Venture Capital in India

Venture Capital in India
"Venture Capital in India"
A PROJECT SUBMITTED IN PART COMPLETION OF
Post Graduate Diploma in Business Administration (PGDBA)
By Mr. Kinjal Shah
UNDER THE GUIDANCE OF Dr. B.
Bhatia
THAKUR INSTITUTE OF MANAGEMENT STUDIES &

RESEARCH, KANDIVILI (E),
MUMBAI
April 2007
Thakur Institute of Management Studies and Research
CERTIFICATE
This is to certify that the study presented by Mr Kinjal . P.
Shah to the Thakur Insititute of Management Studies and
Research in part completion of the degree of Post
Graduation Diploma in Business Management under the title
"Venture Capital in India" has been done under my guidance.
The project is in the nature of original work that has not so far
been submitted for any course of this Institute or any other
Institute
References of work and relative sources of information have
been given at the end of the project.
Signature of the Candidate

(Kinjal
.P. Shah)
Forwarded through the research guide
Signature of the guide

Dr. B. Bhatia
ACKNOWLEDGEMENT
The success of my project was not only with my efforts but also with interest,
guidance and help offered to me by others.
It is my duty to acknowledge with gratitude the help rendered to me by each and
every individual with whom I interacted during the completion of the project.
First and foremost, I would like to express my deepest sense of gratitude towards
my project guide Dr. B. Bhatia , for his invaluable guidance and continuous
encouragement in conducting the research project.
Further I wish to pay my sincere thanks to various executives from the
commodity sector, who took great interest and spared me some quality time from
their busy schedule giving me a wealth of information on commodities market.
1 would also like to express my thanks to my colleagues for their constant help
and guidance throughout the project.
I extend my gratitude to members of my family whose support and
encouragement provided strength and confidence during the study of the project.
I would also like to express my thanks to our Director Dr. Uday Lazmi , who
rendered all the facilities.
Thank you all
Kinjal Shah
Executive Summary
In India risk capital has always been in short supply. Equity has to be
raised either from own sources, or from public. The public sector
institutions like IFC1, 1CICI, IDBI HAVE done little to mitigate the
problems of the tneurs.
Venture capital in India is in its nascent stage but has a huge potential.
India the entrepreneurs as well as the financing intermediaries are
ignorant of the functioning of venture capital. Yet the financing of
domestically developed general and those developed by the new
generation of entrepreneurs been a problem in India.
The investment process of the venture capitalists is discussed to develop
a perfect understanding of financing.
This project is an attempt to understand the changing trends in India. the
role and importance of the venture capital in the country like India and the
overview of the venture capital globally.

SR.NO.
PARTICULARS
PAGE NO.
INTRODUCTION
WHAT IS VENTURE CAPITAL
THE ORIGIN OF VENTURE CAPITAL
ADVANTAGES OF VENTURE CAPITAL
FEATURES OF VENTURE CAPITAL
10
STAGES OF DEVELOPMENT
14
VENTURE CAPITAL IN INDIA
16
REGULATORY GUIDELINES & FRAMEWORK
26
PRESENT STATE OF VENTURE CAPITAL IN

INTERNATIONAL AREA
35
VENTURE CAPITAL IN DEVELOPING COUNTRIES
36
US- BASED VENTURE CAPITAL FUNDS IN INDIA
38
10
TYPES OF VENTURE CAPITAL
40
11
THE BUSINESS PLAN
43
12
THE DUE DELIGENCE PROCESS
45
13
ROLE OF VENTURE CAPITAL
50
14
STRUCTURE OF VENTURE CAPITAL INDUSTRY
53
15
CURRENT TRENDS
55
16
INDIAN SCENARIO
58
17
SUCCESS FACTORS OF VC INVESTMENTS
64
18
MAJOR SUCCESS AND FAILURE STORIES
65
19
CONLCUSION
76
20
BIBLIOGRAPHY
79
21
ANNEXURES
80
9.1
9.2
CONTENTS
Introduction
A number of technocrats are seeking to set up shop on their own and

capitalize on opportunities. In a highly dynamic economic climate that
surrounds us today, few traditional models may survive. Countries
across the globe are realizing conglomerates and the gigantic
corporations that fuel economic growth any more. The essence of any
economy today is the small and medium for example, in the U.S., 50%
of the exports are created by companies with less than 20 employees
and only 7% are created by companies with 500 or more employees
This growing trend can be attrib
uted to rapid advances in
technology in the last decade knowledge driven industries like

InfoTech, health-care, entertainment and services have become the
cynosure of bourses worldwide. In these sectors, it is innovation and
technical capability that arc big business-drivers. This is a paradigm
shift from the earlier physical production and economies of scale
model.
However, starting an enterprise is never a easy thing to do. There are a
number of parameters that contribute to its success or downfall.
Experience, integrity, Prudence and a clear understanding of the market
arc among the sought after qualities of a promoter. However, there are
other factors, which lie beyond the control of the entrepreneur.
Prominent among these is the timely infusion of funds. This is where the
venture capitalist comes in, with money, business sense and a lot more.
What is Venture Capital?

Venture capital is money provided by professionals who invest alongside
management in young, rapidly growing companies that have the potential to
develop into significant economic contributors. Venture capital is an important
source of equity for start-up companies.
Venture capital is capital typically provided by outside investors for financing of

new, growing or struggling businesses. Venture capital investments generally are
high risk investments but offer the potential for above average returns and/or a
percentage of ownership of the company. A venture capitalist (VC) is a person
who makes such investments. A venture capital fund is a pooled investment
vehicle (often a partnership) that primarily invests the financial capital of thirdparty investors in enterprises that are too risky for the standard capital markets or
bank loans.
According to International Finance Corporation (IFC), venture capital is equity or
equity featured capital seeking investment in new ideas, new companies, new
production, new process or new services that offer the potential of high returns
on investments.
As defined in Regulation 2(m)of SEBI (Venture Capital Funds) Regulation , 1996
"venture capital fund means a fund established in the form of a company or trust
which raises monies through loans, donations issue of securities or units as the
case may be, and makes or proposes to make investments in accordance with
these regulations.
Thus venture capital is the capital invested in young, rapidly growing or changing
companies that have the potential for high growth. The VC may also invest in a
firm that is unable to raise finance through the conventional means.

Professionally managed venture capital firms generally are private partnerships
or closely-held corporations funded by private and public pension funds,
endowment funds, foundations, corporations, wealthy individuals, foreign
investors, and the venture capitalists themselves.
Venture capitalists generally:
Finance new and rapidly growing companies;
Purchase equity securities;
Assist in the development of new products or services;
Add value to the company through active participation;
Take higher risks with the expectation of higher rewards;
Have a long-term orientation
When considering an investment, venture capitalists carefully screen the

technical and business merits of the proposed company. Venture capitalists only
invest in a small percentage of the businesses they review and have a long-term
perspective. Going forward, they actively work with the company's management
by contributing their experience and business savvy gained from helping other
companies with similar growth challenges.
Venture capitalists mitigate the risk of venture investing by developing a portfolio
of young companies in a single venture fund. Many times they will co-invest with
other professional venture capital firms. In addition, many venture partnership will
manage multiple funds simultaneously. For decades, venture capitalists have
nurtured the growth of America's high technology and entrepreneurial
communities resulting in significant job creation, economic growth and
international
competitiveness.
Companies
such
as
Digital
Equipment
Corporation, Apple, Federal Express, Compaq, Sun Microsystems, Intel,

Microsoft and Genentech are famous examples of companies that received
venture capital early in their development.
Venture Capital is the business of establishing an investment fund in the form of

equity financing via investments in the common stocks, preferred stocks and
convertible debentures of various companies. These companies are seen to
have a high growth potential and are able to be listed on the stock exchange in
order to gain the highest returns in dividends and capital gain.
THE ORIGIN OF VENTURE CAPITAL

The origin of venture capital can be traced to USA in 19th century. After the
second world war in 1946. the American Research and Development was formed
as first venture organization which financed over 900 companies. Venture capital
had been a major contributor in development of the advanced countries like UK,
Japan and several European countries.
In the 1920's & 30's, the wealthy families of and individuals investors provided
the start up money for companies that would later become famous. Eastern
Airlines and Xerox are the more famous ventures they financed. Among the early
VC funds set up was the one by the Rockfeller Family which started a special
fund called VENROCK in 1950, to finance new technology companies.
USA is the birth place of Venture Capital Industry as we know it today.
During most its historical evolution, the market for arranging such
financing was fairly informal, relying primarily on the resources of wealthy
families.
In 1946, American Research and Development Corporation (ARD), a publicly
traded, closed-end investment company was formed. ARD's best known
investment was the start-up financing it provided in 1958 for computer maker
Digital Equipment Corp. ARD was eventually profitable, providing its original
investors with a 15.8 percent annual rate of return over its twenty-five years as
an independent firm. General Doriot, a professor at Harvard Business School,
set up the ARD, the first firm, as opposed to private individuals, at MIT to finance
the commercial promotion of advanced technology developed in the US
Universities. ARD's approach was a classic VC in the sense that it used only
equity, invested for long term, and was prepared to live with losers. ARD's
investment in Digital Equipment Corporation (DEC) in 1957 was a watershed in
the history of VC financing.
10

The number of such specialized investment firms, eventually to be called venture
capital firms, began to boom in the late 1950s.The growth was aided in large part
by the creation in 1958 of the federal Small Business Investment Company
program. Hundreds of SBICs were formed in the 1960s, and many remain in
operation today
Venture Capital funds are privately owned and constitute the largest source of
equity capital. There are a number of venture capital firms in Greater Boston,
San Francisco, New York, Chicago and Dallas. The electronic units in these
areas got a start from these firms. The ventures financed were risky but carried
more than proportionate promise of high return. The venture capital funds takes
a good deal of interest in the units financed by them and assist the companies
with several financial, managerial and technical services.
The sources of venture capital in the USA are several. Individuals make venture
capital investments directly or indirectly. In direct investment individual or
partnership of the individuals appraises the proposal. In the indirect approach,
venture capitalist appraises the proposal and presents his evaluation to the
investors.
Actually venture capitalist developers venture situations in which to invest. For
his trouble, venture capitalist receive 20 to 25 percent of the ultimate profits of
the partnership know as carried interest. He also collects an annual fee of 2
percent (of capital lent or invested in equity) to cover costs. Apart from
individuals, investors include institutions such as pension funds, life insurance
companies and even universities. The institutional investors invest about 10
percent of their portfolio in the venture proposals. Specialist venture capital funds
in U.S.A., have about $30 billions on an annual basis to seek-out promising start-
11

ups and take in them. In Japan there are about 55 active venture firms with funds
amounting to $ 7 billions (1993). Venture capital funds are also extant in U.K.,
France and Korea.
Slow Growth in 1960s & early 1970s, and the First Boom Year in 1978
During the 1960s and 1970s, venture capital firms focused their investment
activity primarily on starting and expanding companies. More often than not,
these companies were exploiting breakthroughs in electronic, medical or dataprocessing technology. As a result, venture capital came to be almost
synonymous with technology finance. Venture capital firms suffered a temporary
downturn in 1974, when the stock market crashed and investors were naturally
wary of this new kind of investment fund. 1978 was the first big year for venture
capital. The industry raised approximately $750 million in 1978.
Highs & Lows of the 1980s
In 1980, legislation made it possible for pension funds to invest in alternative
assets classes such as venture capital firms. 1983 was the boom year - the stock
market went through the roof and there were over 100 initial public offerings for
the first time in U.S. history. That year was also the year that many of today's
largest and most prominent firms were founded.
Due to the excess of IPOs and the inexperience of many venture capital fund
managers, VC returns were very low through the 1980s. VC firms retrenched,
working hard to make their portfolio companies successful. The work paid off and
returns began climbing back up.
Boom Times in the 1990s
The 1990s have been, by far the best years for the Venture Capital Industry. The
engine for growth has been the favourable economic climate in the US coupled
12

with the advent of the Internet boom. During this decade, the interest rates were
low and the P/Es were very high compared to historical averages. Finally, the
rate of M&A activity has increased dramatically in the 1990s, creating more
opportunities for small, venture-backed companies to exit (cash out) at high
prices.
The advent of the Internet as a new medium for both personal and business
communications and commerce created an avalanche of opportunities for
venture capitalists in the mid and late 1990s. As a result, the industry has
experienced extraordinary growth in the past few years, both in the number of
firms, and in the amount of capital they have raised.
13
ADVANTAGES OF VENTURE CAPITAL

Ven t u r e capital has a number of advantages over other forms of
finance such as
Finance
The venture capitalists inject long term equity finance, which
provides a solid Capital base for future growth. The ve nt ure
capitalist may also be capable of p r o v i d i n g additional rounds of
funding should it be required to finance growth.
Business Partner
The ven tu r e capitalist is a business partner, sharing the risks and
rewards
Vent u r e capitalists are rewarded by business success and the
capital gain.
Mentoring
The venture capitalist is able to provide strategic, operational and
financial advice to the company based on experience with other
companies in similar situation.
Alliances
The venture capitalist also has a network of contacts in many areas
that can add v a lue to the company, such as in recruiting key
personnel, providing contacts in internationa l
market,
introductions to strategic partners and if needed, coinvestments w i t h ot he r venture capital firms when additional
rounds of financing are required.
Facilitation of EXIT
The venture capitalist is experienced in the process of preparing a
company for an In it ia l Public Offering(I PO) and facilitating in trade
sales
14
FEATURES OF VENTURE CAPITAL
The key terms found in most definitions of venture capital are:

High technology and high risk, equity investments and capital gains,
value addition through participation in management.
High Risk:
BY
definition the venture capital financing is highly risky and
chances of failure are high as it provide a long-term s tart up capita l

to high risk- high reward ventures. V en t u r e capital assumes four
types of risks, these are:
Management risk Inability of management teams to work
together.
Market risk - Product may fail in the market.
Product risk - Product may not be commercially viable.
Operation risk - Operations may not be cost effective
resulting in increased cost and decreased gross margins.
Normally three out of every ten units financed by venture capital
succeed. A study on 218 investments by venture economist in USA
produced the following returns:
Return
5-10 times or more
10%
2-5 times
20%
less than 2 times
30%
15

Partial or total loss
40%
Total
100%
Percentage of
Investment
16
High Technology
As opportunities in the low technology area tend to be 'few and of lower
order and hi-tech projects generally offer highe r re t urns t h a n projects
in more traditional areas venture capital investments are made in high
technology areas using new technologies or producing innovative goods
by using new technology,
Not list high technology, any high-risk ventures where the entrepreneur
has conviction b u t l it t le capital gets v e nt u re finance. Venture
capital is available for expansion of existing business or
diversification to a high-risk area. Thus technology financing had never
been the primary objective b u t incidental to venture capital.
E q u i t y par ticipation and Capital Gains:
I n v e s t m e n t s are generally in equity and quasi equity participation
throug h direct p ur c h a se of shares, options, convertible debentures
where t h e debt holder has the option to convert the loan instruments
into stock of the borrower or a debt w i t h
warrants to equity
investment. The funds in the form of equity help to raise term loans
that are cheaper source of funds. In early stages of business,
because can be delayed, equity investment implies that investors bear
the risk of venture and would earn a return commensurate with
success in the form of capital gains.
Participation in management:
Venture capital provides value addition by managerial support,
monitoring and follow up assistance. It monitors physical and
financial progress as well as market development initiative. It helps
by identifying key resource persons. They want one seat on the
company's board of directors and involvement, for better or worse, in
the m a j o r decisions
affecting the direction of the company. This is a unique philosophy of

"hands
on
management"
where
venture
capitalist
acts
as
complementary to the entrepreneurs.

Based upon the experience with other companies, a venture capitalist
advises the promoters on project planning, monitoring, financial
management, including worsking capital and public issue. Venture
capital investor cannot interfere in a day-to-day management of the
enterprise hut keeps a close contact with the promoters or
entrepreneurs to protect his investment.
Length of investment
Ven t u r e capitalists help companies grow, but they eventually seek to
exit the inv es tme nt in three to seven years. An early stage investment
may take seven to ten years to mature, w hi le most of the later stage
investments take only a few years. The process of h a v i n g significant
returns takes several years and calls on the capacity and talent of
venture capitalist and entrepreneurs to reach fruition.
Illiquid investment
Ven t ur e capital investments are illiquid, that is, not subject to
repayment on demand or following a repayment schedule. Investors
seek return ultimate!} by means of capital gains when the investment is
sold at market place. The investment is realized only on enlistment
of security or to is lost if enterprise is liquidated for unsuccessful
working. It may take several years before the first investment starts to
r e t u r n proceeds. In some cases the investment may be locked for 7 to
10 years. Ven t ur e capitalist understands this illiquidity and factors
this in his investment decisions.
In a n u t shell Venture capital refers to long term equity or semi-equity

investment f o r fo rmat i on and setting up firms, specializing in new
ideas, or new technologies, inv olvin g high risk but displaying
potential for significant growth and financial returns. It is a long terms
association, with successive stages of the company's development
under highly risky investment conditions.
STAGES OF DEVELOPMENT
All businesses have a life cycle, w h i ch involves a number of stages of
growth an d development. Venture capitalists refer to these stages
when making investments.
Briefly, they areas follow.
Seed Stage
The v e n t u r e is in the idea stage or may be in t h e process of being
organized a n d needs finance for research and development. This
is usually funded by the entrepreneur's own resources.
E a rl y Stage
The company is in th e process of being set up or may have been in the
business for a short time. Such firms have not yet sold their product
commercially and have no track record. Investor companies have
completed the product development stage a n d require funds to
initiate commercial manufacturing and sales.
E x p a n s i o n / Development stage
The company is now established and requires capital for growth and
expansion. The company may or may not have made a profit at this
stage. This is a period of rapid growth and the company will usually
require several rounds of capital injection as it achieves the milestones
set in the business plan.
Management buyout (MBO)
These are funds provided to enable a current operating management
and investors to acquire an existing product or business from a
public or private company.
Management Buy-in (MBI)

These are funds provided to enable a manager or group of managers
from outside the company to buy into the company.
VENTURES CAPITAL IN INDIA.

Venture capital as a source of the launch capital either of the American type or
the slightly variant (in scope) British type is, by and large, conspicuous by its
absence in India. There are, of course, some institutional venture capital funds/
schemes in operation in India. For instance, Industrial Finance Corporation of
India set up the Risk Capital Foundation in 1975 with a view to providing special
assistance to new entrepreneurs, particularly technologists and professionals for
promoting medium-sized industrial projects. Further, with a view to assisting
entrepreneurs who have skills but lack finance to bring in the requisite promoters
contribution, Industrial Development Bank of India (IDBI) introduced two seed
capital schemes, viz.,
State financial corporations special share capital schemes under which SFCs
extend special share capital assistance to projects in the small-scale sector from
their special class of share capital contributed jointly by the concerned state
Government and IDBI and IDBIs own scheme for such assistance (operated
mainly through State Industrial Development Corporation / State Financial
corporation)_ in respect of medium-sized projects costing upto Rs.2 crores. In
1985 the IDBI introduced venture capital fund scheme to assist industrys efforts
for technological advancements. Most of the ventures assisted by the Bank have
been sponsored by professionally qualified entrepreneurs and the
process/technology involved a wide range of new and indigenously developed
ones.
In 1986, Industrial Credit and Investment Corporation of India (ICICI) also
launched a venture capital scheme to encourage new techno crafts in the private
sector in new fields of high technology with inherent risk. Under this scheme
ICICI assists projects, with initial investment not exceeding Rs.2 crores, in the
form of equity or conditional loan with flexible charges and repayment period or
conventional loan. Two new fund were launched recently.
The first one called India fund floated by the International Division of Merrill
Lynch with subscription by non-resident Indians living mainly in the UK and
Western Europe is managed by the UTI.
The second one is the venture capital fund with an initial capital of Rs.10 crores
established in December 1986 by IDBI to provide equity capital for pilot plants
attempting commercial applications of indigenous technology and to adapt
previously imported technology to wider domestic application.
To undertake the task on a continuous and systematic basis, the Industrial Credit
and Investment Corporation set up with the UTI The Technology Development
and Information Company of India Ltd. (TDICI) in 1989. TDICT has started
providing venture capital, R & D funds and technical and managerial services
including Technology and Information. The ICICI also established in 1988 with
UTI venture capital fund with Rs.20 crores, subscribed equally by ICICI and UTI.
The fund is being used for providing assistance mainly in the form of equity,
conditional loans and convertible debenture, to set up technological ventures
which have potential for fast growth.
In January, 1990 ICICI and UTI have jointly launched their second venture fund
for Rs.100 crores. It is interesting to note that the commonwealth Development
Corporation of the U.K. will also be participating in this fund. Among commercial
banks, State Bank of India, Canara Bank and Grind lays Bank have shown
interest in this area. SBIs merchant banking subsidiary, SBI capital markets
invests in the equity shares of new and unknown companies. Canara Bank has
also set up a venture capital fund through its subsidiary, viz., (as bank financial
Services) Grind lays Bank launched India investment fund to provide venture
capital assistance to high risk projects.
In July, 1990 The Gujarat Industrial Corporation Ltd., launched a venture capital
finance scheme through a newly registered subsidiary with the help of the
Capital Trust Fund worth Rs.24 crores to cater to projects which will enhance the
growth of the national economy. The new subsidiary Gujarat Venture Finance
Ltd. would financially support the entrepreneur having both indigenous and
imported technologies not tried before in the country. This organization would
finance venture capital entirely through equity participation.
In private sector a few venture capital funds have been established. One such
fund is Indus Venture Capital Fund (IVCF). This venture capital has been set up
with a capital of Rs. 21 crore contributed by several Indian and international
institutions. The fund provides both equity capital as well as managerial support
to entrepreneurs.
The other private venture capital firms set up in India are Credit Capital Venture
Fund, Twentieth Century Finance Company and Infrastructure Leasing and
Financial Services Ltd.
The above venture capital funds / schemes are essential in the nature of equity
assistance funds/schemes. There are no full- fledged individual corporate or
institutional venture capitalist in India offering a broad spectrum of multi-faced
specialist services like the venture capitalist in the U.S. or U.K. Further, having
regards to the mammoth task to be performed by venture capital finance in India,

the size of the fund would appear to be too small.
For a long time funds raised from public were used as a source of VC. This
source however depended a lot on the market vagaries. And with the minimum
paid up capital requirements being raised for listing at the stock exchanges, it
became difficult for smaller firms with viable projects to raise funds from public.
In India, the need for VC was recognised in the 7th five year plan and long term
fiscal policy of GOI. In 1973 a committee on Development of small and medium
enterprises highlighted the need to faster VC as a source of funding new
entrepreneurs and technology. VC financing really started in India in 1988 with
the formation of Technology Development and Information Company of India Ltd.
(TDICI) - promoted by ICICI and UTI.
The first private VC fund was sponsored by Credit Capital Finance Corporation
(CFC) and promoted by Bank of India, Asian Development Bank and the
Commonwealth Development Corporation viz. Credit Capital Venture Fund. At
the same time Gujarat Venture Finance Ltd. and APIDC Venture Capital Ltd.
were started by state level financial institutions. Sources of these funds were the
financial institutions, foreign institutional investors or pension funds and high networth individuals. Though an attempt was also made to raise funds from the
public and fund new ventures, the venture capitalists had hardly any impact on
the economic scenario for the next eight years.
GROWTH OF FIRMS IN INDIA
Year
No. of Funds
Year
No. of Funds
1995
2000
47
1996
2001
12
1997
10
2002
1998
2003
1999
Source: AVCJ/IVCA
India is prime target for venture capital and private equity today, owing to various
factors such as fast growing knowledge based industries, favourable investment
opportunities, cost competitive workforce, booming stock markets and supportive
regulatory environment among others. The sectors where the country attracts
venture
capital
are
IT
and
ITES,
software
products,
banking,
PSU
disinvestments, entertainment and media, biotechnology, pharmaceuticals,

contract manufacturing and retail. An offshore venture capital company may
contribute upto 100 percent of the capital of a domestic venture capital fund and
may also set up a domestic asset management company to manage the fund.
Venture capital funds (VCFs) and venture capital companies (VCC) are permitted
upto 40 percent of the paid up corpus of the domestic unlisted companies. This
ceiling would be subject to relevant equity investment limit in force in relation to
areas reserved for SSI. Investment in a single company by a VCF/VCC shall not
exceed 5 percent of the paid up corpus of a domestic VCF/VCC. The automatic
route is not available.
INDIA VENTURE CAPITAL INVESTMENT TRENDS
Source: IVCA/AVCJ
In contrast to the emerging trend highlighted above, Indian companies

received almost no Private Equity (PE) or Venture Capital (VC) funding a
decade ago. This scenario began to change in the late 1990s with the
growth of Indias
Information Technology (IT) companies and with the simultaneous dot-com
boom in India. VCs started making large investments in these sectors,
however the bust that followed led to huge losses for the PE and VC
community, especially for those who had invested heavily in start-ups and
early stage companies.
After almost three years of downturn in 2001-2003, the PE market began to
recover towards the end of 2004. PE investors began investing in India
again, except this time they began investing in other sectors as well
(although the IT and BPO sectors still continued to receive a significant
portion of these investments) and most investments were in late-stage
companies. Early-stage investments have been dwindling or have, at best,
remained stagnant right through mid-2006.
The PE and VC Investment Boom in 2000 and Its Aftermath
1996-1997 - Beginning of PE/VC activity in India:
The Indian private equity (PE) and venture capital (VC) market roughly
started in 1996-1997 and it scaled new heights in 2000 primarily because of
the success demonstrated by India in assisting with Y2K related issues as
well as the overall boom in the Information Technology (IT), Telecom and
the Internet sectors, which allowed global business interactions to become
much easier. In fact, the total value of such deals done in India in 2000 was
$1.16 billion and the average deal size was approximately US $4.14 million.
2001-2003 - VC/PE becomes risk averse and activity declines:

Not surprisingly, the investing in India came crashing down when
NASDAQ lost 60% of its value during the second quarter of 2000 and other
public markets (including those in India) also declined substantially.
Consequently, during 2001-2003, the VCs and PEs started investing less
money and in more mature companies in an effort to minimize the risks.
For example:
(a) The average deal size more than doubled from $4.14 million in 2000 to
$8.52 million in 2001
(b) The number of early-stage deals fell sharply from 142 in 2000 to 36 in
2001
(c) Late-stage deals and Private Investments in Public Equity (PIPEs)
declined from 138 in 2000 to 74 in 2001, and
(d) Investments in Internet-related companies fell from $576 million in 2000
to $49 million in 2001. This decline broadly continued until 2003.
2004 onwards - Renewed investor interest and activity:
Since Indias economy has been growing at 7%-8% a year, and since some
sectors, including the services sector and the high-end manufacturing
sector, have been growing at 12%-14% a year, investors renewed their
interest and
started investing again in 2004. As Figure 1 shows, the number of deals

and the total dollars invested in India has been increasing substantially.
For example, US $1.65 billion in investments were made in 2004
surpassing the $1.16 billion in 2000 by almost 42%. These investments
reached US $2.2 billion in 2005, and during the first half of 2006, VCs and
PE firms had already invested $3.48 billion (excluding debt financing). The
total investments in 2006 are likely to be $6.3 billion, a number that is more
than five times the amount invested in 2000.
PE investment expands beyond IT and ITES:
A very important feature of the resurgence in the PE activity in India since
2004 has been that the PEs are no longer focussing only on the IT and the
ITES (IT Enabled Services, commonly known as Business Process
Outsourcing or BPO) sectors. This is partly because the growth in the
Indian economy is no longer limited to the IT sector but is now spreading
more evenly to sectors such as bio-technology and pharmaceuticals;
healthcare and medical tourism; auto-components; travel and tourism;
retail; textiles; real estate and infrastructure; entertainment and media; and
gems and jewellery. Figure 2 shows the division across various sectors
with respect to the number of deals in India in 2000, 2003 and the first half
of 2006.
Early Stage VC Investments during 2000-2006:

Since the Purchase Power Parity (PPP) in India is approximately a factor of
5 (as in, a factor of 5 is used to normalize the GDPs of US & India on a PPP
basis),
analysis shows that early stage VC investments in India should include

those that are $8 million or less. In fact, we can classify earlystage
investments further into Seed, Series A and Series B investments
depending upon their value.
Figure 3 below highlights an approximate comparison of the typical range
of Seed, Series A, and Series B funding in India versus that in the US
(actual dollar amounts; not adjusted in terms of PPP).
Figure 4 given below provides a break-up of the total value of investments

into early-stage investments (primarily by VCs) and late-stage investments
and PIPEs (primarily by PEs). Even within early-stage investments, seed
investments declined the most during 2000-2003 and have essentially
remained negligible during 2004-2006.
Figure 5 shows the break-up of early-stage investments by Seed and
Series A and B investments. In a nuance, perhaps unique to India, since

the Indian upper middle class has become quite affluent during the last 710 years, the entrepreneurs are relying more and more on family and
friends for seed funding,
and since emerging entrepreneurs come from this upper middle class, the
need for seed funding from VCs could remain low for many years to come.
REGULATORY GUIDELINES & FRAMEWORK

In the absence of an organized Venture Capital industry till almost 1998,
individual investors and development financial institutions played the role
of venture capitalists in India. Entrepreneurs have largely depended upon
private placements, public offerings and lending by the financial
institutions.
In 1973 a committee on Development of Small and Medium Enterprises
highlighted the need to foster venture capital as a source of funding new
entrepreneurs and technology. Thereafter some public sector funds were set up
but the activity of venture capital did not gather momentum as the thrust was on
high-technology projects funded on a purely financial rather than a holistic basis.
Later, a study was undertaken by the World Bank to examine the possibility of
developing Venture Capital in the private sector, based on which the Government
of India took a policy initiative and announced guidelines for Venture Capital
Funds (VCFs) in India in 1988.
However, these guidelines restricted setting up of VCFs by the banks or
the financial institutions only. Thereafter, the Government of India issued
guidelines in September 1995 for overseas investment in Venture Capital in
India. For tax-exemption purposes, guidelines were also issued by the
Central Board of Direct Taxes (CBDT) and the investments and flow of
foreign currency into and out of India have been governed by the Reserve
Bank of India's (RBI) requirements. Further, as a part of its mandate to
regulate and to develop the Indian capital markets, the Securities and
Exchange Board of India (SEBI) framed the SEBI (Venture Capital Funds)
Regulations, 1996. These guidelines were further amended in Apr 2000 with
the objective of fuelling the growth of Venture Capital activities in India.
In the late 1990s, the Indian government became aware of the potential
benefits of a healthy venture capital sector. Thus in 1999 a number of new
regulations were promulgated. Some of the most significant of these
related to liberalizing the regulations regarding the ability of various
financial institutions to invest in venture capital. Perhaps the most
important of these went into effect in April 1999 and allowed banks to
invest up to 5 percent of their new funds annually in venture capital.
The main statutes governing venture capital in India included the SEBIs
1996 Venture Capital Regulations, the 1995 Guidelines for Overseas
Venture Capital Investments issued by the Department of Economic Affairs
in the Ministry of Finance, and the Central Board of Direct Taxes (CBDT)
1995 Guidelines for Venture Capital Companies (later modified in 1999). In
early 2000, domestic venture capitalists were regulated by three
government bodies: the Securities and Exchange Board of India (SEBI), the
Ministry of Finance, and the CBDT. For foreign venture capital firms there
was even greater regulation in the form of the Foreign Investment
Promotion Board (FIPB), which approves every investment, and the
Reserve Bank of India (RBI), which approves every disinvestment.
Since SEBI is responsible for overall regulation and registration of VCF,
multiple regulatory requirements should be harmonized and consolidated
within the framework of SEBI Regulations to facilitate uniform, hassle-free,
single window clearance.
Registration of a venture capital fund
Applicant should follow the procedure given below so as to expedite the
registration process. However, SEBI will also guide the applicant step by
step after getting application for registration as a venture capital fund.
Normally, all replies are sent within 21 working days from the date of
getting each communication from the applicant during the process of
registration. Thus, the
total time period for registration depends on how fast the requirements are
compiled with by the applicant.
Main requirements under SEBI (Venture Capital Funds) Regulations, 1996:
The following are the eligibility criteria for grant of a certificate of registration
as per regulation 4 of SEBI (Venture Capital Funds) Regulations 1996. For the
purpose of grant of a certificate of registration, the applicant has to fulfil the
following, namely:(a) If the application is made by a company, (i)
Memorandum of association has as its main objective, the

carrying on of the activity of a venture capital fund;
(ii)
It is prohibited by its memorandum and articles of association

from making an invitation to the public to subscribe to its
securities;
(iii)
Its director or principal officer or employee is not involved in

any litigation connected with the securities market which may
have an adverse bearing on the business of the applicant;
(iv)
Its director, principal officer or employee has not at any time

been convicted of any offence involving moral turpitude or any
economic offence.
(v)
It is a fit and proper person.
(b) If the application is made by a trust -
(i)
The instrument of trust is in the form of a deed and has been duly
registered under the provisions of the Indian Registration Act, 1908
(16 of 1908);
(ii)
The main object of the trust is to carry on the activity of a venture

capital fund;
(iii)
The directors of its trustee company, if any, or any trustee is not

involved in any litigation connected with the securities market which
may have an adverse bearing on the business of the applicant;
(iv)
The directors of its trustee company, if any, or a trustee has not at

any time, been convicted of any offence involving moral turpitude or
of any economic offence;
(v)
The applicant is a fit and proper person.
(c) If the application is made by a body corporate

(i)
It is set up or established under the laws of the Central or State

Legislature.
(ii)
The applicant is permitted to carry on the activities of a venture

capital fund.
(iii)
The applicant is a fit and proper person.
(iv)
The directors or the trustees, as the case may be, of such body
corporate have not been convicted of any offence involving moral
turpitude or of any economic offence.
(v)
The directors or the trustees, as the case may be, of such body
corporate, if any, is not involved in any litigation connected with the
securities market which may have an adverse bearing on the

business of the applicant.
(d) The applicant has not been refused a certificate by the Board or its
certificate has not been suspended under regulation 30 or cancelled under
regulation 31.
Application for Registration:
An applicant should apply for registration in form a prescribed under First
Schedule of SEBI (Venture Capital Funds) Regulations 1996 along with
requisite fees. All documents should be enclosed as specified in the form.
Additional information:
1.
A complete list of your associate companies registered with SEBI, and

also indicate the capacity in which they are registered along with the
SEBI Registration number;
2.
State whether the applicant is registered with SEBI in any capacity.
3. A complete list of your group companies registered with SEBI, and

also indicate the capacity in which they are registered with SEBI along
with their SEBI Registration number.
4.
Whether the applicant or the intermediary, as the case may be or its

whole time director or managing partner has been convicted by a Court
for any offence involving moral turpitude, economic offence, securities
laws or fraud
5. Whether any winding up orders have been passed against the applicant
or the intermediary.
6.
Whether any orders under the Insolvency Act have been passed
against the applicant or any of its directors, or person in management
and has not been discharged.
7.
Whether any order restraining prohibiting or debarring the applicant
or its whole time director from dealing in securities in the capital

market has been
passed by SEBI or any other regulatory authority and a period of three

years from the date of the expiry of the period specified in the order
has not elapsed;
8.
Whether any order canceling the certificate of registration of the

applicant on the ground of its indulging in insider trading, fraudulent
and unfair trade practices or market manipulation has been passed by
SEBI and a period of three years from the date of the order has not
elapsed ;
9. Whether any order, withdrawing or refusing to grant any license/

approval to the applicant or its whole time director which has a bearing
on the capital market, has been passed by SEBI or any other regulatory
authority and a period of three years from the date of the order has not
elapsed.
9. Whether the applicant or its group/associate companies are listed on any
of the recognised stock exchange(s) in India. If so, please furnish the
details.
10. (a) Details of registration of your company/associate/group companies
(to be given separately), which are registered/ required to be
registered with Reserve Bank of India (RBI) as a Banking company or
Non Banking Finance Company or in any other capacity and
address(es) of concerned branch office(s) of RBI.
(b) Details of disciplinary action taken by RBI against you or any of your
group/associate companies. Please also inform us in case there is
any default in repayment of deposits by you or any of your group /
associate companies.
Applicant can submit no objection certificate from RBI for getting registered
with SEBI, to expedite the registration process.
Other Documents to be submitted to SEBI

1) Memorandum and Articles of Association of applicant company,
executed copy of trust deed if the fund is being set up as a trust and
main objective of constitution in case of body corporate.
2) Executed copy of Investment Management Agreement, if applicable.
3) Disclose in detail the investment strategy as required under
regulation 12(a) of the SEBI (Venture Capital Funds) Regulations,
1996. Also state the target size of the fund along with the profile of
the investors of the fund.
4) An undertaking to the effect that the fund will not enter into any
venture capital activity if it fails to raise a commitment of at least Rs.
5 crore as required under Regulation 11(3) of SEBI (Venture Capital
Funds) Regulations, 1996.
5) Copies of letters of commitment from investors in support of the
target amount proposed to be raised by the fund.
6) Undertaking that the venture capital fund will not make investment
in any area listed under Third Schedule to SEBI (Venture Capital
Funds) Regulations, 1996.
7)
Venture Capital Fund shall disclose the duration/ life cycle of the
fund.
Grant of Certificate of Registration

Once all above requirements have been complied with and requisite fees
as per Second Schedule to Regulations has been paid, SEBI will grant
certification of registration as a venture capital fund.
Suspension of certificate
SEBI may suspend, without prejudice to issue of directions or measure as
about, the certificate granted to a venture capital fund if the venture capital
fund contravenes any of the provision of the SEBI or of the regulation
made there under or required by SEBI or false or misleading information or
does not submit periodical returns or reports as required by SEBI or does
not co-operate with any enquiry inspection or investigation conducted by
SEBI or fail to reduce the complaints investor or fail to give a satisfactory
reply to SEBI in this behalf.
Cancellation of certificate
SEBI may cancel he certificate granted to venture capital fund where the
venture capital fund where the venture capital fund is guilty of fraud or as
been convicted of any offence involving moral attitude or where the venture
fund has been guilty of repeated default under regulation.
No order of suspension or cancellation shall be made by except after
holding an enquiry in accordance with the following procedure:For he purpose of holding an enquiry, SEBI may appoint one or more
enquiry officer.
The enquiry, officer shall issue to venture capital fund at registered office or
principal place of business a notice stating the ground on which the action
proposed to be taken and shown cause why such action need not be taken
within a period of 14 days from the date of receipt of notice.
The venture capital fund may within 14 days from the date of receipt of such
notice, furnish enquiry officer its reply ad make its representation before
him a venture capital fund may appear through any person duly authorized
by it. He enquiry officer shall after talking into account all relevant facts
and circumstance, submit a report to SEBI and recommend penal action, if
any, to be taken against the venture capital fund as also the ground on
which such action is justified.
On receipt of the report from he enquiry officer ,SEBI shall consider the
same and may issue to venture capital fund a shown cause notice as to why
such penal action as proposed by enquiry officer or such appropriate
action should not be taken against it. The venture capital fund ,within 14
days from the date of receipt of such cause notice sends a reply to SEBI.
after considering the reply, if any of the venture capita SEBI shall pass an
order as it deems fit.
On and from the data of suspension of certificate, he venture capital fund
shall cease to carryon any activity as a venture capital fund during the
period of suspension and shall be subject to such direction of SEBI with
regards to any records documents securities as may be in its custody or
control relating into its activity as a venture capital as SEBI specifies. On
and from the date of cancellation of certificate ,the venture capital fund with
immediate effect shall cease to carry on activity of he venture capital fund
and shall be subject to such direction 0of SEBI with regards to transfer of
records documents and securities that may be in its custody or control

relating to the activities of the venture capital fund as SEBI may specify.
The order of suspension or cancellation of certificate may be published by
SEBI in least two newspaper.
PRESENT STATE OF VENTURE CAPITAL IN INTERNATIONAL

AREA.
The natural birth place of venture capital in the U.S.A. The development of
the venture capital industry there has taken place over quite a long period.
Venture capital industry in its present form started in 1949 the year of the
formation in Boston of the American Research and Development
Corporation. The legislation used to spur venture capital was Small
Business Investment Companies with tax advantage and government loan
money. By 1962, there were 585 such companies with 205 millions in capital
between them. However, these companies ran into difficulties due to lack
of understanding of venture capital principles on the part of the
management land their inexperience. In the appropriate government
legislation also contributed to the failures.
Learning from the experience of 60s new venture capital companies were
formed which were better structured and organized in 70s. These were the
years when venture capitalist became more involved in development
financing both for their portfolios and for new investment. The pool of
capital employed which stood at Rs.2.5 billions in 1975 surged significantly
to $ 7.6 billions by the end of 1982 due to the tax reduction in 1978. In 1988
there were 587 active capital firms, of which 200 formed the core of the
industry. There were $24.1 billion in funds under the management. The
buoyancy in American venture capital activity was due to abundant
technological opportunities for the creation and commercialization of new
goods and services, freedom of foreign investment in the U.S.A. large
potential gains associated with equity and management participation in
high technology ventures and tax relief.

The most important features of American venture capitalist is that they are
totally involved with firms based on high technological innovation right
from the stage of conception of business ideas to the final stage of their
establishment. They
provide, in addition to risk capital, managerial, commercial, technical,

financial and entrepreneurial services so as to enable the firm to achieve
optimum performance. They are almost a full-fledged partner in the
business along with the entrepreneur, sharing the risk and added value
created in the process.
In the U.K., venture capital activity flourished in the years, since 1980. There
were only 10 companies in the market supplying venture capital. In 1987
Britain had 140 such companies with total investments of 800 million.
The major factors contributing to this phenomenal growth in venture capital
activity in Britain were strengthening of the enterprise culture, i.e., public
acceptability of being in business of taking risks for oneself, of starting a
business, of trying to make a profit and development of the listed
securities market.
Both these factors were the outcome of strong government support, the
government loan guarantee scheme and business expansion scheme to
render fiscal and financial incentives to venture capitalists.
The British venture capital funds have certain special characteristics. They
have come into existence to fill a potential gap in the market unfilled by the
banks or the various government schemes. That potential is for close
involvement in the management of the Company being backed and in the
panning and ownership of the company over a period of perhaps 5 to 7
years. Some venture capitalist provide funds even right from the research
stage.
VENTURE CAPITAL IN DEVELOPING COUNTRIES

Venture capital as such as has not been a popular source of financing in
developing countries. Only a few Asian countries made serious efforts to
establish venture capital organization. These VC organizations were usually
set up by development banks as subsidiaries or separately managed
funds. Besides in some developing counties such as Philippines and
Argentina, commercial banks constituted VCs organizations.
However, it is interesting to observe that private sector organizations did
not take much interest in setting up venture capital firms until recently. In
some countries, VC firm came into existing with the support of
International Finance Corporation (IFC) since 1978. For example, IFC
played crucial role in setting up SOFINNOVA in Spain, VIBES in
Philippines, Brasilpai in Brazil, IPS in Kenya, KDIC in Korea and SEA VI in
South East Africa.
In recent years few VC firms have come up in countries such as Korea,
Taiwan and Malaysia on the initiative of some private sector institution. In
Korea, for example, numbers of VC firms have been established with the
help of Korea Technology Advancement Corporation (KTAC). KTAC is a
venture Capital group set up in 1974 with the sole objective of investing in
high tech business, especially by commercializing the R&D results from
the Korean Advanced instituted for Services and Technology.
Foreign venture Capital firms have not been in existence in developing
counties excepting Taiwan which has been able to attract foreign VC firms
since the initiation of the venture capital in 1983.
Venture capital organizations in these countries have not been made much
headway because of several factors. One such factor is dearth of funds
available for funding high risk technology ventures. Another factor
contributing to slow growth of VC firms is absence of entrepreneurial

approach among development banks and commercial banks. These
institutions have also been found lacking flexibility, drive and managerial
skills needed for venture financing. Further, inefficient performance of the
government, and sponsored VCFs have retarded the growth of venture
capital companies. Absence of tax incentives is another crucial factor
responsible for slow growth of the companies. In a number of developing
countries including. India tax laws favour debt against equity. Finally,
disinvestments factor has hindered the progress of VC firms in developing
countries. Investors are attracted towards equity investment only they are
assured of making capital games by disposing off equity shares.
Unfortunately financial markets in most of the developing countries are not
properly developed to provide scope for sales of shares as and when
desired by their holders.
US-BASED VC FUNDS INVESTING IN INDIA

Venture Capital Firm
US-India Cross Border & India-based

Companies in their Portfolios
Westbridge (now a
part of Sequioa Capital
India)
AppLabs, Astra, Brainvisa, Celetron, ICICI

OneSource, Indecomm, Induslogic,
MarketRx, ReaMatrix, Tarang, Zavata, Dr.
Lal PathLabs, Royal Orchid Hotels, Bharti
TeleSoft, Mauj, Nazara, Shaadi, Times
Internet, Travelguru, Emagia, July
Systems, Strand Life Sciences, Zenasis
Oak Investment
Partners
Talisma, Sutherland
Matrix Partners
Not Available
Sherpalo Ventures
(now, a part of Kleiner
Perkins,
Caufield and Byers,
KPCB)
Cleartrip, Paymate, Naukri.com, 247

Customer
The View Group
Integreon, Ingenero, TWS, Tracmail,

Peerless India
Bessemer Venture
Partners
Shriram EPC, Sarovar Hotels & Resorts,

Rico Auto Industries, Motilal Oswal,
Financial Services Ltd
Trident Capital
Cognizant, Microland, Outsourced

Partners International
Walden International
Headstrong, e4e, InfoTech, Mindtree

Venture InfoTek
New Enterprise
Associates (NEA)
IndusLogic, Sasken
1
0
1
1
Canaan Partners
e4e
Softbank Asia
International
SIFY, Slashsupport, Intelligroup
1
2
International Finance
Corporation
Indecomm Global Services
1
3
1
4
1
5
Artiman Ventures
BioImagine, Net Devices, Opsource
Columbia Capital
Net Devices, Approva
Gabriel Venture
Partners
Allsec, IL&FS Investsmart,

MakeMyTrip, Persistent Systems, Tejas
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.
Generally there are three types of organized or institutional venture capital funds:
venture capital funds set up by angel investors, that is, high net worth individual
investors; venture capital subsidiaries of corporations and private venture capital
firms/ funds. Venture capital subsidiaries are established by major corporations,
commercial bank holding companies and other financial institutions.
Venture funds in India can be classified 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
Regional
Global
On the basis of industry specialty
IT and IT-enabled services
Software Products (Mainly Enterprise-focused)
Wireless/Telecom/Semiconductor
Banking
PSU Disinvestment
Media/Entertainment
Bio Technology/Bio Informatics
Pharmaceuticals
Contract Manufacturing
Retail
On the basis of funding stage:
Seed/early
Late/mbo
Pipe
Deals in 2003 (BY STAGE)
Stage
SEED/
Sector
Banking
EARLY
Citicorp, Chrys
Company
Yes Bank
Amount
($m)
15.5
Capital, Russell
BPO
BPO
LATE/MBO
VC/PE Fund
Chemical
Retail
Media
Media
BPO
Infra Fund
Sequoia Capital 24/7 Customer
WestBridge
Indecomm
22
4
CDC Capital
ICICI Ventures
Henderson
World
ICI
PVR Cinemas
Hindustan
Capital
Standard
Times
NDTV
11
Chartered
West River
V-Customer
Capital
16.5
8.5
25
Consumer
PIPE
Warburg Pincus Radhakrishna
Foods
Infrastructure Chrys Capital & IVRCL
Pharma
Media
Auto
Citicorp
Newbridge &
Lupin Labs
Citicorp
ICICI Ventures
CDC Capital &
Tata Infomdia
Punjab Tractors
GIC
THE BUSINESS PLAN
50
23
55
22.5
57
Venture capitalists view hu nd re ds of business p la ns every year.

The bus ines s p l a n mu st therefore convince the venture capitalist
that the company and the management team have the ability to
achieve the goals of the company w i t h i n t h e s p e c i f i c t i m e
Essential areas to cover in your plan

1.
Executive Summary:
This is the most important section and is often best written last. It
summaries the business plan and is placed at the front of the
document. It is vi ta l to give this summary significant thought
as it may determine the amount of consideration the venture
capital investor will give to the proposal.
2. Background on the company:

Provide a summary of th e fundamental natur e of the company
a n d its activities, a brief history of the company and an
outline of the company 's objectives.
3. The product or service
Explain the company's product or service. This is especially
important if the product or service is technically oriented.
Explain the competitive edge or the unique selling point.
4. Market analysis
The venture capital firm needs to be convinced that there is a real
commercial opportunity for the business and its products and
services.
Define the market and the sector in which the company operates.
How does the company fit within the market and who are
She competitors?
Describe the distribution channels a n d the customers.
5. Marketing
Define the relevant market and its opportunities.
Outline the sales and distribution strategy.
Outline the pricing strategy and compare if with competitors.
Outline the advertising, public relations and promotion plans.
6. Business operations
7. The management team
Explain
the
remuneration
controls,
performance
measures
and
for management, employees and also include the
organization chart.
8. Financial projections
Assess sales, fixed and variable costs, cash flow and working
capital
Demonstrate the company's growth prospects over a
period a time.
Determine the level of gearing i.e. debt to
shareholders funds ratio
Determine the budgets for each area of
the company's activities

9. Amount and use of finance required and exit opportunities
State how much finance is required by your business. Also outline
the capital structure and ownership before and after financing.
Consider how the venture capital investors will exit the investment
and make a return. Possible exit strategies for the investors may
include floating the company on a stock exchange or selling the
company to a trade buyer.
THE DUE DILIGENCE PROCESS

How venture capital firms choose their investments?
Before making any investment, the goal as venture capitalists is to
understand virtually every aspect of the target company: the experience
and capabilities of the management team, the business plan, the nature of
its operations, its products and/or services, the methods by which sales
are made, the market for the products and/or services, the competitive
landscape, and other factors that may affect the outcome of the
investment. While due diligence investigations are viewed by many as
mundane and irritating tasks, the process enables venture capitalists to
address areas of concern, is an important tool in determining a fair preinvestment valuation, and may help to avoid significant and otherwise
unexpected liability following the investment.
The venture capitalists view the due diligence process as a means of
identifying and becoming comfortable with the risks to which their capital
will be exposed. The due diligence process involves an assessment of
both the microeconomic and macroeconomic factors that can affect the
earnings growth of the target company. The due diligence process also
includes a review of the corporate and legal records, including the
documentation supporting any previous issuances of the company's
securities.
Only one or two business plans in 100 result in successful financing. And
of every 10 investments made, only one or two are successful. But this is
enough to recover investments made by the venture capital (VC) in all 10
start-ups in addition to an average 40-50% return! Securing an investment
from an institutional venture capital fund is extremely difficult. It is
estimated that only five business plans in 100 are viable investment
opportunities and only three in 100 result in successful financing. In fact,
the odds could be as low as one in 100. More than half of the proposals to
venture capitalists are usually rejected after a 20-30 minute scanning, and
25 per cent are discarded after a lengthier review.

The remaining 15 per cent are looked at in more detail, but at least 10 per
cent of these are dismissed due to irreconcilable flaws in the management
team or the business plan.
A Venture Capitalist looks at various aspects before investing in any
venture.
Venture capital firms supply funding from private sources for investing in select
companies that have a high, rapid growth potential and a need for large amounts
of capital. VC firms speculate on certain high-risk businesses producing a very
high rate of return in a very short time. The firms typically invest for periods of
three to seven years and expect at least a 20 percent to 40 percent annual return
on their investment.
SNAPSHOT
A strong management team - each member of the team must have
adequate level of skills, commitment and motivation that creates a
balance between members in areas such as marketing, finance, and
operations,
research
&
development,
general
management,
personnel management, and legal and tax issues.

A viable idea - establish the market for the product or service, why
customers will purchase the product, who the ultimate users are,
who the competition is, and the projected growth of the industry.
Business plan: the plan should concisely describe the nature of the
business, the qualifications of the members of the management
team, how well the business has performed, and business
projections and forecasts.
Venture capital target companies with superior products or services
focussed at fast-growing or untapped markets. Venture capitalists must be
confident that the firm has the quality and depth in the management team
to achieve its aspirations. They will want to ensure that the investee
company has the willingness to adopt modern corporate governance
standards.
Firms strong in factors relating to patents, management, idea, and potential are
more
likely
to
obtain
VC
financing
and
willing
partners
to
support
commercialisation activities.
Last, venture capitalists look for clear exit routes for their investment such as
public listing or a third-party acquisition of the investee company.
Thus the due diligence process basically involves following analysis:
Microeconomic analysis
These are the factors within management's control and include a careful
assessment of the management team, the business model, the value
proposition, the distribution strategy, the intellectual property, the financial
strategy and capital requirements, and the legal structure and records of
the company.
Macroeconomic analysis
These factors are generally outside of management's direct control and
include a review of such areas as market size and expected growth
potential, the perception of the company and its products by its suppliers
and customers, the competitive situation and product differentiation, and
government and regulatory influences.
Due diligence, itself, is both a quantitative and qualitative process. The due
diligence process commences only after the venture capitalist has spent
sufficient time with a prospective company to become convinced that

spending the additional time and energy required will be a worthwhile
endeavor.
Perhaps the most critical aspect of the entire process is the close
interaction between the venture capitalist and the management team
throughout the due diligence process. In the process of getting better
acquainted with the management team, they are able to discern whether
the management team is appropriately experienced and committed to the
business, as measured through the team's behavior as well as their
response to queries
While some of the findings of the due diligence process do little other than
to confirm the initial "gut feelings" of the venture capitalists, there are
some areas that are best described as "show stoppers." Show stoppers
include determining that the target company has a flawed business plan, is
managed by a group of convicted felons, has technology that does not
work, or products that cannot be sold. However, there are other, less
obvious issues that may arise in the due diligence process to cause a
venture
capitalist
to
break
off
discussions
with
company.
One such problem is the inadvertent violation of provisions of various

securities related acts that occurred when the company was raising prior
rounds of capital. Unfortunately, this is a frequent faux pox committed by
many early-stage companies that raised their initial capital from family,
friends, and casual acquaintances without proper documentation. In this
instance, the company and an unsuspecting investor could find a
significant portion of the proceeds of new financing being used to fund the
repurchase of securities from disgruntled existing investors who have
successfully sued for rescission of an earlier and improperly documented
securities offering.
Pending litigation can be another issue that can bring the investment
discussions to an abrupt halt. Not being able to determine how a court or a
jury may rule in a
patent infringement suit is generally not a risk that a venture capitalist is

willing to assume. Both of these risks can be avoided by proper legal due
diligence review of the company's books and corporate records.
To summarize, if the due diligence process confirms an investors' initial
instincts, nothing untoward arises during the review process, and the
additional time spent between the venture capitalist and the management
team results in a positive working relationship, the result is likely to be the
successful closure of an investment in the company. Additionally, a
detailed due diligence process usually results in a more informed investor
who can help management in the value-creation process from inception
rather than spending time following the initial investment trying to
understand the business and the challenges faced by the management
team.
ROLE OF VENTURE CAPITALISTS
Conventional financing generally extends loans to companies, while VC financing

invests in equity of the company. Conventional financing looks to current income
i.e. dividend and interest, while in VC financing returns are by way of capital
appreciation. Assessment in conventional financing is conservative i.e. lower the
risk, higher the chances of getting loan. On the other hand VC financing is a risk
taking finance where potential returns outweigh risk factors.
Venture Capitalists also lend management support and provide entrepreneurs
with many other facilities. They even participate in the management process.
VCs generally invest in unlisted companies and make profit only after the
company obtains listing. VCs extend need based support in a number of stages
of investments unlike single round financing by conventional financiers. VCs are
in for long run and rarely exit before 3 years. To sustain such commitment VC
and private equity groups seek extremely high returns a return of 30% in rupee
terms. A bank or an FI will fund a project as long as it is sure that enough cash
flow will be generated to repay the loans. VC is not a lender but an equity
partner.
Venture capitalists take higher risks by investing in an early-stage company with
little or no history, and they expect a higher return for their high-risk equity
investment. Internationally, VCs look at an internal rate of return (IRR) north of
40% plus. In India, the ideal benchmark is in the region of an IRR of 25% for
general funds and more than 30% for IT-specific funds. With respect to investing
in a business, institutional venture capitalists look for average returns of at least
40 per cent to 50 per cent for start-up funding. Second and later stage funding
usually requires at least a 20 per cent to 40 per cent return compounded per
annum. Most firms require large portions of equity in exchange for start-up
financing.
The VC Philosophy
As against Bought out deals (BODs) , VCs carry out very detailed due
diligence and make 2-7 year investments. The VCs also hand-hold and
nurture the companies they invest in besides helping them reach IPO stage
when valuations are favourable. VCFs help entrepreneurs at four stages:
idea generation, start-up, ramp-up and finally in the exit.
According to Indian Venture Capital Association, almost 41% (Rs 5146.40
m) of the total venture capital investment is in start-up projects followed by
Rs 4478.60 m in later stage projects and only Rs 82.95 in turnaround
projects . Majority have invested in only three stages of investment,
indicating that most VCs in India have not started developing niches for
investing with regard to the stages of projects.
The main difficulty in early stage funding are related to lack of exit
opportunities as probability of an IPO or buy out by of VC stake is less due
to lack of understanding for evaluation of the knowledge based companies
compared to the companies in the traditional sectors. Some such VCs are:
ICICI ventures, Draper, SIDBI and Angels. Apart from finance, venture
capitalists provide networking, management and marketing support as
well. The venture capitalist is a business partner, sharing the risks and
rewards and provides strategic, operational and financial advice to the
company based on experience with other companies in similar situations.
Management of investee firms

The venture funds add value to the company by active involvement in running of
enterprises in which they invest. This is called "hands on" or "pro-active"
approach. Draper falls in this category. Incubator funds like e-ventures also have
a similar approach towards their investment. However there can be "hands off"
approach like that of Chase. ICICI Ventures falls in the limited exposure category.
In general, venture funds who fund seed or start ups have a closer interaction
with the companies and advice on strategy, etc while the private equity funds
treat their exposure like any other listed investment. This is partially justified, as
they tend to invest in more mature stories.
STRUCTURE OF VENTURE CAPITAL INDUSTRY

Venture capital, a financial innovation of the 20th century, is a
long term liquid investment, which can be in the form of equity,
quasi-equity and some times debt in new and high-risk
ventures. Venture capital became better known after the famous
legend of Apple Computers, which started out in the US in 1977
w ith the capital firm, A r t h u r Rock & CO. Apple Computers
then made it to the Fortune 500 a n d Arthur Rock & Co. attained
height in venture capital industry. However the success of
venture capital in USA stimulated world countries to practice on
Venture capital.
The
committee
on
development
entrepreneurs under t h e
of
small
and
medium
chairmanship of R S Bhatt first
highlighted venture capital financing in India in1972.

It drew attention to the problems of new entrepreneurs and
technologists in setting up industries. In 1975, venture capital

financing was introduced in India by t he all India Financial
Institutions with the inauguration of Risk Capital Foundation
(RCF) sponsored by IFCI, with the view to encourage the
technologists and the professionals to promote new industries.
In 1976, the seed capital scheme was introduced by IDBI. Till 1984,
venture capital took the form of risk capital and seed capital. In
1986, ICICI launched a venture capital scheme to encourage new
technocrats in the private sector in emerging fields of high risk
technology.
Consequently, government of India felt the need of venture capital
funds in India in the context of structural development and growth
of small scale business enterprises, since small scale industries
form the major constituents and the backbone of the Indian
economy. Economic prosperity and development of the state is
impossible without adequate economic support to the small-scale
industrial sector.
Initially, a fund under the nomenclature of venture capital fund
(VCF) was required to be established wit certain corpus for
being invested in t he new an d upcoming firms w i t h high
potential of returns. Government decided to allow them
concessional treatment of capital gains arising out of liquidation
of equity holding in the assisted firms.
At present, several vent ure capital funds are incorporated in
I n d i a and they arc promoted either by AFCI like IDBI, ICICI,
IFCI, state level financial institutions, public sector banks or
promoted by foreign by/private sector or financial institutions
like Indus venture capital fund, Credit capital Venture fund etc.
The venture capital firms in I n d i a can be categorized into the
following 4 groups:
All India developmental Financial Institutions sponsored

venture capita! funds promoted by the All India Development
Financial Institutions such as technology development and
information company of India limited (TD5CI) by ICICI, Risk
Capital Technology Financial Corporation Limited (RCTCF)
by IFCI and Risk Capital Fund by IDBI.
State Finance Corporations sponsored venture capital funds

promoted
by
the
state
level
developmental
financial
institutions such as Gujarat Venture Capita! Limited (GVCL)

and Andhra Pradesh Industrial Development Corporationsventure capital limited (APIDC-VCL).
Bank sponsored venture capital funds promoted by public

sector banks such as Can Finance and SBI Caps.
Private
venture
capital
funds
promoted
by
foreign
banks/private sector companies and financial institutions

such as Indus Venture Capital Funds, Credit Capital Venture
funds and Grindlay's India development.
CURRENT TRENDS
Capital Is Pouring Into Private Equity Funds
The IPO boom and its exceptional returns to venture and other
kinds of private equity investments have led institutional
investors, pension funds and endowments to park their money in
these investments.
First-time Firms Never Had It So Good
During the 1989-91 downturns, new venture capital firms faced a
problem in r a i s i n g partnership capital, as there was a 'flight to
quality' among investors who b ac ke d established funds in the

private equity market. However, development* <>>.; liu past few
years have demonstrated that inwtsting sure-bet than an investment
in a 'first-time fu nd '.
T h e State Wants Its Share Of The Pie Too
The Department of Electronics of the Government of India
announced the creation i f a Rs 1 bn IT fund. Many state
governments are sponsoring the formation of new ve n t u r e capital
firms to spur the creation and growth of new business quickly
followed this move. Andhra Pradesh, Karnataka, Kerala, Gujarat
and West Bengal are among the states creating such programs.
They are fairly controversial efforts, because they run the risk of
sacrificing return for economic stimulus. Many would believe that
they are not a good idea. However, some of them are better
designed t h a n others and few might actually workNo More Men In Gray Suits
Another trend that is emerging slowly is the change in the profile
of a fund manager. The venture capitalist is no longer a hybrid
investment banker trying to cash in on another market boom while
still keeping his cards close to his chest. The new-age venture
capitalist is industry-bred and highly regarded in the
business and is fairly at ease with the technologies and
processes in the market.
Tomorrow is Coming Faster
Rapid changes in technology have accelerated the pace and
raised the efficiencies for getting from idea to market.
Investors are specializing. Financing sources are becoming
much more focused on their way to investment in today's
competitive environment. Today, from venture capital firms to
leveraged buyout (LBO) houses and corporations, investors

are devising specific plans for industries and technologies
they want to be in.
More Venture Funds Are Seeking Traditional Businesses
More venture capital funds are going after low-tech or notech companies. For example, Draper International has
picked up a stake in Shoppers Stop and Indus League
Clothing.
Competition Is Affecting Buyer Prices
Historically, there has been a big difference between strategic
buyers who paid a premium for the potential of synergy and
financial buyers and LBO houses. Today,
two factions are
more directly competitive.

All businesses are not evaluated equally. Venture houses
today are looking at what enhances the value of a company,
with
different
Value
drivers'
affecting
various
industry
segments.
Few
example, when
evaluating
technology
company,
investors may care about a technology or process with great

potential. They won't necessarily worry the company lacks
audited financial statements or an organization ---future.
INDIAN SCENARIO
Indian tradition for VC for industry goes back more than 150 years
when many of the managing agency houses acted as venture
capitalist providing both finance and management skill to risky
projects. It was the managing agency system through which Tata Iron
and Steels and era press mills were able to raise equity capital from
the investing public. The Tata also initiated a managing agency
house, named Investment Corporation of India in 1937 which by
acting as venture capitalist, successfully promoted bi-tech enterprises
such as enterprises such as CEAT Tyres .
Associated Bearings National Rayon' the early form of venture capital
enables the entrepreneurs to raise large amount of funds and yet
retain management control. After the mobilizing of managing agency
system, the public sector term lending institutions s meet a part of
venture capital requirements through seed capital and risk capital for hitech industries which were not able to meet promoters contribution.
However all these institutions supported only proven and sound
technology while technology development remanded largely
confirmed to government labs and academic institutions. Many hitech industries, thus found it impossible to obtain financial
assistance from banks and other financial institutions due to
unproven technology conservative attitude, risk awareness and rigid
security parameters.
Venture capital's growth in India passed through various stages. In
2973m R.S. Bhatt Committee recommended formation of Rs. 100 crore
venture capital fund, the Seventh Five Year Plan emphasis need for
developing a system of funding venture capita. The Research and
Development Cess Act was enacted in May 1986 which introduced a
cess of 5% on all payments made for purchase of technology from
abroad. The levy provided the source for the venture capital fund,
United Nations development Programmed in 1987 on behalf of
Government examined the possibility of developing venture capital in
private sector. Technology Policy Implementation Committee in the
same year also recommended the same provisions. Formalized
venture capita book roots when venture capital guidelines were by
Comptroller of Capital Issues in November, 1988.
Methods of Venture Financing

Venture capital is available in four forms in India:
1. Equity Participation
2. Conventional Loan
3. Conditional Loan
1.Equity Participation: Venture Capital firms participate in equity through
direct purchase of shares but their stake does not exceed 49% .These
shares are retained by them till the assisted projects making profit.
These shares are sole either to the promoter at negotiated price under
by back agreement or the public in the secondary market at a profit.
2. Conventional Loan: Under this form of assistance, a lower fixed rate
of interest is charged till the assisted units become commercially
operational, after which the loan carries normal or higher rate of
interest. The loan has to be repaid according to a predetermined
schedule of repayment as per terms of loan agreement.
3. Conditional Loan : Under this form of finance, an interest free loan is
provided during the implementation period but it has to pay royalty on
sales. The loan has to be repaid according to the a pre determined
schedule as soon as the company is able to generate sales and
income'
At present several venture capital firms are incorporated in India and
they are promoted either by all India Financial Institutions like IDBI,
ICICI, IFCL, State level financial institutions like Indus venture capital
fund. The present venture capital players can be broadly classified into
the following four categories.
1. Companies Promoted by all India FIs:
Venture capital Division of IDBI
Risk Capital and technology Finance corporation Ltd., (RCTC)
(Subsidiary of IFCI) Technology Development and information
Company of India Ltd.(TDICI ),(Promoted by ICICI & UTD)
2.Companies Promoted by State FIs:
Gujarat Venture Finance Ltd. (promoted by GUC)
Andhra Pradesh Industrial Development Corporation Venture Capital
Ltd. (Promoted by APIDC)
3. Companies Promoted by Banks:
Can bank venture capital Fund (Promoted by Canfina and Canara
Bank)SBI Venture Capital Fund (promoted by SBI caps )Indian
Investment Fund (promoted by Grind lays Bank)Infrastructure
Leasing (promoted by Central Bank of India )
4. Companies in Private Sector:
Indus Venture Capital Fund (Promoted by Mafatlal and Hindustan
Lever) Credit Capital Venture Fund (India) Ltd., 20th century Venture
Capital Corporation Ltd., Venture Capital Fund promoted by V.B. Desai
& Co.
Brief account of major ingredients of Indian venture capital industry.

1. IDBI Venture Capital Fund
The initial impetus was given by IDBI's Technology Division when
venture capital fund was set up in 1986 for encouraging commercial
application of indigenously developed technology and adopting
imported technology for wider domestic application.
The salient features of the scheme are:
1. Financial assistance under the scheme is available to projects
whose requirements range between Rs.5 lakhs and 2.5 crores. The
promoters stake should be at least 10% for the venture below Rs. 50
lakhs and 15% for those above Rs. 50 lakhs.

2. Assistance was extended in the form of unsecured loan involving
minimum legal formalities. Interest at a confessional rate of 9% is
charged during technology development and trial production and 17$
once the product is introduced in the market.
3. The fund extends financial assistance to venture such as chemicals.
Computer software, electronics. Bio-technology, non-conventional
energy/food processing, medical equipment etc.
4. The project does not succeed, IDBI, can insist on transfer of
technology to some other promoter designated by it on mutually
agreed terms and conditions. It has assisted 70 projects with a net
sanction of Rs.46.80 crores upto March,1993.
2. The Risk capital and Technology Finance Corporation
The Risk Capital and Technology Finance corporation Ltd., (RCTC) the
subsidiary of IFCI provided venture capital through technology finance and development scheme to meet the specific needs of such
technology development. The RCTC , apart from providing assistance
in the form of risk capital, is expected to finance high tech projects in
the form of venture capital for technology up gradation and
development. The assistance is provided in the form of short term
conventional loan or interest free conditional loans allowing profit
and risk sharing with the project sponsors or equity participation.
Through its Technology Finance Development Scheme, it has
assisted 23 project committing funds of the order of Rs.13 crores and
under venture cap[ital fund scheme, it has assisted 17 projects with a
sanction of Rs. 16 crores as on 31st March 1993.
3. Technology Development and Information Company of India Limited

(TDIC 1998).
The venture capital fund was jointly created by Industrial Credit and
Investment Corporation of India (ICICI) and Unit Trust of India (UTI) to
finance projects of professional technocrats in the small and medium
size industries who take initiative in designing and developing
indigenous technology in the country. TDICs first venture capital fund
of Rs.20 crores was subscribed equally by ICICI and UTI under the
new Venture Capital Unit Scheme I of UTI. Under the scheme TDICI
sanctioned financial support of Rs.20 croes to 40 projects which
include computer hardware, computer integrated manufacturing
system, tissue culture, chemicals, food and feed technology,
environmental engineering etc.
The TDICs second venture Fund of Rs. 100 croes has been
contributed by UTI, ICICI, other financial institutions, banks, corporate
sector etc. By March 31, 1993, TDICI has disbursed Rs. 25.81 crores to
42 companies under scheme I and Rs. 79.29 croes to 79 companies
under scheme II in a variety of industries such as computer,
electronics, biotechnology, medical, non-conventional energy etc.
Many of these projects are set-up by first generation entrepreneurs.
TDICI invests in companies with attractive growth and earnings
potential with a view to achieving long terms capital gain. TDICIO
involves in seed, start-up and growth stage companies in a wide
spectrum of industrial sub-sectors.
The Scheme seeks to assist technocrats involve in developing
commercially viable technologies or products, implementing
indigenously developed yet untested technologies on commercial
scale, and adapting innovative technologies for domestic
applications.
The assistance per project may be up to Rs.2 crore in the form of
equity and/or conditional loan (with flexible interest rates and
repayment period).
The equity in the project would be held for a period of 5-8 years and
thereafter sold to the promoter (at a mutually price) or disposed in the
secondary market.
During the development phase, the conditional loan would carry no
interest; during the post-development phase the interest rate on it
would depend on the commercial viability of the project.
4. Gujarat Venture Finance Ltd (GUFL)
The Gujarat Industrial Investment Corporation promoted Gujarat
Venture Finance Ltd., the first stage level venture finance company to
begin venture finance activities since 1990. It provides financial
support to the ventures whose requirements range between 25 lakhs
and 2 crores. GUFL provides finance through equity participation and
quasi equity instruments. The firm engaged in bio-technology,
surgical instruments conservation of energy and good processing
industries are covered by GUFL. Total corporation of Rs.24 crores of
the fund was co-financed by GIIC, IDBI, state level fianc corporation,
some private corporate and the World Bank.
5. Andhra Pradesh Industrial Development Corporations Venture Capital
Ltd. (APIDC-VCL).
The APIDL-VCL was launched in June 1990 with a fund of Rs.13.5
crores of which Rs.4.5 crore was contributed by the World Bank, Rs.3
crores by IDBI and Rs.1.5 crore was committed by Andhra Bank.
APIDC-VCL has a few proposal for venture capital financing in the

sphere of biotechnology and computer software applications.
Assistance to each venture is in the range of Rs/25 lakhs to Rs.1
crores and does not exceed 49 percent of the total equity of a project.
Assistance is normally in the form of equity but depending on the
circumstances loans may also be provided.
6.Canara Bank
Canara Bank has set up a venture capital fund called canbank venture
capital fund worth Rs.10 crore. It has sanctioned Rs.10 crore to 33
projects on March 1992 in the diverse fields like chemicals, machines,
food stuff etc.
7.State Bank of India Capital Markets Ltd. (SBAICAP)
The State Bank of Indias subsidiary SBI Capital Markets Ltd., extend
venture capital assistance to technical entrepreneurs who have good
technique ability but lack financial strength. The support is by way of
either direct subscription or by way of underwriting support to the
company. In any case direct participation will not be in excess of 49%
of the total paid up capital of the assisted unit. The projects in high
priority, thrust areas such as import substitute, high export potential,
hi-tech options are preferred. The equity holdings of assisted
companies are generally disinvested in a period of three years either
by way of sale to public, sale in the OTC exchange of India, sale by
private realty or by buy back arrangements with promotes or their
nominees. SBICAP as on September 30, 1992 assisted 17 companies
with investment of Rs.812 lakhs.
8.Indus Venture Capital Fund
Indus venture capital fund is one of the noteworthy private sector
venture companies. It has been promoted with a starting corpus of
Rs.21 crores contributed by several Indian and international
institutions and companies. Indus venture Management Limited has
been entrusted to manage the fund of Indus venture capital fund. It
provides equity and management support to the firms. Financial
assistance is given to those firms who confine their commercial
operations in areas of health care products, electronics and computer
technology. Investment strategy of the equity funds is not to invest
more that 10% of its corpus in one project and equity stake in a
company may be upto 50%. The basic objective is to earn capital gains
through equity liquidation after certain reasonable time span.
The leading leasing company, 20th Century Finance Corporation has
launched venture capital fund worth Rs.20 crores to cater to the needs
of small businessman.
9.Credit Capital Venture Fund Limited
The first private sector venture capital fund called, Credit Capital
Venture Fund (CVF) was set up by Credit Capital Corporation Limited
(CVF) in April 1989 with an authorized capital of Rs.10 lakhs. Rs.6.5
crore was subscribed by International financial agencies. The CVF
went to public in January 1990 to raise Rs.3.5 crore. It provides
entrepreneurs who have ideas and ability, but no finance, with equity
capital for new green fields projects., It main thrust area would be
export oriented industries and technology oriented projects, the
presents portfolio of the fund consists of investment in six units
worth Rs.25 lakhs. CVF launched a new venture fund of Rs.10 crore
called The Information Technology Fund to provide direct equity
support to projects in the technology information field .
Present Position
The were 20 venture capital companies in India both in private and
public sector in 1994. These companies assisted 350 projects to the
tune of Rs.250 crore upto 1993-94 the form of assistance in these
projects are follows :
Equity 62%
Convertible debentures 14%
Debt. 24%
Out of the 350 projects assisted 62% belongs to new entrepreneurs.
At the end of 1996, according to the Venture Capital Association of
India, 14 of its members had set up 17 funds. They had access to Rs.
1402 crore. A major part of the deployment has been in equitiesaround 61 per cent of the total investment of Rs. 673 crore. Another 21
per cent was deployed in convertible instruments at 6 per cent in
debt. The fast growing software sector has not found favour with
venture capital companies. Industrial products and machinery
accounted for 29 per cent of the total venture capital investment
followed by 13 per cent of the total in consumer related industries, 8
per cent in food processing and only 7 per cent in software and
service sector
SUCCESS FACTORS OF VC INVESTMENTS

1. Industry-specific concentration of investments yields better returns
than geographically concentrated investments.
2. Networking with industrial partners is important since these target
companies are potential clients and exit partners.

3. Networking with universities and research institutes helps identify
new technologies and investment targets.
4. Concentrating
investments
in
carefully
selected
companies
showing international promise will yield better returns than

distributing the capital across several smaller investments. It is
crucial that venture capitalists actively support the growth and
internationalisation of the companies through their industryspecific know-how and international contacts.
5. With respect to the returns from the fund, it is vital that adequate
capital is reserved for further investment in the best investment
targets and for maintaining the holdings until the exit.
6. Joint investments with partners providing added value contribute
to the success of the target companies and improve the returns
from the fund.
MAJOR SUCCESS AND FAILURE STORIES

The economic impact of private equity and venture capital on the UK:
Keeping London and the UK the centre of the European industry
Private Equity and venture capital makes a valuable contribution to the
economy generally by having a positive effect on the companies in which
private equity is invested. In addition, the industry makes a very significant

contribution to the financial services industry and in particular plays an
important role in maintaining the City of London as Europe's premier
financial centre and helping to build it as the world's premier financial
centre.
The industry has shown incredible growth over the last few years, both in
terms of the funds it has raised and the capital it manages and in the level
of investment that is made, with growth comes responsibility as well as
opportunity. The growth of the industry has increased its profile and with
that profile comes a legitimate interest in what the industry is doing from the
public, the press and of course the regulatory authorities.
The industry is currently facing two major reviews - by the FSA in the
Discussion paper they recently published and by the Treasury focusing on
the taxation, not just of capital gains made by the industry, but also the
capital gains made by the risk-taking entrepreneurs and management team
that as an industry VCF back.
Achieving the right outcome for the industry from the tax review and
continuing to ensure regulation is appropriate and not burdensome are two
vital tasks the BVCA and the industry faces.
The BVCA and its work
The BVCA is the industry body that represents the UK private equity and
venture capital industry.
Private equity means the equity financing of companies at many stages in
the life of a company from start-up through expansion all the way through to
buy-outs of established companies that in today's world can be very
significant
and
large
transactions.
Venture capital as a term typically covers early stages of start-up or growth

funding or expansion capital. The term buy-outs (MBO, MBI, etc) refers to
using - private equity to finance the change in ownership of a company.
The common threads - and hence the term private equity - is that the
investments made in unquoted equity (i.e. not publicly quoted equity) and
into companies that have real growth potential which can be turned around
or transformed under private equity ownership as opposed to being
constantly in the spotlight that having a quoted share price means for a
public company.
The BVCA represents the whole cross section of the private equity industry
in the UK - from small seed stage venture funds all the way through to the
large private equity firms who focus almost exclusively on buy-outs and
who are almost becoming household names today.
BVCA membership comprises well over 90% of all UK-based private equity
and venture capital funds and their advisors.
The role of the BVCA is to ensure that the UK industry is properly
represented to politicians and policy makers here at Westminster, across
the
UK
and
in
Brussels.
The industry's economic impact

The survey shows once again that private equity-backed companies are a
significant driver in the UK economy and its global competitiveness.
Key findings of this report show once again that in the five years to
2005/2006:
The growth of employment in private equity-backed companies was faster
than both FTSE 100 and FTSE 250 companies (9% pa vs 1% and 2%
respectively)
Sales grew faster in private equity-backed companies compared with
FTSE 100 and 250 companies (9% vs 7% and 5%)
Exports from private equity-backed companies grew at a faster rate than
the national growth rate (6% vs 2%)
Investment grew faster than the national average (18% vs 1%)
It is now well established that the performance of private equity-backed

companies significantly strengthens the UK economy and improves
international competitiveness and creates jobs at a considerably faster rate
than other private sector companies. It is now estimated that companies
that have received private equity funding account for the employment of
around 2.8 million people in the UK, equivalent to 19% of UK private sector
employees.
It is also significant to note that 92% of companies that responded to the
survey said that without private equity the business would not have existed
at all or would have developed less rapidly.
The reason for this is that private equity investment is more than just the
provision of capital. Respondents to the survey noted that strategic
direction, financial advice and help with contacts were key ways in which
private equity firms had helped with the development of their businesses.
It is estimated that companies which have been private equity-backed
generated total sales of 424 billion, exports of 48 billion and contributed
over 26 billion in taxes.
The figures in the Economic Impact Survey demonstrate clearly that private
equity-backed businesses are active across all regions of the UK and are
valuable contributors to the wealth of these regions.
The impact of the private equity industry as a UK financial service
The UK private equity industry is playing an increasingly significant role as
a source of revenue for firms operating within the broader financial and
professional services industry, contributing to the overall impetus that these
industries provide to the UK economy.
2005 data shows that:
Private equity-related activities generated estimated fee revenue for
financial and professional services firms of over 3.3 billion, representing
around 7% of the total annual turnover of the UK financial services

industry.
There are more than 5,500 individuals (3,500 of which are investment
professionals) employed in some 260 private equity, venture capital,
funds-of-funds and secondaries investment firms in the UK.
The UK has a network of around 750 financial, professional and business
services firms providing advisory and financial support to private equity
and venture capital firms. They employ a full time equivalent pool of close
to 6,700 executives engaged in private equity-related activities.
Taken together, there are over 10,000 highly skilled professionals
employed across over 1,000 firms engaged either directly or indirectly in
private equity-related activities.
For every private equity executive investing directly in UK companies,
there are 2.3 full time equivalent advisors or finance executives providing
specialist advice and services.
Financial, professional and other business services executives working on
private equity-related mandates in 2005 generated an average of
500,000 per head in fees.
Private equity-backed transactions account for a significant proportion of
total M&A activity in the UK with almost 30% of all UK investment banking
fees from M&A and loan financing being derived from private equity
backed transactions in 2005.
The UK private equity industry has long attracted capital investment from
outside its own shores, with almost 50 billion of foreign investment into
UK private equity funds over the past six years.
Furthermore, two-thirds of the total capital invested by UK firms over the
same period was committed to companies within the UK, demonstrating
a positive net inflow of capital into the UK economy.
Investment activity
BVCA are an industry that invests across all sectors, from start-ups to buyouts, all around the UK, across continental Europe and around the world.
In 2005, UK private equity activity increased to its highest ever levels, in
terms of funds raised, private equity investments made and also
divestments.
Here are a few key figures that illustrate the scale of what we do:
Funds raised from investors reached 27.3 billion.
1,535 companies were financed.
Worldwide investment by UK private equity firms increased by 21% in
2005 to 11.7 billion from 9.7 billion in 2004.
Companies financed at start-up stage increased by 9% to 208.
By any measure, the UK private equity and venture capital industry is a UK
success story. And yet it is disappointing that despite the fact that the
benefits of private equity as an asset class are so clear that last year 80%
of BVCA investors came from overseas, with 45% coming from the US.
The primary objective of the private equity industry is to drive returns to its
investors and while it is a good thing that we can attract inward investment,
it is a pity that the beneficiaries of the capital gains created by this industry
predominantly accrue to overseas investors.
UK private equity and venture capital industry is a good strong British
success story.
Major investment attract into the UK from overseas, BVCA make major
investment around the UK investing in companies, creating jobs and
building businesses, and they invest across continental Europe and around
the world bringing returns home for the benefit of their investors. This
industry has benefited from a strong cross Party consensus that
understands the important role BVCA play in keeping the UK economy
competitive and dynamic. This support is much appreciated.
Private equity investment should not be regarded as an end in itself, but

rather as part of a life cycle of a business. The private equity model brings
together absolute alignment of interest between investor and management.
This enables absolute focus on agreed purpose, the ability to achieve
change swiftly and efficiently and a complete concentration on the direction
of
the
business.
The venture capital industry has been one of the keys to Silicon Valley's
success.
Venture capitalists supply the funds to budding entrepreneurs who
want to start their own companies - and 40% of such deals in the US
take place in Silicon Valley.
Venture capitalists also help nurture those companies to success,
supplying
introductions
to
potential
customers
or
partners,
assistance with raising more funds, and even management support.

And venture capital has been one of the extraordinary growth
industries in the Valley, with the amount of money invested in venture
capital funds rising in the decade from $1bn in 1990 to $20bn in 1999 and nearly doubling again to $35bn in 2000.
Dot.com fall-out
Ann Winblad, founder of venture capital firm Hummer Winblad, with
$1bn in funds under management, was one of the victims of the
dot.com fall-out.
Her company had backed one of the biggest and most well-known
internet companies selling to consumers, Pets.com, which stopped
trading despite millions of dollars in private investment and an
enthusiastic stock market flotation.
In her sleek, wooden-beamed offices in San Francisco's newly
fashionable SoMo district, which has become a beacon for dot.com
companies, she explained what went wrong.

In her view, the increasing frenzy in the stock market for internet
companies - whatever their business plan or chances of profitability had meant that too many companies had been funded and brought to
the stock market too quickly.
Too many inexperienced people came into the venture capital
marketplace, with financiers, bankers, and big companies all prepared
- even desperate - to back internet ventures.
Fund raising difficulties

At one point, she says, $1bn a week was being offered to
entrepreneurs - attracting too many people who were "mercenaries
not missionaries" to the world of enterprise.
But when the market woke up, and dot.com and tech stocks crashed
in April, it became impossible for even well-managed internet
companies to raise additional money. Pets.com and other e-tailers
needed more capital to grow - and that was no longer available at any
price.
Now, she says, it is unlikely that anyone would fund any internet
company for at least the next two years, and e-tailers, or dot.com
companies selling to consumers, are the "mad cow disease" of the
venture capital world - no one will touch them at all.
And in future, the pace of investment will be slower and more
measured, taking 3-5 years to bring companies to the stage at which
they can be floated on the stock market - and that venture capitalists
will resume their role of "company coach" rather than pure dealmakers.
Profit hopes dimmed

And now, one of the factors limiting the further expansion of venture
capital firms is their need to spend more time managing their existing
portfolio - "tending to the sick and needy" in the words of the chief of
one dot.com that has survived, Obongo's John Hunt.
Mr Knoblauch says that in the height of the euphoria one year ago,
venture capitalists began to believe that they could make a profit on
nearly any company they backed.
But now, they expect only about one in five of the companies they
back to become a major success - but those successes, with returns
of 10-20 times investment, will still make the whole fund profitable.
Vital role
Venture capitalists will still play a vital role as catalysts for Silicon
Valley's future.
It was the presence of the world's most sophisticated venture capital
industry that attracted John Hunt of Obongo from the UK to San
Francisco. Venture capitalists have played a crucial part in launching
his company, which provides the software for electronic wallets used
for shopping on the internet.
Obongo was created in the offices of venture capital firm Sequoia,
who introduced the UK based company, then called Smartport, to its
Silicon Valley rival, Chabi - and they agreed to merge with each other
30 minutes into the meeting.
Sunny outlook
And Obongo's other venture capital partner, Atlas, played a central
role in helping them secure their first customer, the large US bank
Citibank. It is networks like these which will secure the future of the
Valley, according to historian and city planner Anna Lee Saxenian.
Nowhere else have venture capitalists such a close connection with
their
industry,
she
argues,
with
most
moving
from
being
entrepreneurs themselves. Their understanding of the technology, the

markets, and the competition means that entrepreneurial knowledge
is shared and is transferred more quickly here than anywhere else.
It is that culture that will ensure that, despite the sharp change in
market sentiment, Silicon Valley will remain the world's high-tech
incubator.
Failure of VCF
To illustrate the consequences of major structural failings, this brief case
discussion recaps the rise and fall of a corporate venture program during
the industrys second wave.
In 1980, Analog Devices established a corporate venture program, Analog
Devices Enterprises (ADE), to generate both attractive financial returns and
strategic benefits in the form of licensing agreements and acquisitions.
Funding was provided by Amoco, and ADE had invested $26 million in 11
firms by 1985.
That very year Amoco ceased contributing capital, and the ADE program
was suspended. Around this time, Analog Devices took a $7 million charge
against earnings; in 1990, with most of the portfolio liquidated, it took
another $12 million charge. Of the 11 firms in ADEs portfolio, 10 were
terminated, acquired by other companies at unattractive valuations, or
relegated to the "living dead." Only one firm ultimately went public. In this
case, ADEs stake was so diluted by a merger that it was worth only about
$2 million at the time of the offering.
What went wrong? Clearly, the ADE program exhibits all three of the classic
structural failings:
1. Program managers were hampered by the lack of a clear objective.
Instead, they had a threefold mission: to invest in firms pursuing
technologies relevant to the ongoing business of Analog Devices and
Amoco, to obtain options to acquire firms of interest to Analogs

management, and to generate high financial returns.
2. Analog Devices researchers, seeing scarce resources being devoted to
ADE, resented the program. Also, Amoco only committed to fund the
program for five years, considerably less time than was needed to grow the
early-stage companies.
3. Incentives of the various parties appear to have been improperly aligned.
The management of Analog Ventures believed that they were insufficiently
rewarded, and Amoco did not share in the profits generated.
CONCLUSION
Earlier patterns of growth or failure in venture capital industries in
other countries and regions indicate that the evolution of venture
capital seems to be either entry into a self reinforcing spiral, such as
occurred in Silicon Valley and Israel, or growth and stagnation, as
occurred in Minnesota in the 1980s or the United Kingdom until
recently. Given Indias wish to develop a high-technology industry
funded by venture capital, it is necessary to keep improving the
environment by simplifying the policy and regulatory structure
(including eliminating regulations that do not perform necessary
functions such as consumer protection).
The World Bank, with its agenda of decreasing government
regulation, funded the creation of the first venture capital funds.
Though these funds experienced little success, they were the
beginnings of a process of legitimitizing venture investing and they
were a training ground for venture capitalists who later established
private venture capital funds. It is unlikely that the venture capital
industry could have been successful without the development of the
software industry and a general liberalization of the economy. Of
course, this is not entirely surprising, because an institution as
complicated as venture capital could not emerge without a minimally
supportive environment. This environment both permitted the
evolution of the venture capital industry and simultaneously allowed
it to begin changing that environment and initiating a co-evolutionary
dynamic with other institutions.
India still remains a difficult environment for venture capital. Even in

2006 the Indian government remains bureaucratic and highly
regulated. To encourage the growth of venture capital will require
further action, and it is likely that the government will continue and
even accelerate its efforts to encourage venture capital investing. The
role of the government cannot be avoided: it must address tax,
regulatory, legal, and currency exchange policies, since many of
these affect both venture capital firms and the companies that they
finance. More mechanisms need to be developed to reduce risk if
funds for venture capital must come from publicly held financial
institutions managed by highly risk-averse managers.
The Indian Venture Capital (VC) industry is just about a decade

old industry as compared to that in Europe and US. In this short
span it has nurtured close to 1000 ventures, mostly in ,SME
segment and has supported budding technocrat /professionals
all through.
The VC industry, through its investments 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 30 Venture capital funds, which have garnered
over Rs.5000 crorcs. The venture capital investments in India at
Rs. 1000.05 crore as on 1997, represent 0.1 percent of GDP, as
compared to 5.5 percent in countries such as Hong Kong.
The Indian venture capital industry is dominated by public sector
financial institutions. A few private sector venture capital firms
have been set up recently. A! present there are about fifteen
venture capital funds in India which have provided venture
finance of over Rs. 4.6 billion to several ventures. VCFs in India
are not pure venture capitalists. They pursue both commercial as

well as developmental objectives.
Venture finances are made available to high-tech as well as nontech businesses. About two-thirds of the venture capital is
invested in non-tech businesses. A large number of high-tech
ventures financed by VCFs are in thrust areas of national priority
such as energy conservation, quality up gradation, advanced
materials, biotechnology, reduced material consumption,
environment protection, improved international competitiveness,
development of indigenous technology etc. YcC another feature of
venture financing in India is that it is not readily available for
development of prototypes or setting up of pilot plants at the
laboratory stage.
Thus, venture capital in India resembles more a development
capital than a true venture capital (for risk, high-tech ventures).
Venture capital can play a more innovative and developmental
role in a.developing country.like India. It could help the
rehabilitation of sick units through people - w it h ideas and
turnaround management skills. A large number of small
enterprises
iV*
India
become
sick
even
before
the
commencement of production.
Venture capitalists eould also assist small ancillary units to
upgrade their technologies so that they could be in line with the
developments taking place in their parent companies. Yet
another area where Venture Capital Funds (VCFs) can play a
significant role in developing countries is the service sector,
including tourism, publishing, health-care etc.
They could also provide financial assistance to people coming
out of the universities, technical institutes involving high risk.
This would encourage the entrepreneurial spirit. It is not only
initial funding which is needed from the venture capitalists but

they also should simultaneously provide management and
marketing expertise, which is the real critical aspect of venture
capital in developing countries.
Hence,
the
Government
of
India
and
Venture
Capital
firms/funds are required to strive hard to create the favourable

environment needed to take-off the venture capital finance in
India.
Bibliography
RESEARCH REPORTS
Evalueserve - Report on Indian venture capital market, 2006,
(http://www.venturewoods.org/wpcontent/EvalueserveIndianVCMarketAugust06.pdf)
Ernst & young - Global venture capital insights report 2006,
(http://www.ey.com/global/content.nsf/International/SGM)
Creating an Environment: Developing Venture Capital in India
By: Rafiq Dossani and Martin Kenney
WEBSITES
http://www.nvca.org/def.html#
http://www.indiainbusiness.nic.in/india-profile/banking.htm
http://www.indiavca.org/history.asp
http://www.thehindubusinessline.com/2004/12/29/stories/20041229002009
00.htm
www.altassets.net/knowledgebank/learningcurve/2006/nz8134.php - 19k
http://www.wellcome.ac.uk/doc_WTD002814.html#P25_687
iis-db.stanford.edu/pubs/12010/Dossani_Kenney.pdf
http://www.sebi.gov.in/Index.jsp?contentDisp=Section&sec_id=1
http://www.sitra.fi/en/News/release_sv_2006-11-08.htm
http://www.bvca.co.uk/doc.php?id=545
http://news.bbc.co.uk/1/hi/business/1173343.stm
ANNEXURES
MAJOR VCs IN INDIA AND ABROAD
Sr.No
Name of VCs
1.
Aavishkar India Micro Capital Fund
2.
APIDC Venture Capital Limited
3.
Auto Ancillary Fund
4.
Anand Rathi Realty Fund
5.
Aureos India Fund
6.
Axis Venture capital Trust
7.
Avigo India Private Equity Trust
8.
BTS India Private Equity Fund
9.
Canbank Venture Capital Fund Ltd.
10.
CIG Realty Fund
11.
Dhunn-Carr Management and Research India Private Limited
12.
DHFL Venture Capital Fund
13.
Eureka Venture Fund
14.
Edelweiss Investment Trust
15.
FIRE Capital Fund
16.
Gujarat Information Technology Fund
17.
Gujarat Venture Capital Fund 1990
18.
19.
20.
Gujarat Biotechnology Venture Fund
21.
Gujarat Infrastructure Development Fund
22.
HDFC Property Fund
23.
HIVE Fund
24.
i-Labs Venture Capital Fund
25.
ICICI ECONET FUND
26.
ICICI EMERGING SECTORS TRUST
27.
INDIA ADVANTAGE FUND-1
28.
IDFC Infrastructure Fund
29.
India Auto Ancillary Fund
30.
India Project Development Fund
31.
Information Technology Fund
32.
India Value Fund
33.
Indian Enterprise Fund
34.
IL&FS Private Equity Trust
35.
Infinity Venture India Fund
36.
India Property Fund
37.
IDFC Infrastructure Fund 2
38.
India Advantage Fund III
39.
India Advantage Fund IV
40.
Indian Real Opportunity Venture Capital Fund
41.
INDIAREIT FUND
42.
India Advantage Fund V
43.
India Realty Venture Capital Fund
44.
India Value Fund III
45.
INFRAINDIA Trust
46.
JM Financial India Fund
47.
Kshitij Venture Capital Fund
48.
KITVEN Fund.
49.
Kerala Venture Capital Fund
50.
Kotak Mahindra Venture Capital Fund
51.
Kotak SEAF India Fund
52.
Kotak Mahindra Realty Fund
53.
Landmark Real Estate Fund I
54.
Marigold Mezzanine Investment Fund
55.
Novastar Capital Trust
56.
Nilanchal Capitals Pvt Ltd
57.
Opulent Venture Capital Trust
58.
Punjab Infotech Venture fund
59.
Peninsula Realty Fund
60.
Quest India Fund
61.
Rajasthan Venture Capital Fund
62.
Realty India Trust
63.
Reliance India Power Fund
64.
Reliance Venture Capital Fund
65.
RE Capital India Fund
66.
SIDBI Venture Capital Limited
67.
Spice Capital Fund
68.
Sicom Venture Capital Fund
69.
Small is Beautiful
70.
SREI Venture Capital Limited
71.
South Asian Regional Apex Fund - IL&FS Venture Corporation

Limited
72.
Sourabh Venture Capital Trust
73.
SIDBI SME VENTURE FUND
74.
Solitaire Capital India
75.
SREI Venture Capital Trust
76.
Industrial Venture Capital Limited
77.
The India Seed Investment Trust
78.
The Hexagram Fund
79.
The Technology Venture Fund
80.
Tamilnadu Infotech Fund - C/o IL&FS Venture Corporation

Limited
81.
Urjankur Nidhi Trust
82.
Unit Trust of India- India Technology Venture Unit Scheme
83.
UVF Private Equity Trust
84.
Urban Infrastructure Venture Capital Fund
85.
Ventureast TeNet India Fund
86.
Volrado Venture Partners
87.
West Bengal Venture Capital Fund Trust for Information

Technology, Telecom & Electronics
Sr.No.
Name of Foreign VCs
1.
2i Capital PCC
2.
Americorp Ventures Ltd.
3.
AOF HS Mauritius Ltd.
4.
eTEC Ventures LLC
5.
First Carlyle Ventures III
6.
GE APC Technology Investment III (Mauritius) Ltd.
7.
General Atlantic Mauritius Ltd.
8.
Hexagram Investments Private Limited
9.
IPF 1 Asia Investments
10.
WestBridge Ventures I Investment Holdings
11.
Dynamic India Fund 1
12.
MVC VI FVCI Limited
13.
Ascendas Property Fund (India) Pte Ltd
14.
SEAF India International Growth Fund
15.
Intel Capital (Mauritius), Ltd.
16.
AVLP Asian Investments
17.
18.
New York Life Investment Management India Fund (FVCI) II LLC
19.
Ambadevi Mauritius Holding Ltd
20.
The Leverage India Fund LLC
21.
Pequot India Mauritius III, Ltd
22.
Standard Chartered Private - Equity (Mauritius) II Ltd
23.
IVF (Mauritius) Ltd
24.
Merlion India Fund III Ltd
25.
Pequot India Mauritius IV, Ltd
26.
Sequoia Capital Mauritius
27.
Citigroup Venture Capital International Mauritius Ltd
28.
WestBridge Ventures II Investment Holdings
29.
Dynamic India Fund III
30.
Dynamic India Fund IV - Ventureast Biotechnology Fund
31.
Labradorite Finance Limited
32.
IDFC Private Equity (Mauritius) Fund II
33.
P5 Asia Investments (Mauritius) Ltd
34.
Sandler Mauritius Investments Ltd
35.
36.
Bessemer Venture Partners Trust
37.
Dynamic India Fund V
38.
Ashoka Investment Holdings Ltd
FIM Limited
Aureos South Asia Fund LLC
39.
Avigo Venture Investments Limited
40.
Wagner Limited
41.
AOC Partners APGF
42.
Ascent India Ltd
43.
Clearstone Venture Mauritius
44.
45.
India China Pre-IPO Equity (Mauritius) Ltd
46.
Norwest Venture Partners FVCI Mauritius
47.
HAV2 (Mauritius) Limited
48.
BLACKSTONE GPV CAPITAL - PARTNERS MAURITIUS V-C LTD
49.
Trident Capital India (Cyprus) Ltd
50.
Monet Limited
51.
HBV Mauritius SPV 1
52.
Hema CIPEF (I) Ltd
53.
Sequoia Capital India Growth Investment Holdings I
54.
Hema CGPE (I) Limited
55.
NEA FVCI, LTD.
56.
Ares Investments
57.
Blackstone FP Capital Partners (Mauritius) V Ltd.
58.
Matrix Partners India Investment Holdings, LLC
59.
Clarity Mauritius I
60.
Indivest Pte Ltd.
61.
Sandstone Private Investments
62.
63.
Canaan VII Mauritius
BTS India Private Equity Fund Limited
NEA-IndoUS Venture Capita, LLC

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