250

300

350

400

450

0

2000

4000

6000

8000

10000

12000

14000

16000

2000 2001 2002 2003 2004 2005 2006 2007 1st half of

2008Value of deals No of deals

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The increase in weighted deduction of in house R&Dwill boost up investment in health care.

46% of the total investment is going toinfrastructure development which is a positive signfor investors.

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