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Factor affecting Private Equity in India
Presented by:Hadia LakdawalaVinay Singh TomarTwinkle Shah
Presented to:Prof. Mittal DattaniCenter for management studiesGanpat University
Flow of presentation Introduction Literature review Research methodology Analysis Findings Conclusion Bibliography
Introduction
Private equity is capital that is not noted on a public exchange.
Private equity is composed of funds and investors that directly invest
in private companies, or that engage in buyouts of public companies,
resulting in the delisting of public equity
Private equity comes primarily from institutional investors and
accredited investors, who can dedicate substantial sums of money for
extended time periods.
Types of Investment in Private Equity
History of Private Equity Venture capitalists often relate the story of Christopher Columbus.
In the fifteenth century, he sought to travel westwards instead of
eastwards from Europe and so planned to reach India. His far-
fetched idea did not find favor with the King of Portugal, who
refused to finance him.
History of Private Equity Finally, Queen Isabella of Spain decided to fund him
and the voyages of Christopher Columbus are now empanelled in history.
The founder of ARD (American Research and Development Corporation ) was General Georges Dariot, a French-born military man who is considered "the father of venture capital
Private Equity in India
The first origins of modern Venture Capital in India can be traced to the setting
up of a Technology Development Fund (TDF) in the year 1987-88.
The first phase was spurred on soon after the liberalization process began in
1991. Government had recognized the need for venture capital as early as
1988.
That was the year in which the Technical Development and Information
Corporation of India (TDICI, now ICICI ventures) was set up, soon followed by
Gujarat Venture Finance Limited (GVFL).
Private Equity in India In 1996, the Securities and Exchange Board of India (SEBI) came
out with guidelines for venture capital funds has to adhere to, in order to carry out activities in India.
This was the beginning of the second phase in the growth of venture capital in India.
The Indian Venture Capital Association (IVCA), is the nodal center for all venture activity in the country. The association was set up in 1992 and over the last few years, has built up an impressive database.
Funding Risk
Liquidity Risk
Market Risk
Capital Risk
Risk in investment in Private Equity
Factor influencing Private Equity Investment
Profile of the Respondents' Firms
Size of the Firm in which investment is to be made.
Growth Potential of the Product in the Market
Expected Returns against investment
Valuation of Firm
Factor influencing Private Equity Investment
Management
Past Success
Expertise in their field
Assurance
Regulatory Framework
Literature Review For our Literature review we have selected 95 research papers
which are further categorized in 3 different segment
18 papers defining Private Equity Investment
37 papers Factor Affecting Private Equity Investment Decision For Individual Investor
40 papers Factor Affecting Private Equity Investment Decision For Fund Managers
Research MethodologyPrimary Objectives:
This research focused on number
of factors that highlights the
factors which the private equity
investor keeps in mind while
taking decision about investing
in any of the venture.
Secondary Objectives To analyze the factors which
affect the perception of
investor
To investigate the factors that
influences the private equity
investor’s decision while
investing the funds.
Model for Private Equity Investment Their are 2 models in this research which helps us to
determines what factors affect the individual investor and fund managers for taking the investment decision for private equity.
Factors considered by
individual
Risk and
retruns Entry and Exit barriers
Past experienc
e:
Legal Framewor
k
Management of the companyFinacial
condition of the compan
y
Economic
Factors
Nature of investme
nt
Growth rate
other Factors
Factor for Investment decision of
Fund Managers
Heuristic Behaviou
rProspect theory
Herding Behaviou
r
Corporate Governan
ceSituation
of the capital market
Finacing cost
Risk and return
Finacial analysis of any
company
Process of Private Equity
Company Analysis
Finding for Model The model here represents the factors which the fund managers
and the individual investor would consider before investing in any investment.
The model is mainly comprises of the following : Heuristic behaviour, Prospect theory, Herding behaviour, Corporate governance, Situation of the capital market, Financing cost, Financial analysis of any company. These factors influence the behaviour of the fund managers for the purpose of investment.
Finding for Model While the factors that affect the behaviour of individual
investor which is as follows: Risk and returns, Entry and Exit barriers, Past experience, Legal Framework, Management of the company, Financial condition of the company, Economic Factors, Nature of investment, Growth rate, Other Factors.
The model helps to analyze the factors which would be required by the investor for considering the investment
Finding for Process The process of private equity is consists of 10 steps and the most important
step in this process is the due diligence because this include various checking
on the purpose of the other investment.
The process of private equity includes the following :
› Signing a Non-Disclosure Agreement (NDA)
› Initial due diligence & Management Presentation
› Deal Alert (first review with Investment Committee)
› Non-Binding Letter of Intent (LOI) or First Round Bid
› Further due diligence with management
› Building an Internal Operating Model
Finding for Process Preliminary Investment Memorandum,
Final Due Diligence and process up to submit a binding bid,
Update and Final Investment Committee Approval,
Final Binding Bid and Signing.
The process is simple and it takes a lot of time to execute.
Conclusion of Model
The model helps in identifying the factors for the decision making process
of the investors. These factors are considered by any fund manager before
considering the investment decision. Although for every different
individual different factors are considered by them. This model determines
the factors and helps the individual to take a decision for the purpose of
investment.
Conclusion of Process
This process helps us to understand that how the simple
process of private equity is taking place and how it works. The
process is simple and easy to understand and it comprises of 10
steps and it is a time consuming process as they deeply
evaluate the prospect which comes for the purpose of private
equity.
Conclusion of Company Analysis
Most of the venture firms are investing in Early Stage and Growth stage of
the companies.
Most of the private equity firm invests in Debt financing, Recapitalization
of Equity structure, Buyouts, Mezzanine and PIPE deals.
Most the Venture capital firms prefer to invest in Infrastructure , Financial
Services, Healthcare, Consumer and Techno driven companies comprises of
E-Commerce, IoT and Technology
Conclusion of Company Analysis Most of company investment in the range of USD 5 – 15 Million in early
stage venture capital and some are investment very less i.e. 50 K – 300 K
also.
Companies register their fund with the Regulatory authorities to make
investment in other companies.
Every company has their own process in selecting the venture or companies
where they want to invest.
Bibliography