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Submitted To: Mr. SACHIN KASHYAP

I never invest in someone who says theyre going to do something;I invest in people who say theyre already doing something and justwant funding. John Doerr, Venture Capitalist

2010

WORKING AND

FUNDING OF

VENTURE

CAPITAL IN INDIA

PRASHANT TYAGI

RT1809A10

10807688

[BANKINGANDINSURANCE]

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BANKING AND INSURANCE

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CONTENTS:

1. Acknowledgement

2. Literature review

3. Introduction: What is venture capital? Meaning of venture capital. What is venture capitalist? Factor to be considered by venture capital in selection of investment proposal.

4. Venture capital in India

5. Stages of venture capital funding

6. Method of venture financing

7. The Venture capital process

8. Player in venture capital industry

9. Venture capital industry life cycle in India

10. Growth of venture capital in India

11. Problem of venture capital in India

12. Venture capital in India

13. Regulatory issues

14. SEBI guidelines for venture capital

15. Findings

16. Suggestions

17. Conclusion

18. Bibliography

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ACKNOWLEDGEMENT

I would like to confer my heartiest thanks to my coordinator of Banking and

Insurance, Mr. SACHIN KASHYAP for giving me the opportunity to excel and

work in the field of Venture capital, and especially its practical applications.

While preparing my term paper I got to have an in depth knowledge of

practical applications of the theoretical concepts and definitely the things

which I have learned will undoubtedly help me in future, to analyze many

processes going on in our economy.

PRASHANT TYAGI

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LITERATUREREVIEW

In the last decade, one of the most admired institutions among industrialists

and economic policy makers around the world has been the US venture capital

industry [Dossaniand Kenney 2002]. The sensitivity of venture capital process

to government policies and other factors that influence entrepreneurship and

innovation was highlighted in a study by the US General Accounting office on

behalf of the Joint Economic Committee [ Premus 1985]. Venture capital

entrepreneurship and innovation have been closely connected. Entrepreneurs

have long had ideas that require substantial capital to implement but lacked

the funds to finance these projects themselves [Gompers and Lerner 2002].

Venture capital evolved as a response to this felt need. Venture capitalrepresents one solution to financing the high risk, potentially high -reward

projects [Gompersand Lerner 2002]. The experience of US, Taiwan and Israel

show that technological innovation and the growth of venture capital markets

are closely interrelated [Premus 1985]. It has been reported that capital

markets overlook small business opportunities because of high information

and transaction costs, generally known as capital gap problem [Premus 1985,

Smith and Smith 2002]. Though venture capital can meet this gap to some

extent, venture capital is a special form of venture financing. In the case of

venture capital, the capital market has to be conducive for supporting venture

funding. At some level, entrepreneurship occurs in nearby every society, but

venture capital can only exist when there is a constant flow of opportunities

that have great upside potential [Dossani and Kenney 2002]. This study is a

country overview of the venture capital industry supported by a set of case

studies.

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INTRODUCTION

Anumberoftechnocratsareseekingtosetupshopontheirownandcapitalize

on opportunities. In the highly dynamic economic climate that surrounds us

today, few traditional business models may survive. Countries across the

globe are realizing that it is not the conglomerates and the gigantic

corporations that fuel economic growth any more. The essence of any

economytoday isthesmallandmediumenterprises.Forexample, intheUS,

50%oftheexportsarecreatedbycompanieswithlessthan20employeesand

only7%arecreatedbycompanieswith500ormoreemployees.Thisgrowing

trend can be attributed to rapid advances in technology in the last decade.

Knowledge driven industries like InfoTech, health-care, entertainment andserviceshavebecomethecynosureofboursesworldwide.Inthesesectors,itis

innovation and technical capability that are big business-drivers. This is a

paradigm shift from the earlier physical production and economies of scale

model.However,startinganenterprise isnevereasy.Therearea number of

parameters that contribute to its success or downfall. Experience, integrity,

prudenceandaclearunderstandingofthemarketareamongthesoughtafter

qualitiesofapromoter.However,thereareotherfactors,whichliebeyondthe

controlof theentrepreneur.Prominentamongthese is thetimely infusionoffunds. This is where the venture capitalist comes in, with money, business

senseandalotmore.

WHATISVENTURECAPITAL?

The venture capital investment helps for the growth of innovative

entrepreneurships in India. Venture capital has developed as a result of the

need to provide non-conventional, risky finance to new ventures based on

innovativeentrepreneurship.Venture capital is an investment in the form of

equity,quasi-equityandsometimesdebt-straightorconditional,madeinnew

or untried concepts, promoted by a technically or professionally qualified

entrepreneur. Venture capital means risk capital. It refers to capital

investment, both equity and debt, which carries substantial risk and

uncertainties.Theriskenvisagedmaybeveryhighmaybesohighastoresult

intotallossorverylesssoastoresultinhighgains.

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MEANINGOFVENTURECAPITAL

Venture capital is money provided by professionals who invest alongside

management inyoung, rapidlygrowing companies that have the potential to

developintosignificanteconomiccontributors.Venturecapitalisanimportant

sourceofequityforstart-upcompanies.

Professionallymanagedventurecapitalfirmsgenerallyareprivatepartnerships

or closely-held corporations funded by private and public pension funds,

endowment funds, foundations, corporations, wealthy individuals, foreign

investors,andtheventurecapitaliststhemselves.

Venturecapitalistsgenerally:

y Financenewandrapidlygrowingcompaniesy Purchaseequitysecuritiesy Assistinthedevelopmentofnewproductsorservicesy Addvaluetothecompanythroughactiveparticipationy Takehigherriskswiththeexpectationofhigherrewardsy Havealong-termorientation

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. They also actively work with the company's

management,especiallywithcontactsandstrategyformulation.

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FACTORTOBECONSIDEREDBYVENTURECAPITALISTINSELECTION

OFINVESTMENTPROPOSAL

Therearebasicallyfourkeyelementsinfinancingofventureswhicharestudiedindepthby

theventurecapitalists. These are:

1. Management: The strength, expertise & unity of the key people on the

board bring significant credibility to the company. The members are to be

mature,experiencedpossessingworkingknowledgeofbusinessandcapableof

takingpotentiallyhighrisks.

2. Potential for Capital Gain:: An above average rate of return of about30 -

40% is required by venture capitalists. The rate of returnalso depends upon

the stage of the business cycle where funds are being deployed. Earlier the

stage,higheristheriskandhencethereturn.

3. Realistic Financial Requirement and Projections:: The venture capitalist

requiresarealisticviewaboutthepresenthealthoftheorganizationaswellas

futureprojectionsregardingscope,natureandperformanceofthecompanyin

terms of scale of operations, operating profit and further costs related to

productdevelopmentthroughResearch&Development.

4. Owner's Financial Stake:: The financial resources owned & committed by

the entrepreneur/ owner in the business including the funds invested by

family, friends and relatives play a very important role in increasing the

viabilityofthebusiness.Itisanimportantavenuewheretheventurecapitalist

keepsanopeneye.

VENTURECAPITALININDIA

Venture capital was introduced in India in mid eighties byAll India FinancialInstitutionswiththeinaugurationofRiskCapitalFoundation(RCF)sponsored

by IFCI with a view to encourage the technologists and the professional to

promotenewindustries.ConsequentlythegovernmentofIndiapromotedthe

venture capital during 1986-87 by creating a venture capital fund in the

context of structural development and growth of small-scale business

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enterprises. Since then several venture capital firms/funds (VCFs) are

incorporated by Financial Institutions (FIs), Public Sector Banks (PSBs), and

PrivateBanksandPrivateFinancialcompanies.

The Indian Venture Capital Industry (IVCI) isjust about a decade old

industry as compared to that in Europe and US. In this short span it has

nurtured close to one thousand ventures, mostly in SME segment and has

supported building technocrat/professionals all through. The VC industry,

through its investment in high growth companies as well as companies

adopting newer technologies backed by first generation entrepreneurs, has

madea substantialcontributiontoeconomy. In India,however, thepotential

of venture capital investments is yet to be fully realized. There are around

thirty venture capital funds, which have garnered over Rs. 5000 Crores. The

venture capital investments in India at Rs. 1000.05 crore as in 1997,

representing0.1percentofGDP,ascomparedto5.5percentincountriessuch

asHongKong.

STAGESOFVENTURECAPITALFUNDING

TheVentureCapitalfundingvariesacross the different stagesofgrowthofa

firm.

1.PreseedStage::Here,arelativelysmallamountofcapitalisprovidedtoan

entrepreneur to conceive and market a potential idea having good future

prospects. The funded work also involves product development to some

extent.

2. Seed Stage:: Financing is provided to complete product development and

commenceinitialmarketingformalities.

3. Early Stage / First Stage:: Finance is provided to companies to initiate

commercialmanufacturingandsales.

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METHODSOFVENTUREFINANCING

VenturecapitalistypicallyavailableinthreeformsinIndia,theyare:

Equity:AllVCFs in Indiaprovideequitybutgenerally their contributiondoes not exceed 49 percent of the total equity capital. Thus, the

effective control and majority ownership of the firm remains with the

entrepreneur. They buy shares of an enterprise with an intention to

ultimatelysellthemofftomakecapitalgains.

Conditional Loan: It is repayable in the form of a royalty after theventure is able to generate sales. No interest is paid on such loans. In

India,VCFschargeroyaltyrangingbetween2to15percent;actualrate

dependsonotherfactorsoftheventuresuchasgestationperiod,cost-

flowpatterns,riskinessandotherfactorsoftheenterprise.

IncomeNote:Itisahybridsecuritywhichcombinesthefeaturesofbothconventional loan and conditional loan. The entrepreneur has to pay

bothinterestandroyaltyonsales,butatsubstantiallylowrates.

OtherFinancingMethods:Afew venturecapitalists,particularlyinthe

private sector, have started introducing innovative financial

securities like participating debentures, introduced b ASSESSING

VENTURECAPITAL

Venture funds, both domestic and offshore, have been around in India for

some years now. However it is only in the past 12 to 18 months, they have

come into the limelight. The rejection ratio is very high, about10 in 100get

beyondpreevaluationstage,and1getsfunded.

Venturecapitalfundsarebroadlyoftwokinds-generalistsorspecialists.It is

criticalforthecompanytoaccesstherighttypeoffund,iewhocanaddvalue.

This backing is invaluable as focused/specialized funds open doors, assist in

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future roundsandhelp instrategy.Hence,it is importanttochoose theright

venturecapitalist.

THEMANAGEMENT

Most businesses are people driven, with success or failure dependingon the

performanceoftheteam.It isimportanttodistinguishtheentrepreneurfrom

theprofessionalmanagement team.Thevalueofthe idea,thevision,putting

the team together, getting the funding inplace isamongst others, some key

aspects of the role of the entrepreneur. Venture capitalists will insist on a

professional team coming in, including a CE0

to execute the idea.0

ne-man

armies are passe. Integrity and commitment are attributes sought for. The

venturecapitalistcanprovidethestrategicvision,buttheteamexecutesit.As

afamousSiliconValleysayinggoes"Successisexecution,strategyisadream".

THE IDEA

The idea and its potential for commercialization are critical. Venture funds look

for a scalable model, at a country or a regional level.1

therwise the entire

game would be reduced to a manpower or machine multiplication exercise.

For example, it is very easy for Hindustan2ever to double sales of

2iril - a soap

without incremental capex, while Gujarat Ambuja needs to spend at least

Rs4bn before it can increase sales by 1mn ton. Distinctive competitive

advantages must exist in the form of scale, technology, brands, distribution,

etc which will make it difficult for competition to enter.

VALUATION

All investment decisions are sensitive to this. An old stock market saying

"Every stock is a buy at a price and vice versa". Most deals fail because of

valuation expectation mismatch. In India, while calculating returns, venturecapital funds will take into account issues like rupee depreciation, political

instability, which adds to the risk premia, thus suppressing valuations. 3 inked

to valuation is the stake, which the fund takes. In India, entrepreneurs are still

uncomfortable with the venture capital "taking control" in a seed stage

project.

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EXIT

Without exit, gains cannot be booked. Exit may be in the form of a strategic

sale or/and IP 4 . Taxation issues come up at the time. Any fund would discuss

all exit options before closing a deal. Sometimes, the fund insists on a buy back

clause to ensure an exit.

PORTFOLIO BALANCING

Most venture funds try and achieve portfolio balancing as they invest in

different stages of the company life cycle. For example, a venture capital has

invested in a portfolio of companies predominantly at seed stage; they will

focus on expansion stage projects for future investments to balance the

investment portfolio. This would enable them to have a phased exit. In

summary, venture capital funds go through a certain due diligence to finalize

the deal. This includes evaluation of the management team, strategy,

execution and commercialization plans. This is supplemented by l egal and

accounting due diligence, typically carried out by an external agency. In India,

the entire process takes about 6 months. Entrepreneurs are advised to keep

that in mind before looking to raise funds. The actual cash inflow might get

delayed because of regulatory issues. It is interesting to note that in USA, at

times angels write checks across the table.

FINANCING OPTIONS IN GENERAL

The possibility of raising a substantial part of project finances in India through

both equity and debt instruments are among the key advantages of investing

in India.

The Indian banking system has shown remarkable growth over the last two

decades. The rapid growth and increasing complexity of the financial markets,especially the capital market have brought about measures for further

development and improvement in the working of these markets. Banks and

development financial institutions led by ICICI, IDBI and IFCI were providers of

term loans for funding projects. The options were limited to conventional

businesses, i.e. manufacturing centric. Services sector was ignored because of

the "collateral" issue.

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THE VENTURE CAP TA PROCESS

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- De X Y origination- Screening- DuediligenceEvaluation- Dealstructuring- Post-investmentactivity- Exit

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P A ERS IN VENTURE CAPITA INDUSTRY

VENTURE CAPITA INDUSTRY LIFE CYCLE IN INDIA

Fro` a

hb c

ndud a

ry life cycle we can know in which stage venture capitalare

standing e On the basis of this management can make future strategies of their

business.

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GROWTH OF VENTURE CAPITAL IN INDIA

PROBLEMS OF VENTURE CAPITAL IN INDIA

Onecan as f whyventure funding isso successful in US g and faced a number of

problems in India. The biggest problem was a mindset change from "collateral

funding" to high risf

high return funding. Most of the pioneers in the industrywere people withcredit bac f ground and exposure to manufacturing industries.

Exposure to fast growing intellectual property business and servicessector was

almost zero. All these combined to a slow start to the industry. The other

issues that led to such a situation include:

License Raj And The IPO BoomTill early90s h under the license raj regime h onlycommoditycentric businesses

thrived in a deficit situation. To fund a cement plant, venture capital is notneeded. What was needed was ability to get a license and then get the project

funded by the banks and DFIs. In most cases, the promoters were well-

established industrial houses, with no apparent need for funds. Most of these

entities were capable of raising funds from conventional sources, including

term loans from institutions and e i uity markets.

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ScalabilityThe Indian software segment has recorded an impressive growth over the last

few years and earns large revenues from its export earnings, yet our share in

the global market is less than 1 per cent. Within the software industry, the

value chain ranges from body shopping at the bottom to strat egic consulting at

the top. Higher value addition and profitability as well as significant market

presence take place at the higher end of the value chain. If the industry has to

grow further and survive the flux it would only be through innovation. For an y

venture idea to succeed there should be a product that has a growing market

with a scalable business model. The IT industry (which is most suited for

venture funding because of its "ideas" nature) in India till recently had a

service centric business model. Products developed for Indian markets lackscale.

MindsetsVenture capital as an activity was virtually non-existent in India. Most venture

capital companies want to provide capital on a secured debt basis, to

established businesses with profitable operating histories. Most of the venture

capital units were offshoots of financial institutions and banks and the lending

mindset continued. True venture capital is capital that is used to help launchproducts and ideas of tomorrow. Abroad, this problem is solved by the

presence of `angel investors. They are typically wealthy individuals who not

only provide venture finance but also help entrepreneurs to shape their

business and make their venture successful.

Returns, Taxesand Regulations There is a multiplicity of regulators like SEBI and RBI. Domestic venture funds

are set up under the Indian Trusts Act of 1882 as per SEBI guidelines, while

offshore funds routed through Mauritius follow RBI guidelines. Abroad, such

funds are made under thepimited Partnership Act, which brings advantages in

terms of taxation. The government must allow pension funds and insurance

companies to invest in venture capitals as in USA where corporate

contributions to venture funds are large.

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ExitThe exit routes available to the venture capitalists were restricted to the IP q

route. Before deregulation, pricing was dependent on the erstwhile CCI

regulations. In general, all issues were under priced. Even now SEBI guidelines

make it difficult for pricing issues for an easy exit. Given the failure of the

qTCEI and the revised guidelines, small companies could not hope for a BSE/

NSE listing. Given the dull market for mergers and acquisitions, strategic sale

was also not available.

ValuationThe recent phenomenon is valuation mismatches. Thanks to the software

boom, most promoters have sky high valuation expectations. Given this, it is

difficult for deals to reach financial closure as promoters do not agree to a

valuation. This coupled with the fancy for software stocks in the bourses

means that most companies are preponing their IPr

s. Consequently, the

number and quality of deals available to the venture funds gets reduced.

Limitationsonstructuringof Venture Capital Funds(VCFs)

VCFs in India are structured in the form of a company or trust fund and arerequired to follow a three-tier mechanism-investors, trustee company and

AMC. A proper tax-efficient vehicle in the form of s imited s iability Partnership

Act which is popular in USA, is not made applicable for structuring of VCFs in

India. In this form of structuring, investors liability towards the fund is limited

to the extent of his contribution in the fund and also formalities in structuring

of fund are simpler.

Problem in raisingof funds In USA primary sources of funds are insurance companies, pensions funds,

corporate bodies etc; while in Indian domestic financial institutions,

multilateral agencies and state government undertakings are the main sources

of funds for VCFs. Allowing pension funds, insurance companies to invest in the

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VCFs would enlarge the possibility of setting up of domestic VCFs. Further, if

mutual funds are allowed to invest upto 5 percent of their corpus in VCFs by

SEBI, it may lead to increased availability of fund for VCFs.

Lackof Inventive to InvestorsPresently, high net worth individuals and corporates are not provided with any

investments in VCFs. The problem of raising funds from these sources further

gets aggravated with the differential tax treatment applicable to VCFs and

mutual funds. While the income of the Mutual Funds is totally tax exempted

under Section 10(23D) of the Income Tax Act income of domestic VCFs which

provide assistance to small and medium enterprise is not totally exemptedfrom tax. In absence of any inventive, it is extremely difficult for domestic VCFs

to raise money from this investor group that has a good potential.

Absence of angelinvestorsIn Silicon Valley, which is a nurturing ground for venture funds financed IT

companies, initial/seed stage financing is provided by the angel investors till

the company becomes eligible for venture funding. There after, Venture

capitalist through financial support and value-added inputs enables the

company to achieve better growth rate and facilitate its listing on stock

exchanges. Private equity investors typically invest at expansion/ later stages

of growth of the company with large investments. In contrast to this

phenomenon, Indian industry is marked by an absence of angel investors.

LimitationsofinvestmentinstrumentsAs per the section 10(23FA) of the Income Tax Act, income from investments

only in equity instruments of venture capital undertakings is eligible for tax

exemption; whereas SEBI regulations allow investments in the form of equity

shares or equity related securities issued by company whose shares are not

listed on stock exchange. As VCFs normally structure the investments in

venture capital undertakings by way of equity and convertible instruments

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such ast

ptionally/ Fully Convertible Debentures, Redeemable Preference

shares etc., they need tax breaks on the income from equity linked

instruments.

Harmonization of SEBI regulations and income tax rules of CBDT would

provide much required flexibility to VBCFs in structuring the investment

instruments and also availing of the tax breaks. Thus investments by VCFs by

instruments other than equity can also be qualified for Tax exemption.

Domestic VCFsvis--vis Offshore FundsThe domestic VCFs operations in the country are governed by the regulations

as prescribed by SEBI and investment restrictions as placed by CBDT foravailing of the tax benefits. They pay maximum marginal tax 35percent in

respect of non exempt income such as interest through Debentures etc., while

off-shore Funds which are structured in tax havens such as Mauritius are able

to overcome the investment restriction of SEBI and also get exemption from

Income Tax under Tax Avoidance Treaties. This denies a level playing field for

the domestic investors for carrying out the similar activity in the country .

VENTURECAPITALFUNDSININDIA

CONTRIBUTION TO "Venture CapitalFunds"

Contributors 1998

Rs.Million%

Foreign Institutional Investors 15,178.05 50.79

All IndianFinancial Institute 7,727.47 25.86

Multilateral Dev. Agencies 2,298.63 7.69

OtherBanks 1,709.76 5.72

OtherPublic 725.32 2.43

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Private Sector 623.61 2.09

Public Sector 442.14 1.48

Nationalized Banks 433.67 1.45

Non-Residents Indians 313.39 1.05

Insurance Companies 62.50 0.21

MutualFunds 4.50 0.01

Total 29,884.04 100.00

Investment byIndustry

Contributors 1998

Rs.Million%

Industrial ProductsandMachinery

2,956.67 219

ComputerSoftware

Service

2,508,87 100

ConsumerRelated 1,381.49 52

Medical 817.48 47

ComputerHardwareSystem

735.41 30

FoodandFood Processing 718.56 50

Tel.and Data

Communication

417.89 18

Biotechnology 448.77 27

OtherElectronics 426.06 40

Energy Related 229.56 18

Others 1,865.09 127

Total 12,559.85 728

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REGULATORYISSUES

There are a number of rules and regulation for venture capital and these would

broadly come under either of the following heads:

The Indian Trust Act, 1882 or the Company Act, 1956 depending onwhether the fund is set up as a trust or a company. (In the US, a venture

capital firm is normally set up as a limited liability partnership)

The Foreign Investment PromotionBoard(FIPB)andthe Reserve Bankof India(RBI) in case of an offshore fund. These funds have to secure the

permission of the FIPB while setting up in India and need a clearancefrom the RBI for any repatriation of income.

The Central Board of Direct Taxation (CBDT) governs the issuespertaining to income tax on the proceeds from venture capital funding

activity. The long term capital gains tax is at around 10% in India and the

relevant clauses to venture capital may be found in Section 10

(subsection 23).

The SecuritiesandExchange Boardof India has come out with a set ofguidelines attached in the annexure.

In addition to the above there are a number of arms of the Government of

India Ministry of Finance that may have to be approached in certain

situations. Also intervention allied agencies like the Department of Electronics,

the National Association of Software and Computers (NASSC u M) and various

taskforces and standing committees is not uncommon.

Probably this explains why most of the funds prefer to take the easy way out

by listing as offshore funds operating out of tax havens like Mauritius (where

the Avoidance of Double Taxation Treaty, incomes may be freely repatriated).

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SEBIGUIDELINESFORVENTURECAPITAL

PRELIMINARY

Shorttitle andcommencement

(1) These regulations may be called the Securities and Exchange Board of India

(Venture Capital Funds) Regulations, 1996.

(2) They shall come into force on the date of their publication in the v fficial

Gazette.

Definitions

In these regulations, unless the context otherwise requires, -

(a)"Act" means the Securities and Exchange Board of India Act, 1992 ;(b)"certificate" means a certificate of registration granted by the Board ;(c) "company" means a company incorporated under the Companies Act,

1956 ;

(d)"economic offence" means an offence to which the Economic w ffencesAct, 1974 applies for the time being;

(e)"enquiry officer" means an enquiry officer appointed by the Board,

(f) "Form" means any of the forms set out in the First Schedule;(g)"Government of India Guidelines" means the guidelines dated September

20, 1995 issued by the Government of India forw

verseas Venture Capital

Investments in India as amended from time to time;

(h)"inspecting officer" means an inspecting officer appointed by the Board ;(i) "Schedule" means a schedule annexed to these regulations;(j) "sick industrial company" has the same meaning as is assigned to Sick

Industrial Companies Act, 1985;

(k)"trust" means a trust established under the Indian Trusts Act, 1882(l) "units" means the interest of the investors in a scheme of a venture

capital fund set up as a trust, which consist of each unit representing one

undivided share in the assets of the scheme;

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FINDINGS

During the preparation of my report I have analyzed many things which are

following:-

y A number of people in India feel that financial institution are not onlyconservativesbuttheyalsohaveabiasforforeigntechnology&theydonot

trustontheabilitiesofentrepreneurs.

y Some venture fails due to few exit options. Teams are ignorant ofinternationalstandards. Theteamusuallyatwoorthreemanteam.Itdoes

not possess the required depth in top management. The team is often

foundtohavetechnicalskillsbutdoesnotpossesstheoverallorganization

buildingskillsteamisoftenshortsited.

y Venture capitalists in India consider the entrepreneurs integrity &urge togrowasthemostcriticalaspectorventureevaluation.

SUGGESTIONS

1. Theinvestmentshouldbeinturnaroundstage.SincetherearemanysickindustriesinIndiaandthenumberisgrowingeachyear,theventure

capitaliststhathavespecializedknowledgeinmanagementcanhelpsick

industries.Itwouldalsobehighlyprofitableiftheventurecapitalistreplace

managementeithergoodonesinthesickindustries.

2. Itisrecommendedthattheventurecapitalistsshouldretaintheirbasicfeaturethatistaskinghighrisk.Thepresentsituationmaycompelventure

capitaliststooptforlessriskyopportunitiesbutisagainstthespiritof

venturecapitalism.Theestablishedfactisbiggainsarepossibleinhighrisk

projects.

3. Thereshouldbeagreaterrolefortheventurecapitalistsinthepromotionofentrepreneurship. TheVenturecapitalistsshouldpromoteentrepreneurforums,clubsandinstitutionsoflearningtoenhancethequalityof

entrepreneurship.

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TERM PAPER Page 24

CONCLUSION

Venture capital can play a more innovation and development role in a

developing country like India. It could help the rehabilitation of sick unit

throughpeoplewith ideasandturnaroundmanagementskill.A largenumber

ofsmallenterprisesinIndiabecausesickunitevenbeforethecommencement

ofproduction of production. Venture capitalist could also be in line with the

developmentstakingplaceintheirparentcompanies.

Yet another area where can play a significant role in developing countries is

theservicesectorincludingtourism,publishing,healthcareetc.theycouldalso

providefinancialassistancetopeoplecomingoutoftheuniversities,technical

institutesetc.who wish tostart their ownventurewith orwithout high-tech

content, but involving high risk. This would encourage the entrepreneurial

spirit. It isnot only initial fundingwhich isneed fromtheventure capitalists,

but they should also simultaneously provide management and marketing

expertise-a real critical aspect of venture capitalists, but they also

simultaneously provide management and marketing expertise-a real critical

aspect of venture capital in developing countries. Which can improve their

effectiveness by setting up venture capital cell in R&D and other scientific

generation,providingsyndicatedorconsortiumfinancingandacingasbusinessincubators.

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BIBLIOGRAPHY

1.JOURNALS

y APPxIED FINANCE VENTURE STAGE INVESTMENT PREFERENCE IN

INDIA, VINAY KUMAR, MAY 2004.

y ICFAI J y URNA y F APP IED FINANCE MAY- JUNEy VIKA PA V U M E 28, APRI - JUNE 2003y ICFAI J URNA F APP IED FINANCE, JU Y- AUG.

2. BOOKSy I.M. Panday- venture capital development process in Indiay I. M. Panday- venture capital the Indian experience,

3. VARIOUS NEWS PAPERS4. INTERNET

y www.indiainfoline.comy www.vcapital.comy

www.investopedia.comy www.vcinstitute.com

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