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BYAMARNATHPOORNIMA

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The venture capital investment helps for thegrowth of innovative entrepreneurships inIndia

Venture capital means risk capital

The risk envisaged may be very high may be

so high as to result in total loss or very lessso as to result 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 laterbecome famous

Eastern Airlines and Xerox are the morefamous ventures they financed

In its early years VC may have beenassociated with high technology, over the

years 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 byprofessionals who alongside managementinvest in young, rapidly growing companies

that have the potential to develop intosignificant economic contributors.

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Investment made in equity, investors wait for5-7 years to reap the benefits of capital gain

Investments are made in innovative projects

Investors does not interfere in day-to-daybusiness

Capital 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 future growth.

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 provide

practical advice and assistance to the companybased on past experience with other companieswhich were in similar situations.

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The venture capitalist also has a network of contacts in many areas that can add value to thecompany.

The venture capitalist may be capable of providing

additional rounds of funding should it be requiredto finance growth.

Venture capitalists are experienced in the processof preparing a company for an initial publicoffering (IPO) of its shares onto the stock

exchanges or overseas stock exchange such asNASDAQ.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-runfuture

Concerned with productand market potential

Venture capitalist and

partner are co-workers

Traditional capital

More fluid

Bears lower return

Invested based onimmediate future

Concerned with pastperformance

Loaning bank is creditor

Requires collateral

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The concept of venture capital was formallyintroduced in India in 1987 by IDBI.

The government levied a 5 per cent cess on

all know-how import payments to createthe 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 intofollowing five groups:

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

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

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2) Those promoted by State Governmentcontrolled development 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 sector

companies.For example:- IL&FS Trust Company Ltd- Infinity Venture India Fund

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

- Walden International Investment Group- HSBC Private Equity

management 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 be bindingon the venture capital fund to abide by theprovisions 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 VCF

shall not issue any document oradvertisement inviting offers from the publicfor subscription of its security or units

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SEBI regulations permit investment by venturecapital funds in equity or equity relatedinstruments of unlisted companies and alsoin financially weak and sick industries 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, is over(b) If the trustee are of the opinion that the

winding 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 taxexemptions to the VCFs under Section10(23FA) subject to compliance with Income

Tax Rules.

Restrict the investment by VCFs only in theequity of unlisted companies.

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

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The Income Tax Rule until now providedthat VCF shall invest only upto 40% of thepaid-up capital of VCU and also notbeyond 20% of the corpus of the VCF.

After amendment VCF shall invest onlyupto 25% of the corpus of the venturecapital fund in a single company.

There are sectoral restrictions under theIncome Tax Guidelines which provide thata VCF can make investment only inspecified companies.

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6.94

7.73

11.5

4.32

27.95

4.82

11.43

12.92

3.36

9.03

Percentage

IT & ITES

Energy

ManufacturingMedia & Ent.

BFSI

Shipping & logistics

Eng. & Const.

Telecom

Health care

Others

Percentage calculated on the total VC investment- 14,234 USB (fig. of 2007)

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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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1160937

591 470

1650

2200

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

2008

Value of deals No of deals

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The increase in weighted deduction of inhouse R&D will boost up investment in healthcare.

46% of the total investment is going toinfrastructure development which is apositive sign for investors.

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Date post:	03-Apr-2018
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