Project Chapter

A STUDY THE EFFECT OF IMPACT OF LEGAL AND ENVIRONMENT VENTURE CAPITAL
FINANCING IN INDIA
CHAPTER- 1: INTRODUCTION
HMR Institute of Technology & Management Page 1

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1.1.1 Concept of Venture Capital

The term venture capital comprises of two words that is, “ Venture” and “Capital”. Venture is a course of
processing, the outcome of which is uncertain but to which is attended the risk or danger of “Loss”.
“Capital” means recourses to start an enterprise. To connote the risk and adventure of such a fund, the
generic name Venture Capital was coined.
Venture capital is considered as financing of high and new technology based enterprises. It is said that
Venture capital involves investment in new or relatively untried technology,
Initiated by relatively new and professionally or technically qualified entrepreneurs with inadequate funds.
The conventional financiers, unlike Venture capitals, mainly finance proven technologies and established
markets. However, high technology need not be pre-requisite for venture capital.
Venture capital has also been described as ‘unsecured risk financing’. The relatively high risk of venture
capital is compensated by the possibility of high returns usually through substantial capital gains in the
medium term. Venture capital in broader sense is not solely an injection of funds into a new firm, it is also
an input of skills needed to set up the firm, design its marketing strategy, organize and manage it. Thus it
is a long term association with successive stages of company’s development under highly risk investment
conditions, with distinctive type of financing appropriate to each stage of development. Investors join the
entrepreneurs as co-partners and support the project with finance and business skills to exploit the market
opportunities.
Venture capital is not a passive finance. It may be at any stage of business/production cycle, that is,
starting up, expansion or to improve a product or process, which are associated with both risk and reward.
The Venture capital makes higher capital gains through appreciation in the value of such investments
when the new technology succeeds. Thus the primary return sought by the investor is essentially capital
gain rather than steady interest income or dividend yield.
The most flexible definition of Venture capital is -
“The support by investors of entrepreneurial talent with finance and business skills to exploit
market opportunities and thus obtain capital gains.”

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Venture capital commonly describes not only the provision of start-up finance or ‘seed corn’ capital but
also development capital for later stages of business. A long term commitment of funds is involved in the
form of equity investments, with the aim of eventual capital gains rather than income and active
involvement in the management of customer’s business.
1.1.2 Features of Venture Capital

1.1.2.1 High Risk
By definition the Venture capital financing is highly risky and chances of failure are high as it provides
long term start-up capital to high risk-high reward ventures. Venture 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 decreased gross margins.
1.1.2.2 High Tech

As opportunities in the low technology area tend to be few of lower order, and hi-tech projects generally
offer higher returns than projects in more traditional areas, venture capital investments are made in high
tech. areas using new technologies or producing innovative goods by using new technology. Not just high
technology, any high risk ventures where the entrepreneur has conviction but little capital gets venture
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 but incidental to venture capital.
1.1.2.3 Equity Participation & Capital Gains

Investments are generally in equity and quasi equity participation through direct purchase of shares,
options, convertible debentures where the debt holder has the option to convert the loan instruments into
stock of the borrower or a debt with warrants to equity investment. The funds in the form of equity help to
raise term loans that are cheaper source of funds. In the early stage of business, because dividends 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.

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1.1.2.4 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 person. They want one seat on the company’s board of directors and involvement, for better
or worse, in the major decision affecting the direction of company. This is a unique philosophy of “hands
on management” where Venture capitalist acts as complementary to the entrepreneurs. Based upon the
experience other companies, a venture capitalist advise the promoters on project planning, monitoring,
financial management, including working capital and public issue. Venture capital investor cannot
interfere in day today management of the enterprise but keeps a close contact with the promoters or
entrepreneurs to protect his investment.
Venture capitalist help companies grow, but they eventually seek to exit the investment in three to seven
years. An early stage investment may take seven to ten years to mature, while most of the later stage
investment takes only a few years. The process of having significant returns takes several years and calls
on the capacity and talent of venture capitalist and entrepreneurs to reach fruition.
1.1.2.5 Illiquid Investment

Venture capital investments are illiquid, that is, not subject to repayment on demand or following a
repayment schedule. Investors seek return ultimately by means of capital gains when the investment is
sold at market place. The investment is realized only on enlistment of security or it is lost if enterprise is
liquidated for unsuccessful working. It may take several years before the first investment starts too locked
for seven to ten years. Venture capitalist understands this illiquidity and factors this in his investment
decisions.
1.1.3 Difference between Venture Capital & Other Funds
Venture Capital vs. Development Funds

Venture capital differs from Development funds as latter means putting up of industries without much
consideration of use of new technology or new entrepreneurial venture but having a focus on
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underdeveloped areas (locations). In majority of cases it is in the form of loan capital and proportion of
equity is very thin. Development finance is security oriented and liquidity prone. The criteria for
investment are proven track record of company and its promoters, and sufficient cash generation to
provide for returns (principal and interest). The development bank safeguards its interest through
collateral. They have no say in working of the enterprise except safeguarding their interest by having a
nominee director. They do not play any active role in the enterprise except ensuring flow of information
and proper management information system, regular board meetings, adherence to statutory requirements
for effective management control whereas Venture capitalist remain interested if the overall management
of the project on account of high risk involved I the project till its completion, entering into production
and making available proper exit route for liquidation of the investment. As against this fixed payments in
the form of installment of principal and interest are to be made to development banks.
Venture Capital vs. Seed Capital & Risk Capital

It is difficult to make a distinction between venture capital, seed capital, and risk capital as the latter two
form part of broader meaning of Venture capital. Difference between them arises on account of
application of funds and terms and conditions applicable. The seed capital and risk funds in India are
being provided basically to arrange promoter’s contribution to the project. The objective is to provide
finance and encourage professionals to become promoters of industrial projects. The seed capital is
provided to conventional projects on the consideration of low risk and security and use conventional
techniques for appraisal. Seed capital is normally in the form of low interest deferred loan as against
equity investment by Venture capital. Unlike Venture capital, Seed capital providers neither provide any
value addition nor participate in the management of the project. Unlike Venture capital Seed capital
provider is satisfied with low risk-normal returns and lacks any flexibility in its approach.
Risk capital is also provided to established companies for adapting new technologies. Herein the approach
is not business oriented but developmental. As a result on one hand the success rate of units assisted by
Seed capital/Risk Finance has been lower than those provided with venture capital. On the other hand the
return to the seed/risk capital financier had been very low as compared to venture capitalist.

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Seed capital scheme Venture capital scheme

Basis Income or aid Commercial viability
Beneficiaries Very small entrepreneur Medium and large
entrepreneur
Size of assistance Rs.15 lacs(max) Upto 40%of promoters’
equity silled and specialized
Estimates returns 20% 30% plus
Flexibility Nil Highly flexible
Value addition Nil Multiple ways
Exit option Sell back to promoters Several including public
offer
Funding Process Owner funds Outsiders contribution are
allowed
Syndication Not done Possible
Tax concession Nil Exempted
Success rate Not good Very satisfactory
Table 1.1: Venture Capital vs. Seed Capital & Risk Capital
Venture Capital vs. Bought Out Deals

The important difference between the Venture capital and bought out deals is that bought-outs are not
based upon high risk- high reward principal. Further unlike Venture capital they do not provide equity
finance at different stages of the enterprise. However both have a common expectation of capital gains yet
their objectives and intents are totally different.
Venture capital was started as early stage financing of relatively small but rapidly growing companies.
However various reasons forced venture capitalists to be more and more involved in expansion financing
to support the development of existing portfolio companies. With increasing demand of capital from
newer business, Venture capitalists began to operate across a broader spectrum of investment interest.
This diversity of opportunities enabled Venture capitalists to balance their activities in term of time
involvement, risk acceptance and reward potential, while providing on going assistance to developing
business.
Different venture capital firms have different attributes and aptitudes for different types of Venture capital
investments. Hence there are different stages of entry for different Venture capitalists and they can

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identify and differentiate between types of Venture capital investments, each appropriate for the given
stage of the invested company, these are:-
1. Early Stage Finance
Seed Capital
Start-up Capital
Early/First Stage Capital
Later/Third Stage Capital
2. Later Stage Finance
Expansion/Development Stage Capital
Replacement Finance
Management Buy Out and Buy in
Turnarounds
Mezzanine/Bridge Finance
Not all business firms pass through each of these stages in a sequential manner. For instance seed capital
is normally not required by service based ventures. It applies largely to manufacturing or research based
activities. Similarly, second round finance does not always follow early stage finance. If the business
grows successfully it is likely to develop sufficient cash to fund its own growth, so does not require
venture capital for growth.
The table below shows risk perception and time orientation for different stages of venture capital
financing:
Financing Stage Period (funds Risk perception Activity to be
locked in years) financed
Early stage 7-10 Extreme For supporting a
finance Seed concept or idea or
R & D for product
development
Start up 5-9 Very high Initializing
operations or
developing
Prototype
First stage 3-7 High Start commercial
production and
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Marketing
Large stage finance 1-3 Medium Market expansion,
acquisition and
development for
profit making
company
Buyout in 1-3 Medium Acquisition
financing
Turn around 3-5 Medium to high Turning around a
sick company
Mezzanine 1-3 Low Facilitating public
Issue
Table 2: different stages of venture capital financing
1.1.5 Venture Capital Investment Process
Venture capital investment process is different from normal project financing. In order to understand the
investment process a review of the available literature on venture capital finance is carried out. Tybee and
Bruno in 1984 gave a model of venture capital investment activity which with some variations is
commonly used presently.
As per this model this activity is a five step process as follows:
1. Deal Organization
2. Screening
3. Evaluation or due Diligence
4. Deal Structuring
5. Post Investment Activity and Exit
Deal origination:
In generating a deal flow, the VC investor creates a pipeline of deals or investment Opportunities that he
would consider for investing in. Deal may originate in various ways: Referral system, active search
system, and intermediaries. Referral system is an important source of deals. Deals may be referred to
VCFs by their parent organizations, trade partners, industry associations, friends etc. Another deal flow is

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active search through networks, trade fairs, conferences, seminars, foreign visits etc. Intermediaries is
used by venture capitalists in developed countries like USA, is certain intermediaries who match VCFs
and the potential entrepreneurs.
Screening: VCFs, before going for an in-depth analysis, carry out initial screening of all projects on the
basis of some broad criteria. For example, the screening process may limit projects to areas in which the
venture capitalist is familiar in terms of technology, or product, or market scope.
The size of investment, geographical location and stage of financing could also be used as the broad
screening criteria.
Due Diligence:
Due diligence is the industry jargon for all the activities that are associated with evaluating an investment
proposal. The venture capitalists evaluate the quality of entrepreneur before appraising the characteristics
of the product, market or technology. Most venture capitalists ask for a business plan to make an
assessment of the possible risk and return on the venture.
Business plan contains detailed information about the proposed venture. The evaluation of ventures by
VCFs in India includes; Preliminary evaluation: The applicant required to provide a brief profile of the
proposed venture to establish prima facie eligibility. Detailed evaluation: Once the preliminary evaluation
is over, the proposal is evaluated in greater detail. VCFs in India expect the entrepreneur to have: -
Integrity, long-term vision, urge to grow, managerial skills, commercial orientation. VCFs in India also
make the risk analysis of the proposed projects which includes: Product risk, Market risk, Technological
risk and Entrepreneurial risk. The final decision is taken in terms of the expected risk-return trade-off as
shown in Figure.
Deal Structuring:
In this process, the venture capitalist and the venture company negotiate the terms of the deals, that is, the
amount, form and price of the investment. This process is termed as deal structuring. The agreement also
include the venture capitalist's right to control the venture company and to change its management if
needed, buyback arrangements, acquisition, making initial public offerings (IPO’s), etc. Earned out
arrangements specify the entrepreneur's equity share and the objectives to be achieved
Post Investment Activities:

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Once the deal has been structured and agreement finalized, the venture capitalist generally assumes the
role of a partner and collaborator. He also gets involved in shaping of the direction of the venture. The
degree of the venture capitalist's involvement depends on his policy. It may not, however, be desirable for
a venture capitalist to get involved in the day-to-day operation of the venture. If a financial or managerial
crisis occurs, the venture capitalist may intervene, and even install a new management team.
Exit:
Venture capitalists generally want to cash-out their gains in five to ten years after the initial investment.
They play a positive role in directing the company towards particular exit routes. A venture may exit in
one of the following ways: There are four ways for a venture capitalist to exit its investment:
Initial Public Offer (IPO)
Acquisition by another company
Re-purchase of venture capitalist’s share by the invested company
Purchase of venture capitalist’s share by a third party
Promoter’s Buy-back
The most popular disinvestments route in India is promoter’s buy-back. This route is suited to Indian
conditions because it keeps the ownership and control of the promoter intact. The obvious limitation,
however, is that in a majority of cases the market value of the shares of the venture firm would have
appreciated so much after some years that the promoter would not be in a financial position to buy them
back. In India, the promoters are invariably given the first option to buy back equity of their enterprises.
For example, RCTC participates in the assisted firm’s equity with suitable agreement for the promoter to
repurchase it. Similarly, Canfina-VCF offers an opportunity to the promoters to buy back the shares of the
assisted firm within an agreed period at a predetermined price. If the promoter fails to buy back the shares
within the stipulated period, Canfina-VCF would have the discretion to divest them in any manner it
deemed appropriate. SBI capital Markets ensures through examining the personal assets of the promoters
and their associates, which buy back, would be a feasible option. GVFL would make disinvestments, in
consultation with the promoter, usually after the project thus settled down, to a profitable level and the
entrepreneur is in a position to avail of finance under conventional schemes of assistance from banks or
other financial institutions.
Initial Public Offers (IPO’s)
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The benefits of disinvestments via the public issue route are improved marketability and liquidity, better
prospects for capital gains and widely known status of the venture as well as market control through
public share participation. This option has certain limitations in the Indian context. The promotion of the
public issue would be difficult and expensive since the first generation entrepreneurs are not known in the
capital markets. Further, difficulties will be caused if the entrepreneur’s business is perceived to be an
unattractive investment proposition by investors. Also, the emphasis by the Indian investors on short-term
profits and dividends may tend to make the market price unattractive. Yet another difficulty in India until
recently was that the Controller of Capital Issues (CCI) guidelines for determining the premium on shares
took into account the book value and the cumulative average EPS till the date of the new issue. This
formula failed to give due weight age to the expected stream of earning of the venture firm. Thus, the
formula would underestimate the premium. The Government has now abolished the Capital Issues Control
Act, 1947 and consequently, the office of the controller of Capital Issues. The existing companies are now
free to fix the premium on their shares. The initial public issue for disinvestment of VCFs’ holding can
involve high transaction costs because of the inefficiency of the secondary market in a country like India.
Also, this option has become far less feasible for small ventures on account of the higher listing
requirement of the stock exchanges. In February 1989, the Government of India raised the minimum
capital for listing on the stock exchanges from Rs 10 million to Rs 30 million and the minimum public
offer from Rs 6 million to Rs 18 million.
Sale on the OTC Market

An active secondary capital market provides the necessary impetus to the success of the venture capital.
VCFs should be able to sell their holdings, and investors should be able to trade shares conveniently and
freely. In the USA, there exist well-developed OTC markets where dealers trade in shares on
telephone/terminal and not on an exchange floor. This mechanism enables new, small companies which
are not otherwise eligible to be listed on the stock exchange, to enlist on the OTC markets and provides
liquidity to investors. The National Association of Securities Dealers Automated Quotation System
(NASDAQ) in the USA daily quotes over 8000 stock prices of companies backed by venture capital. The
OTC Exchange in India was established in June 1992. The Government of India had approved the creation
for the Exchange under the Securities Contracts (Regulations) Act in 1989. It has been promoted jointly
by UTI, ICICI, SBI Capital Markets, Can bank Financial Services, GIC, LIC and IDBI. Since this list of
market-makers (who will decide daily prices and appoint dealers for trading) includes most of the public
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sector venture financiers, it should pick up fast, and it should be possible for investors to trade in the
securities of new small and medium size enterprises. The other disinvestments mechanisms such as the
management buyouts or sale to other venture funds are not considered to be appropriate by VCFs in India.
The growth of an enterprise follows a life cycle as shown in the diagram below. There requirements of
funds vary with the life cycle stage of the enterprise. Even before a business plan is prepared the
entrepreneur invests his time and resources in surveying the market, finding and understanding the target
customers and their needs. At the seed stage the entrepreneur continue to fund the venture with own or
family funds. At this stage the funds are needed to solicit the consultant’s services in formulation of
business plans, meeting potential customers and technology partners. Next the funds would be required for
development of the product/process and producing prototypes, hiring key people and building up the
managerial team. This is followed by funds for assembling the manufacturing and marketing facilities in
that order. Finally the funds are needed to expand the business and attaint the critical mass for profit
generation. Venture capitalists cater to the needs of the entrepreneurs at different stages of their
enterprises. Depending upon the stage they finance, venture capitalists are called angel investors, venture
capitalist or private equity supplier/investor.

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Idea Establish the Expansion Troubleshooting

company
Business Breakeven- Investing in IPO Turnaround

concept point technology
Corporate Medium
investors venture
Angels funds
Small
BIG VENTURE FUNDS + FINANCIAL FUNDS
1.6 The players

There are following groups of players:-
Angels and angel clubs·
Venture Capital funds
1. Small
2. Medium
3. Large·
Corporate venture fundsFinancial service venture group

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Angels and angel clubs

Angels are wealthy individuals who invest directly into companies. They can form angel clubs to
coordinate and bundle their activities. Besides the money, angel soften provide their personal knowledge,
experience and contacts to support their investors. With average deals sizes from USD 100,000 to USD
500,000 they finance companies in their early stages. Examples for angel clubs are · Media Club, Dinner
Club Angel's Forum.
Small and Upstart Venture Capital Funds

These are smaller Venture Capital Companies that mostly provide seed and start-up capital. The so called
"Boutique firms" are often specialized in certain industries or market segments. Their capitalization is
about USD 20 to USD 50 million (is this deals size or total money under management or money under
management per fund?). As for the small and medium Venture Capital fund strong competition will
clear the market place. There will be mergers and acquisitions leading to a concentration of capital. Funds
specialized in different business areas will form strategic partnerships. Only the more successful funds
will be able to attract new money.
Examples are- Artemis Comaford· Abbell Venture Fund· Acacia Venture Partners
Medium Venture Funds

The medium venture funds finance all stages after seed stage and operate in all business segments. They
provide money for deals up to USD 250 million. Single funds have up to USD 5 billion under
management. An example is Accel Partners
Large Venture Funds

As the medium funds, large funds operate in all business sectors and provide all types of capital for
companies after seed stage. They often operate internationally and finance deals up to USD 500 million
The large funds will try to improve their position by mergers and acquisitions with other funds to
improve size, reputation and their financial muscle. In addition they will to diversify. Possible areas to
enter are other financial services by means of M&A’s with financial services corporations and the
consulting business. For the latter one the funds have a rich resource of expertise and contacts in house. In

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a declining market for their core activity and with lots of tumbling companies out there is no reason why
Venture Capital funds should offer advice and consulting only to their investors.
Corporate Venture Funds
These Venture Capital funds are set up and owned by technology companies. Their aim is to widen the
parent company's technology base in a win-win-situation for both, the investor and the invested. In
general, corporate funds invest in growing or maturing companies, often when the invested wishes to
make additional investments in technology or product development. The average deals size is between
USD 2 million and USD 5 million.
The large funds will try to improve their position by mergers and acquisitions with other funds to
improve size, reputation and their financial muscle. In addition they will to diversify. Possible areas to
enter are other financial services by means of M&A’s with financial services corporations and the
consulting business. For the latter one the funds have a rich resource of expertise and contacts in house. In
a declining market for their core activity and with lots of tumbling companies out there is no reason why
Venture Capital funds should offer advice and consulting only to their investors.
Examples are:
1. Oracle
2. Adobe
3. Dell
4. Kyocera
As an example, Adobe systems launched a $40m venture fund in 1994 to invest in companies strategic to
its core business, such as Cascade Systems Inc. and Lantana Research Corporation has been successfully
boosting demand for its core products, so that Adobe recently launched a second $40m fund.
Financial funds:
A solution for financial funds could be a shift to a higher securitization of Venture Capital activities. That
means that the parent companies shift the risk to their customers by creating new products such as stakes
in a Venture Capital fund. However, the success of such products will depend on the overall climate and
expectations in the economy. As long as the downturn continues without any sign of recovery customers
might prefer less risky alternatives.

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1.2 Venture capital in India:
1.2.1 Evolution of VC Industry in India

The first major analysis on risk capital for India was reported in 1983. It indicated that new companies
often confront serious barriers to entry into capital market for raising equity finance which undermines
their future prospects of expansion and diversification. It also indicated that on the whole there is a need to
revive the equity cult among the masses by ensuring competitive return on equity investment. This
brought out the institutional inadequacies with respect to the evolution of venture capital. In India, the
Industrial finance Corporation of India (IFCI) initiated the idea of VC when it established the Risk Capital
Foundation in 1975 to provide seed capital to small and risky projects. However the concept of VC
financing got statutory recognition for the first time in the fiscal budget for the year 1986-87.The Venture
Capital companies operating at present can be divided into four groups:
Promoted by All - India Development Financial Institutions
Promoted by State Level Financial Institutions
Promoted by Commercial banks
Private venture Capitalists.
Promoted by all India development financial institutions

The IDBI started a VC fund in 19876 as per the long term fiscal policy of government of India, with an
initial capital of Rs 10 crore which raised by imposing a cess of 5% on all payments made for the import
of technology know- how projects requiring funds from Rs.5 lacs to Rs 2.5 crore were considered for
financing.Promoter’s contribution ranged from this fund was available at a concessional interest rate of
9% (during gestation period) which could be increased at later stages. The ICICI provided the required
impetus to VC activities in India, 1986; it started providing VC finance in 1998 it promoted, along with
the Unit Trust of India (UTI) Technology Development and Information Company of India (TDICI) as the
first VC Company registered under the companies act, 1956. The TDICI may provide financial assistance
to venture capital undertakings which are set up by technocrat entrepreneurs, or technology information
and guidance services. The risk capital foundation established by the industrial finance corporation of
India (IFCI) in 1975, was converted in 1988 into the Risk Capital and Technology Finance company
(RCTC) as a subsidiary company of the IFCI the RCTC provides assistance in the form of conventional

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loans, interest ±free conditional loans on profit and risk sharing basis or equity participation in extends
financial support to high technology projects for technological up gradations. The RCTC has been
renamed as IFCI Venture Capital Funds Ltd. (IVCF)
Promoted by State Level Financial Institutions

In India, the State Level financial institutions in some states such as Madhya Pradesh, Gujarat, Uttar
Pradesh, etc., have done an excellent job and have provided VC to a small scale enterprises. Several
successful entrepreneurs have been the beneficiaries of the liberal funding environment. In 1990, the
Gujarat Industrial Investment Corporation, promoted the Gujarat Venture Financial Ltd. (GVFL) along
with other promoters such as the IDBI, the World Bank, etc. The GVFL provides financial assistance to
businesses in the form of equity, conditional loans or income notes for technologies development and
innovative products. It also provides finance assistance to entrepreneurs.
The government of Andhra Pradesh has also promoted the Andhra Pradesh Industrial Development
Corporation (APIDC) venture capital ltd to provide VC financing in Andhra Pradesh.
Promoted by commercial banks

Can bank Venture Capital Fund, State Bank Venture Capital Fund and Grind lays bank Venture Capital
Fund have been set up by the respective commercial banks to undertake VC activities? The State Bank
Venture Capital Funds provides financial assistance for bought-out deal as well as new companies in the
form of equity which it disinvests after the commercialization of the project. Can bank Venture Capital
Fund provides financial assistance for proven but yet to be commercially exploit technologies? It provides
assistance both in the form of equity and conditional loans.
Private Venture Capital Funds

Several private sector venture capital funds have been established in India such as the 20 th Century
Venture Capital Company, Indus Venture Capital Fund, Infrastructure Leasing and Financial Services Ltd.
Some of the companies that have received funding through this route include:
Mastek, one of the oldest software houses in India
Ruskan software, Pune based software consultancy
SQL Star, Hyderabad-based training and software development consultancy
Satyam info way, the first private ISP in India.
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Hinditron, makers of embedded software.

Selectia, provider of interactive software selector.
Yantra, ITL Infosys US subsidiary, solution for supply chain management.
Rediff on the Net, Indian website featuring electronic shopping, news, chat etc.
1.2.2 INDUSTRY LIFE CYCLE:

From the industry life cycle we can know in which stage we are standing. On the basis of this
management can make future strategies of their business
The growth of VC in India has four separate phases:
Phase I –
Formation of TDICI in the 80’s and regional funds as GVFL & APIDC in the early 90s. The first origins
of modern venture capital in India can be traced to the setting up of a Technology Development Fund in
the year 1987-88, through the levy of access on all technology import payments. Technology
Development Fund was started to provide financial support to innovative and high risk technological
programmes through the Industrial Development Bank of India. The first phase was the initial phase in
which the concept of VC got wider acceptance. The first period did not really experience any substantial
growth of VCs’. The 1980’s were marked by an increasing disillusionment with the trajectory of the
economic system and a belief that liberalization was needed. The liberalization process started in 1985 in
a limited way. The concept of venture capital received official recognition in 1988 with the announcement
of the venture capital guidelines. During 1988 to 1992 about 9 venture capital institutions came up in
India. Though the venture capital funds should operate as open entities, Government of India controlled
them rigidly. One of the major forces that induced Government of India to start venture funding was the
World Bank. The initial funding has been provided by World Bank. The most important feature of the
1988 rules was that venture capital funds received the benefit of a relatively low capital gains tax rate
which was lower than the corporate rate. The 1988 guidelines stipulated that VC funding firms should
meet the following criteria:
Technology involved should be new, relatively untried, very closely held, in the process of being taken
from pilot to commercial stage or incorporate some significant improvement over the existing ones in
India

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Promoters / entrepreneurs using the technology should be relatively new, professionally or technically
qualified, with inadequate resources to finance the project. Between 1988 and 1994 about 11 VC funds
became operational either through reorganizing the businesses or through new entities. All these followed
the Government of India guidelines for venture capital activities and have primarily supported technology
oriented innovative businesses started by first generation entrepreneurs. Most of these were operated more
like a financing operation .The main feature of this phase was that the concept got accepted. VCs became
operational in India before the liberalization process started. The context was not fully ripe for the growth
of VCs. Till 1995; the VCs operated like any bank but provided funds without collateral. The first stage of
the venture capital industry in India was plagued by in experienced management, mandates to invest in
certain states and sectors and general regulatory problems. Many public issues by small and medium
companies have shown that the Indian investor is becoming increasingly wary of investing in the projects
of new and unknown promoters. The liberation of the economy and toning up of the capital market
changed the economical and scope. The decisions relating to issue of stocks and shares was handled by an
office namely: Controller of Capital Issues (CCI). According to 1988 VC guideline, any organization
requiring to start venture funds have to forward an application to CCI. Subsequent to the liberalization of
the economy in 1991, the office of CCI was abolished in May 1992 and the powers were vested in
Securities and Exchange Board of India. The Securities and Exchange Board of India Act, 1992 empowers
SEBI under section 11(2) thereof to register and regulate the working of venture capital funds. This was
done in1996, through a government notification. The power to control venture funds has been given to
SEBI only in 1995 and the notification came out in 1996. Till this time, venture funds were dominated by
Indian firms. The new regulations became the harbinger of the second phase of the VC growth.
Phase II –
Entry of Foreign Venture Capital funds (VCF) between 1995 -1999. The second phase of VC growth
attracted many foreign institutional investors. During this period overseas and private domestic venture
capitalists began investing in VCF. The new regulations in 1996 helped in this. Though the changes
proposed in 1996 had a salutary effect, the development of venture capital continued to be inhibited
because of the regulatory regime and restricted the FDI environment. To facilitate the growth of venture
funds, SEBI appointed a committee to recommend the changes needed in the VC funding context. This
coincided with the IT boom as well as the success of Silicon Valley start-ups. In other words, VC growth
and IT growth co-evolved in India
Phase III –
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(2000 onwards) - VC 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 started investing less money and in more mature
companies in an effort to minimize the risks. This decline broadly continued until 2003.
Phase IV –
2004 onwards – Global VCs firms actively investing in India. Since India’s 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.The number of deals and the total dollars invested in India has been increasing substantially.
The venture capital is growing 43% CAGR. However, in spite of the venture capital scenario improving,
several specific VC funds are setting up shop in India, with the year 2006 having been a landmark year for
VC funding in India. The total deal value in 2007 is 14234 USD Million. The No of deals was increasing
year by year. The no of deals in 2006 only 56 and now in 2007 it touch the 387 deals. The introduction
stage of venture capital industry in India is completed in 2003 after that growing stage of Indian venture
capital industry is started. There are 160 venture capital firms in India. In 2006 it is only but in 2007 the
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number of venture capital firm are 146. The reason is good position of capital market. But in 2008 the no
of venture capital firm increase only by 14, the reason is crash down of capital market by 51% from
January to November 2008. The no of venture capital funds are increasing year by year.
2000 2001 2002 2003 2004 2005 2006 2007 2008

841 77 78 81 86 89 105 146 160
Venture capital growth and industrial clustering have a strong positive correlation. Foreign direct
investment, starting of R&D centers, availability of venture capital and growth of entrepreneurial firms are
getting concentrated into five clusters. The cost of monitoring and the cost of skill acquisition are lower in
cluster, especially for innovation, entry costs are lower in clusters. Creating entrepreneurship and
stimulating innovation in cluster have to become a major concern of public policy maker. This is essential
because only when the cultural context is conducive for risk management venture capital will take-of.
Cluster supports innovation and facilitates risk bearing. VCs prefer clusters because the information costs
are lower. Policies for promoting dispersion of industries are becoming redundant after the economic
liberalization.
The venture capitalist firm invests their money in most developing sectors like health and care, IT-ITES,
telecom, Bio-technology, media & entertainment, shipping & logistics etc.

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1.2.3 Need for growth of venture capital in India

In India, a revolution is ushering in a new economy, wherein entrepreneurs mind set is taking a shift from
risk adverse business to investment in new ideas which involve high risk. The conventional industrial
finance in India is not of much help to these new emerging enterprises. Therefore there is a need of
financing mechanism that will fit with the requirement of entrepreneurs and thus it needs venture capital
industry to grow in India. Few reasons for which active Venture Capital Industry is important for India
include:
Innovation: needs risk capital in a largely regulated, conservative, legacy financial System
Job creation: large pool of skilled graduates in the first and second tier cities.
Patient capital: Not flighty, unlike FII’s
Creating new industry clusters: Media, Retail, Call Centers and back office processing, trickling down to
organized effort of support services like office services, catering and transportations.
1.2.4 Regulatory and legal framework

Definition of Venture Capital Fund:
The Venture Capital Fund is now defined as a fund established in the form of a Trust, a company
including a body corporate and registered with SEBI which:
A. Has a dedicated pool of capital;
B. Raised in the manner specified under the regulations; and
C. To invest in venture capital undertakings in accordance with the regulations.
Definition of Venture Capital Undertaking:
Venture Capital Undertaking means a domestic company:-
a. Whose shares are not listed on a recognized stock exchange in India?
b. Which is engaged in business including providing services, production or manufacture of articles or
things, or does not include such activities or sectors which are specified in the negative list by the Board
with the approval of the Central Government by notification in the Official Gazette in this behalf?

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The negative list includes real estate, non-banking financial services, gold financing, activities not
permitted under the Industrial Policy of the Government of India.
Minimum contribution and fund size: the minimum investment in a Venture Capital Fund from any
investor will not be less than Rs. 5 lacs and the minimum corpus of the fund before the fund can start
activities shall be at least Rs. 5 crores.
Investment Criteria: The earlier investment criteria have been substituted by new investments criteria
which has the following requirements:
Disclosure of investment strategy;
maximum investment in single venture capital undertaking not to exceed 25% of the corpus of the fund;
Investment in the associated companies not permitted;
At least 75% of the investible funds to be invested in unlisted equity shares or equity linked instruments.
Not more than 25% of the investible funds may be invested by way of:
a. Subscription to initial public offer of a venture capital undertaking whose shares are proposed to be
listed subject to lock-in period of one year;
b. Debt or debt instrument of a venture capital undertaking in which the venture capital fund has already
made an investment by way of equity.
It has also been provided that Venture Capital Fund seeking to avail benefit under the relevant provisions
of the Income Tax Act will be required to divest from the investment within a period of one year from the
listing of the Venture Capital Undertaking.
Disclosure and Information to Investors:
In order to simplify and expedite the process of fund raising, the requirement of filing the Placement
memorandum with SEBI is dispensed with and instead the fund will be required to submit a copy of
Placement Memorandum/ copy of contribution agreement entered with the investors along with the details
of the fund raiser for information to SEBI. Further, the contents of the Placement Memorandum are
strengthened to provide adequate disclosure and information to investors. SEBI will also prescribe suitable
reporting requirement from the fund on their investment activity.
QIB status for Venture Capital Funds:

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The venture capital funds will be eligible to participate in the IPO through book building route as
Qualified Institutional Buyer subject to compliance with the SEBI (Venture Capital Fund) Regulations.
Relaxation in Takeover Code:

The acquisition of shares by the company or any of the promoters from the Venture Capital und under the
terms of agreement shall be treated on the same footing as that of acquisition of shares by
promoters/companies from the state level financial institutions and shall be exempt from making an open
offer to other shareholders.
Investments by Mutual Funds in Venture Capital Funds:

In order to increase their sources for domestic venture capital funds, mutual funds are permitted to invest
upto5% of its corpus in the case of open ended schemes and up to 10% of its corpus in the case of close
ended schemes. Apart from raising the resources for Venture Capital Funds this would provide an
opportunity to small investors to participate in Venture Capital activities through mutual funds.
Government of India Guidelines:
The Government of India (MOF) Guidelines for Overseas Venture Capital Investment in India dated
September 20, 1995 will be repealed by the MOF on notification of SEBI Venture Capital Fund
Regulations.
The following will be the salient features of SEBI (Foreign Venture Capital Investors) Regulations,
2000: Definition of Foreign Venture Capital Investor: Any entity incorporated and established outside
India and proposes to make investment in Venture Capital Fund or Venture Capital Undertaking and
registered with SEBI.
Eligibility Criteria: Entity incorporated and established outside India in the form of Investment
Company, trust, partnership, pension fund, mutual fund, university fund, endowment fund, asset
management company, investment manager, investment management company or other investment
vehicle incorporated outside India would be eligible for seeking registration from SEBI. SEBI for the
purpose of registration shall consider whether the applicant is regulated by an appropriate foreign
regulatory authority; or is an income tax payer; or submits a certificate from its banker of its or its
promoters’ track record where the applicant is neither a regulated entity nor an income tax payer.

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Investment Criteria:
Disclosure of investment strategy;
Maximum investment in single venture capital undertaking not to exceed 25% of the funds committed
for investment to India however it can invest its total fund committed in one venture capital fund;
At least 75% of the investible funds to be invested in unlisted equity shares or equity linked instruments.
Not more than 25% of the investible funds may be invested by way of:
Hassle Free Entry and Exit:

The Foreign Venture Capital Investors proposing to make venture capital investment under the
Regulations would be granted registration by SEBI. SEBI registered Foreign Venture Capital Investors
shall be permitted to make investment on an automatic route within the overall sectorial ceiling of foreign
investment under Annexure III of Statement of Industrial Policy without any approval from FIPB. Further,
SEBI registered FVCI’s shall be granted a general permission from the exchange control angle for inflow
and outflow of funds and no prior approval of RBI would be required for pricing, however, there would be
ex-post reporting requirement for the amount transacted.
Trading in unlisted equity:
The Board also approved the proposal to permit OTCEI to develop a trading window for unlisted
securities where Qualified Institutional Buyers (QIB) would be permitted to participate.
1.2.5 Methods of Venture Financing

Venture capital is typically available in three forms in India, they are:
Equity: All VCFs in India provide equity but generally their contribution does not exceed 49 percentage
of the total equity capital. Thus, the effective control and majority of the ownership of the firm remains
with the entrepreneur. They buy shares of an enterprise with an intention to ultimately sell them off to
make capital gains.

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Conditional Loan:
It is repayable in the form of a royalty after the venture is able to generate sales. No interest is paid on
such loans. In India, VCFs charge royalty ranging between 2 to 15%; actual rate depends on other factors
of the venture such as gestation period, cost-flow patterns, risk ness and other factors of the enterprise.
Income Note: It is a hybrid security which combines the features of both conventional loans and
conditional loan. The entrepreneur has to pay both interest and royalty on sales, but at substantially low
rates.
Other Financing Methods:

A few venture capitalists, particularly in the private sector, have started introducing innovative financial
securities like participating debentures, introduced by TCFC is an example.
Key considerations
For investor/venture capitalist Ideal entrepreneur
A venture capital (VC) who is financing the firm would as the first necessity assess and gauge the
promoters. Because in the case of start-up where the product or the technology is yet to be tested, the only
thing they can trust and their investment on the people behind it. While investing in a company what a VC
is essentially looking for is a partnership and therefore the first decision making criterion is the character
and personality of the promoters.
However from a venture capitalist’s perspective, the idea entrepreneur,
1. is qualified in D µKRW¶ area of interest
2. Delivers sales or technical advances such as FDA approval with reasonable probability
3. Tells a compelling story and is presentable to outside investors,
4. Recognize the need for speed to an IPO for liquidity,
5. has a good reputation and can provide references that show competences and skill,
6. Understand the need for a team with a variety of skill and therefore sees why equity has to be allocated
to other people
7. Works diligently toward a goal but maintains flexibility
8. Get along with the investor group
9. Understands the cost of capital and typical deal structures and is not offended by them
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10. Is sought after by many VCs

11. Has a realistic expectation about process and outcome.
Besides the ideal entrepreneur, the investor tries to ensure the following for himself.
1. Reasonable reward has given in the level of risk.
2. Sufficient influence on the management of the company through board representations.
3. Minimization of taxes.
4. Ease in achieving future liquidity on the investment.
5. Flexibility of structure that will allow room to enable additional investment later, incentives for future
management and retention of stocks if management leaves
6. Balance sheet attractiveness to suppliers and debt financier
7. Retention of key employees through adequate equity participation
Venture financing practices and procedures

Entrepreneurs who need VC financing for their enterprises should have sufficient information to be able to
choose a VC company or fund suitable for their requirement and have a broad understanding of the
procedures required to be followed for obtaining financial assistance at different stages of implementation
of their projects. Basically they need to develop a business plan or prototype to get venture finance.
The business plan is document that conveys a company’s prospects and growth potential, and thereby sells
the business to potential backers. The process is to be managed just as most other business task is
managed. It requires advance preparation, delegation, refinement, and disciplines do most important
business functions. Companies are increasingly being called on to provide written business plans,
financial backers, especially VCs and other private investors , have long sought business plans before
making investment decisions. In addition, organization and individuals considering long term
relationships with the companies, large customers, suppliers and distributors are much more inclined to
seek written plans. The business plan process involves gathering accurate and convincing information as
well as carefully outlining the plan before writing. Executives should also determine what kind of plan
they need, ranging from a summary plan full plan or an operating plan. Once all these considerations have
been formulated, the plan is ready for final rewriting and presentation.
Extensive editing is recommended, along with careful attention to presentation details like the cover and
concerns of its likely reader’s perhaps most important, the plan should be used to guide the company.
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Thus it should be reviewed and updated. In project appraisal, feasibility of the project is assessed from
different angels with stress on production process and marketability, as the lending institutions are backed
by the security of movable and immovable assets of the borrower and chiefly concerned with their turn of
the investment with interest. In venture capital financing the venture capitalist has a different approach
because of equity participation, risk sharing and involvement in the management of project. Investment by
a venture capitalist indifferent stage of enterprise calls for an analysis of factors related to each stage.
However, the order of preference followed by the venture capitalists in evaluating of business plan is as
under:
1. Analysis of management.
2. Analysis of organization pattern.
3. Analysis of production process.
4. Analysis of marketing & sales.
5. Financial analysis and projections.
6. Analysis of reference information.
1.2.6 VENTURE CAPITAL & ALTERNATIVE FINANCING COMPARISON

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Figure: venture capital and alternate financing comparison.
If we are struggling to find success in our quest for venture capital, maybe we are looking in the wrong
place. Venture capital is not for everybody. For starters, venture capitalists tend to be very picky about
where they invest. They are looking for something to dump a lot of money into (usually no less than $1
million) that will pour even more money right back at them in a short amount of time (typically3-7 years).
We may be planning for a steady growth rate as opposed to the booming, overnight success that venture
capitalists tend to gravitate toward. We may not be able to turn around as large of a profit as they are
looking for in quick enough time. We may not need the amount of money that they offer or our business
may simply not be big enough.
Simply put, venture capital is not the right fit for our business and there are plenty of other options
available when it comes to finding capital.
1.2.3.1 Substitute in Early stage

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1. Angels
Most venture capital funds will not consider investing in anything under $1 million to $2 million. Angels,
however, are wealthy individuals who will provide capital for a start-up business. This investor has
usually earned their money as entrepreneur and business managers and can serve as a prime resource for
advice on top of capital. On the other hand due to typically limited resources, angels usually have a shorter
investment horizon than venture capitalist and tend to have less tolerance for losses.
2. Private Placements
An investment bank or agent may be able to raise equity for our company by placing our unregistered
securities with accredited investors. However, you should be aware that the fees and expenses associated
with the practices are generally higher than those that come with venture and angel investors. We will
likely receive little or no business counsel from private investors who also tend to have tolerance for
losses and under performance.
3. Initial Public Offering

If we are somehow able to gain access to public equity markets than an initial public offering (IPO) can be
an effective way to raise capital. Keep in mind that while the public market’s high valuation, abundant
capital and liquidity characteristics make it attractive, the transaction costs are high and there are on-going
legal expenses associated with public disclosure requirements.
1.2.3.2 Later Stage Financing
1. Bootstrap Financing
This method is intended to develop a foundation for your business from scratch. Financial management is
essential to make this work. With bootstrap financing you are building a business from nothing, which
means there is little to no margin for error in the finance department. Keep a rigid account of all
transaction and don’t stray from your budget.
A few different method of bootstrapping include:

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Factoring
Trade credit
Leasing
2. Fund from Operations
Look for ways to tweak your business in order to reduce the cash flowing out and increase the cash
flowing in. Funding found in business operations come free of finance charges, can reduce future
financing charges and can increase the value of your business. Month- by-month operating and cash
projection will shoe how well we have planned, hoe you can optimize the elements of your business that
generate cash and allow you to plan for investment and contingencies.
3. Licensing
Sell licenses to technology that is non-essential to our company or grant limited licensing to essential
technology that can be shared. Throughout licensing we can generate revenue from up-fronts fees, access
fees, royalties or milestone payments.
4. Vendor Financing
Similar to the trade credit related to bootstrap financing, vendors can play a big role in financing your new
business. Establish vendor’s relationships through our trade association and strike deals to offer their
product and pay for it at a date in the near future. Selling the product in time is up to us. In hopes of
keeping you as a customer, vendor’s credential and reputation before you sign any kind of agreement. And
keep in mind that many major suppliers own financial companies that can help you.
5. Self-Funding
Search between the couch cushions and in old jacket pockets for whatever extra money you might have
lying around and invest it into your business. Obviously loose change will not be enough for extra
business funding, but take a look at your savings, investment portfolio, retirement funds and employee
buyout options from your previous employer. You won’t have to deal with any creditors or interest and
the return on your investment could be much higher. However, make sure that you consider the risks
involved with using your own resources. How competitive is the market that you are about to enter into?
How long will it take to pay you back? Will you be able to pay yourself back? Can you afford to lose
everything that you are investing if your business were to fail?
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It’s important that your projected returns are more enough that cover the risk that you will be taking.
6. State Funding
If you are not having any luck finding funding from the federal government take a look at what your state
has to offer. There is a list to state development agencies that offer an array of grants and financial
assistance for small businesses on about.com
7. Community Banks
These smaller banks may have fewer products than their financial institution counterparts but they offer a
great opportunity to build banking relationships and are generally more flexible with payments plans and
interest rates.
8. Micro loans
These types of loans can range from hundreds of dollar to low six-figure amounts. Although some leaders
regard microloans to be a waste of time because the amount is so low, these can be a real boom for a start-
up business or one that needs to add some extra cash flow.
9. Finance Debts
It may be more expensive in the long run than purchasing, but financing your equipment, facilities and
receivables can free up cash in the short term or reduce the amount of money that you need to raise.
10. Friends
Ask your friends if they have any extra money that they would like to invest. Assure them that you will
pay them back with interest or offer those stock options or a share of the profits in returns.
11. Family
Maybe you have a rich uncle or a wealthy cousin that would be willing to lend you some money get your
business running or send it to the next level. Again, make it worth their while by offering interest, stocks
or a share of the profits.
12. Form a Strategic Alliance

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Aligning your business with a corporation can produce funding from upfront or access fees to your
service, milestone payments and royalties. In addition, corporate partners may be able to provide research
funding, loans and equity investments.
13. Sell Some Assets
Find an interested party to buy some of your assets (computers, equipment, real estates, etc….) and then
lease them back to you. This provides an instant source of cash and you will still be able to use whatever
assets you need.
14. Business Lines of Credit

If your business has positive cash flow and has proven that it will cover its debts then you may be eligible
for a business line of credit. This type of financing is a common service offered by most business banks
and serves as business capital, up-to an agreed upon amount, that you can access at any time.
15. Personal Credit Cards

Using personal credit cards to finance a business can be risky but, if you take the right approach, they can
also give your business a lift. You should only consider using this type of financing for acquiring assets
and working capital. Never consider this to be a long-term option. Once your company breaks even or
moves into the black, ditch the credit cards and move toward traditional bank financing or lease
agreements.
16. Business Credit Cards

Business credit cards carry similar risks as personal credit cards but tend to be a safer alternative. While
the activity on this card goes toward your credit report, a business credit card can help you to build
business credit, keep your business expenses separate from your personal expenses and can make tax
season easier to manage.

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Chapter -2
Objective of the Study
2.1 Title of the Study:

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“A study the effect of impact of legal and environment Venture Capital financing in India”. The project
describes the various trends of venture capital in India from 2003 onwards. It also emphasis on the impact
of various political and economic factors in the growth of venture capital in India.
2.2 RESEARCH OBJECTIVE:

To study the Effect of the Legal Framework formulated by SEBI towards encouraging venture capital
activity in India
To find out opportunity and threats those hinder and encourage venture capital financing in SME in
India
To know the impact of political and economic factors on venture capital investment.
To analyse the impact of union budget 2013-14 in the growth of venture capital in India.

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Chapter-3
Review of Literature
Review of Literature

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By Markowitz & Vissing-Jorgersen (2002), using data at the household level, claim to have been the
first to provide estimates of the return and risk characteristics of the entire market of non-public equity.
They find that the majority of household investment in private companies is concentrated in a single,
risky, privately held firm in which the household has an active management interest. Despite the risks
these investors face in taking on large amounts of idiosyncratic risk, the returns to private equity are
surprisingly low. They find that the average return to private equity is similar to that of public equity,
leading them to conclude that the diversified portfolio of public equity seems to offer a more attractive
risk-return trade-off than that obtained by the typical entrepreneur.
By Hochberg et al. (2007) study how relationships and networks in the VC industry affect performance.
They focus on the co-investment networks that VC syndication gives rise to. Their central argument is that
syndication networks may both improve the quality of deal flow and help VCs add value to their portfolio
companies. Using graph theory to measure how well networked a VC is, they find that VCs that are better-
networked at the time a fund is raised subsequently enjoy significantly better fund performance, as
measured by the rate of successful portfolio exits over the next 10 years. The size of a VC firm’s network.
Its tendency to be invited into other VC’s syndicates, and its access to the best-networked VCs have the
largest effect economically, while an ability to act as an intermediary in bringing other VCs together plays
less of a role.
By Hochberg et al. (2007) suggest that enhancing one’s network position should be an important
strategic consideration for an incumbent VC, while presenting a potential barrier to entry for new VCs.
By Hochberg et al. (2010). They examine whether U.S. venture capital firms engage in practices
designed to increase their bargaining power over entrepreneurs by restricting entry into local VC markets.
To begin with, they are able to show that networking can have the effect of reducing entry in the VC
market. Second, their results help explain evidence from their 2007 paper that better-networked VCs enjoy
better performance. Part of the explanation for this may be due to the lower prices VCs pay for
investments in more densely networked markets. Third, they shed light on the process of entry in the VC
industry. Successful entry appears to involve “joining the club” by offering the incumbents syndication
opportunities in one’s home market.
By Cochrane (2005): His central research question is similar to that of Markowitz & Vissing-Jorgersen
(2002), namely whether venture capital investments behave the same way as publicly traded securities.
For that purpose he follows a very sophisticated empirical strategy to control for selection bias, i.e. the

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fact that the researcher only observes a valuation when a firm goes public, receives new financing or is
acquired. In this way he is able to measure the expected return, standard deviation, alpha, and beta of
venture capital investments. He concludes that we see similar phenomenon in public and private markets.
Venture capital, therefore, does not follow an anomalous behavior.
By Hsu (2004) finds evidence that better VCs get better deal terms (in the form of lower valuations, for
instance) when negotiating with start-ups. He developed a hand- collected data set of 148 financing offers
(both accepted and declined) made to a group of 51 early-stage high-tech start-ups. In this way, he
estimates that a financing offer from a high-reputation VC is approximately three times more likely to be
accepted by an entrepreneur. As well, it is shown that highly reputable VCs acquire start-up equity at a 10-
14% discount.
By Kaplan & Schoar (2005).has investigate the performance, persistence and capital flows in the
industry, focusing both on LBO funds and VC funds. As regards performance they find that, on average,
fund returns net of fees approximately equal the return of the S&P 500. Evidence of large heterogeneity in
returns across funds and time is presented. Substantial persistence in LBO and VC fund performance is
also documented: GPs who outperform the industry in one fund are likely to outperform the industry in
the next and vice versa.

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CHAPTER - 4
RESEARCH METHODOLOGY

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RESEARCH METHODOLOGY
4. Research Methodology of the study
Research
Research is the task of searching for and analyzing. It is purposive, systematic, repeatable and different from casual
observation. A proper research methodology helps in bringing out accurate results . The main aim of research is
to find out the truth which is hidden and which has not been discovered as yet. Though each research
study has its own specific purpose, we may think of research objectives as falling into a number of
following broad categories:
1) To gain familiarity with a phenomenon or to achieve new insights into it.
2) To portray accurately the characteristics of a particular individual, situation or a group.
3) To determine the frequency something else.
4) To test a hypothesis of a causal relationship between variables.
“RESEACH I SYSTEMMATIC EFFORTS TO GAIN KNOWLEDGE”

Research methodology is a way to systematically solve the research problem. It may be understood as a
science of studying how research is done scientifically. In it we study the various steps that are generally
adopted by a researcher in studying his research problem along with the logic behind them.
4.1 RESEARCH DESIGN
‘Research Design’ means the exact nature of Research work in a systematic manner. It involves the
information about the research work in view of the framework of the study, availability of various data,
observations, analysis, sampling etc. Research design used in this study:
Descriptive Research: The research design used in this project is the Descriptive type.
Descriptive research is also called Statistical Research. The main goal of this type of research is to
describe the data and characteristics about what is being studied.
The idea behind this type of research is to study frequencies, averages, and other statistical calculations.
Although this research is highly accurate, it does not gather the causes behind a situation. Descriptive
research is mainly done when a researcher wants to gain a better understanding of a topic

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4.2 SAMPLING DESIGN

SELECTION OF SAMPLE SIZE:
In order to take a relevant sample size for the report, a relevant sample size consists of different sources
view, reports, article and findings. The data has been collected in order to analyse the services and
defining the exact position of the bank.
SAMPLING TECHNIQUE USED:
The technique of Non-Random Sampling has been used in the analysis of the data. As the data is collected
from different sources and are different from nature.
PERIOD OF STUDY
2003-2012
4.3 Data Collection from secondary sources:
The data has been used in this report is secondary data that has been collected from various reports,
studies by different experts, annual reports previous researches and literature to fill in the respective
project. It also includes articles by various sites, newspaper, Annual report, RBI regulation, and other
reports etc.
4.4 Limitations:
 The scope of study is limited to few selected banks only due to the time constraint.
 Reliability on Secondary sources for data collection.
 The topic was of such nature that only quantitative research was possible.

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CHAPTER- 5
DATA ANAYSIS
AND INTERPRETATIONS

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5.1 PEST ANALYSIS:

Political factors:
Venture Capital being a very sensitive institutional form due to the high-risk nature of its investments it
was prerequisite for the government to be careful to ensure that its policies do not adversely affect its
venture capitalists. There are number of rules and regulation for VC and these would broadly come under
either of the following heads:
The Indian Trust Act, 1882 or the company Act, 1956 depending on whether the fund is set up as a trust
or a company.
The foreign investment Promotion Board (FIPB) and the 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 clearance from the RBI for
any repatriation of income.
The Central Board of Direct Taxation (CBDT) governs the issues pertaining to income tax on proceed
from VC funding activity. The long term capital gain tax is at around 10% in India and the relevant
clauses to VC may be found in Section 10(sub section 23)

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VC & FVCI
SEBI RBI FIPB TAX
SEBI (VCF) Reg. 1996 FEMA 1999 FDI POLICY IT act 1961
SEBI (FVCI) Reg.
2000 Transfer or issue of Investment approval, DTAA
SCR Act.1956 security by a person Press notes Singapore
SEBI (SAST) Reg.1997 resident outside Mauritius
SEBI (DIP) Guidelines, India regulation other
2000 2000
SEBI Act, 1992
Figure: Major Regulatory framework for venture capital industry

Minimum contribution and fund size: the minimum investment in a Venture Capital Fund from any
investor will not be less than Rs. 5 lacs and the minimum corpus of the fund before the fund can start
activities shall be at least Rs. 5 crores.
Short term capital gain: Rate of tax on short term capital gains under Section 111A & Section 115AD
increased to 15 per cent from earlier 10%.
Investment Criteria: the earlier investment criterion has been substituted by new investment criteria
which has the following requirements:
1. Disclosure of investment strategy;
2. Maximum investment in single venture capital undertaking not to exceed25% of the corpus of the fund;
3. Investment in the associated companies not permitted;
4. At least 75% of the investible funds to be invested in unlisted equity shares or equity linked
instruments.
5. Not more than 25% of the investible funds may be invested by way of:

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It has also been provided that Venture Capital Fund seeking to avail benefit under the relevant provisions
of the Income Tax Act will be required to divest from the investment within a period of one year from the
listing of the Venture Capital Undertaking.
Disclosure and Information to Investors:
In order to simplify and expedite the process of fund raising, the requirement of filing the placement
memorandum with SEBI is dispensed with and instead the fund will be required to submit a copy of
Placement Memorandum/ copy of contribution agreement entered with the investors along with the details
of the fund raiser for information to SEBI. Further, the contents of the Placement Memorandum are
strengthened to provide adequate disclosure and information to investors. SEBI will also prescribe suitable
reporting requirement from the fund on their investment activity.
QIB status for Venture Capital Funds:
The venture capital funds will be eligible to participate in the IPO through book building route as
Qualified Institutional Buyer subject to compliance with the SEBI (Venture Capital Fund) Regulations.
Relaxation in Takeover Code:
The acquisition of shares by the company or any of the promoters from the Venture Capital Fund under
the terms of agreement shall be treated on the same footing as that of acquisition of shares by
promoters/companies from the state level financial institutions and shall be exempt from making an open
offer to other shareholders.
Investments by Mutual Funds in Venture Capital Funds:
In order to increase the resources for domestic venture capital funds, mutual funds are permitted to invest
up to 5% of its corpus in the case of open ended scheme sand up to 10% of its corpus in the case of close
ended schemes. Apart from raising the resources for Venture Capital Funds this would provide an
opportunity to small investors to participate in Venture Capital activities through mutual funds.
Government of India Guidelines:

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The Government of India (MOF) Guidelines for Overseas Venture Capital Investment in India dated
September 20, 1995 will be repealed by the MOF on notification of SEBI Venture Capital Fund
Regulations.
GUIDELINES FOR OVERSEAS VENTURE CAPITAL INVESTMENTIN INDIA

In recognition of growing importance of Venture Capital as one of the sources of finance for Indian
industry, particularly for the smaller unlisted companies, the Government has announced a policy
governing the establishment of domestic Venture Capital Funds/Companies. An amendment has also been
carried out in the SEBI Act empowering the Securities and Exchange Board of India (SEBI) to register
and regulate Venture Capital Funds (VCFs) and Venture Capital Companies (VCCs) through specific
regulations. With a view to augment the availability of Venture Capital, the Government has decided to
allow overseas venture capital investments in India subject to suitable guidelines as outlined below:
a. Offshore investment may invest in approved domestic Venture Capital Funds/Companies set up under
the new policy after obtaining FIPB approval for the investment. There is no limit to the extent of foreign
contribution to a domestic venture capital company/ fund. An offshore venture capital company may
contribute 100% of the capital of domestic venture capital fund, and may also set up a domestic asset
management company to manage the Fund.
b. Establishment of an asset management company with foreign investment to manage such funds would
require FIPB approval and would be subject to the existing norms for foreign investment in non-bank
financial services companies.
c. Once the initial FIPB approval has been obtained, the subsequent investment by the domestic venture
capital company/fund in Indian companies will not require FIPB approval. Such investments will be
limited only by the general restriction applicable to venture capital companies viz.-
i. A minimum lock-in period of three years will apply to all such investments.
ii. VCF's and VCC’s shall invest only in unlisted companies and their investment shall be limited to 40%
of the paid up capital of the company. The ceiling will be subject to relevant equity investment limits that
may be in force from time to time in relation to areas reserved for the Small Scale Sector.
iii. Investment in any single company by a VCF/VCC shall not exceed20% of the paid-up corpus of the
domestic VCF/VCC.
d. The tax exemption available to domestic VCFs and VCCs under Section10(23F) of the Income Tax
Act, 1961, will also be extended to domestic VCFs and VCCs which attract overseas venture capital
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investments provided these VCFs/VCCs conform to the guidelines applicable for domestic VCFs/VCCs.
However, if the VCF/VCC is willing to forego the tax exemptions available under Section 10(23F) of the
Income Tax Act, It would be within its rights to invest in any sector.
e. Income paid to offshore investors from Indian VCFs/VCCs will be subject to tax as per the normal rates
applicable to foreign investors.
f. Offshore investors may also invest directly in the equity of unlisted Indian companies without going
through the route of a domestic VCF/VCC. However, in such cases each investment will be treated as a
separate act of foreign investment and will require separate approval as required under the general policy
for foreign investment proposals.
Hassle free entry/exit for foreign venture capital firm: SEBI registered Foreign Venture Capital
Investors shall be permitted to make investment on an automatic route within the overall sectorial ceiling
of foreign investment under Annexure III of Statement of Industrial Policy without any approval from
FIPB. Further, SEBI registered FVCIs shall be granted a general permission from the exchange control
angle for inflow and outflow of funds and no prior approval of RBI would be required for pricing,
however, there would be ex-post reporting requirement for the amount transacted.
DTAT (Double Tax Avoidance Treaties): Foreign funds investing in India directly into Indian portfolio
companies will not be affected by the proposed amendment. As most of these funds have been set up in
tax neutral jurisdictions like Mauritius, they will continue to enjoy tax exemption on capital gains tax
under the Double Tax Avoidance Agreements, effectively getting the equivalent of a “pass through”
notwithstanding which sector they invest in.
Controller of Capital Issue: The exist route available to the venture capitalist were restricted to the IPO
route. Pricing of the issue was dependent on Controller of Capital Issues (CCI) regulations before
deregulations. Many of the issues were under-priced.
Failure of OTCEOI so small companies could not hope for BSE/NSE listing.
REALXATION IN IPO NORMS:

The SEBI norms for an IPO by a Venture Capital company / fund are relaxed. The requirement of three
years track record should be waived off for a Venture Capital company /fund registered with SEBI. This
will help the Venture Capital Company/ fund to generate resources locally.

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SEBI registered VCFs have been permitted to invest in equity and equity linked instruments of offshore
venture capital undertakings, subject to overall limit of USD 500 million and with prior SEBI approval.
Investment can be made only in those companies which have an Indian connection and the investment
cannot exceed 10% of the VCFs investible funds.
Taxes on emerging sector: As per Union Budget 2007 and its broad guidelines, Government proposed
to limit pass-through status to venture capital funds (VCFs) making investment in nine areas. These nine
areas are biotechnology, information technology, nanotechnology, seed research and development, R&D
for pharmacy sectors, dairy industry, poultry industry and production of bio-fuels. Pass-through status
means that the incomes earned by funds are taxable now.
Liberalization: With the advent of liberalization, India has been showing remarkable growth in the
economy in the past 10 - 12 years. The government is promoting growth incapacity utilization of available
and acquired resources and hence entrepreneurship development, by liberalizing norms regarding venture
capital. In the year 2000, the finance ministry announced the liberalization of tax treatment for venture
capital funds to promote them & to increase job creation. This is expected to give a strong boost to the
non-resident Indians located in the Silicon Valley and elsewhere to invest some of their capital,
knowledge and enterprise in these ventures.
5.2 To know the impact of economic factors on venture capital investment.
ECONOMIC FACTORS
MERGER AND ACQUISITION:

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Venture backed liquidity by events by year 2007-2012
Figure: Venture backed M & A deals

Interpretation:
In the second quarter of 2008, 50 venture-backed M&A deals were completed, 14of which had an
aggregate deal value of $2.4 billion. M&A volume of 120transactions in the first half of 2008 was down
28 % from the first half of 2007 when 169 transactions were completed.

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However after this Sensex crash down it impact has been seen in 2009 where no of deal further decreases
by 49 and lower down to 340 with the disclosed value of 13077.3. In 2010, there has been increase in the
M&A where no of deals rises to 501 with the disclosed value of 18604.8. In 2011, however the no of deals
decreases by 11 but their disclosed value has been rises to the highest 24345.8.
Sectorial Composition of India’s GDP:

As per the figures available for 2011 fiscal, almost 52% of India’s GDP comes from the agricultural sector
and the services sector is the second biggest contributor with 34%. The industrial sector contributes almost
14% of India’s GDP.
Agriculture and Other Allied Activities Contribution to GDP

1st quarter 2nd quarter 3rd quarter 4th quarter
statistics( in statistics in statistics in statistics in
crores) crores crores crores
2008-09 154307 123389 204748 171675

2009-10 156740 126524 201853 177390
2010-11 161614 132668 224044 190778
2011-12 167548 136806 230359 193955
Manufacturing Contribution to India GDP

statistics in statistics in statistics in statistics in
crores crores crores crores
2008-09 159042 162174 162114 172445
2009-10 167571 176550 180421 195187
2010-11 182895 187309 194435 209523
2011-12 196170 192790 195509 208999
Finance, Insurance, Real Estate and Business Services Contribution to GDP


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statistics in statistics in statistics in statistics in

crores crores crores crores
2008-09 168259 170953 177881 189619
2009-10 187106 189145 192558 201074
2010-11 205861 208815 214205 221114
2011-12 225165 229498 233758 243294
INTERPRETATION
India GDP 2012-13
HSBC, a leading global bank has stated that in 2012-13 fiscal India’s chronological and yearly growth
will be a moderate one. It had previously stated that in the same period India’s GDP will grow by 7.5 %
but has now brought down the forecast to 6.2%. HSBC opines that in 2014 India will see a better growth
rate of almost 7.4 % - previously it had forecast 8.2 % for the period.
HSBC has also stated that there are plenty of difficulties in the Indian administration and domestic
policies are in a paralyzed state. The bank feels that these factors will restrict the amount of investment
being done in India and limit its economic progress in the immediate future. It feels that things can
improve in the second part of the fiscal.
HSBC opines that in the present circumstances the RBI might feel forced to take a step and reduce the
rates. The changes are likely to be made on June 18, 2012 and there could be a deduction of almost 25
basis points. This will happen in spite of the consistent inflation.
The bank also states that the rate at which demand is going up, there could be risk of further inflation. It
has called for the economic structure to be reformed with greater efficiency and stressed that this needs to
be done quickly. India’s GDP statistics for the first three months of 201 were not at par with expectations.
During April the rate of industrial production was pretty unimpressive as well when compared on a year-
on-year basis and to March 2012.

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The fact that India has not been able to effect useful structural improvements has hampered its possible
growth as well. In the final quarter the national economy grew at 6.1 % and in the next quarter it came
down to 5.3%, which is the lowest figure recorded after 2004.
However, inflation rate is still pretty high in India. In May 2012, the WPI inflation increased to 7.55 % as
opposed to 7.23% in April. At present the CPI inflation rate is more than 10percent. HSBC states that
inflation rate can come down to certain extent owing to reduction in oil prices and moderate economic
growth but the exchange rate is still weak and India’s overall economic capacity is somewhat restricted
and all these factors can keep the inflation factor in play.
Though the opportunities arising from the global industry for the Indian SMEs are huge, but so are the
challenges. The global economic slowdown and cost pressures have made the Global SME industry
outsource elements of technology, design and sub-assembly Manufacture. SMEs who will be successful
are the ones who can innovate, adapt cutting edge technologies, deliver customized solutions, develop and
maintain a global standard in Manufacturing qualities and specifications while maintaining their cost
advantages. The Challenge, therefore, for the Indian SMEs is to proactively respond to changing customer
Expectations. This could require a lot of effort and investment; however the dividends to be reaped are
phenomenal.
SMALL SCALE INDUSTRY

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Figure: Growth of SME industry
INTERPRETATION /IMPACT
VC, to be able to contribute to developing entrepreneurship in India, needs to concentrate its investment in
SMEs. A “Package for Promotion of micro and Small Enterprises” was announced in February 2007.
This includes measures addressing concern of credit, fiscal support, cluster-based development,
infrastructure, technology and marketing. Capacity building of MSME Association and support to women
entrepreneur are the other important feature of this package. SMEs have been allowed to manage their
direct/indirect exposure to foreign risk by booking/cancelling/roll over of forward contract without prior
permission of RBI.
To boost the micro and small enterprise sector, the bank has decided to refinance an amount of 7000 crore
to the Small Industries Development Bank of India, which will be available up to March 31, 2010. The
Central Bank said that it is also working on a similar refinance facility for the National Housing Bank
(NHB) of an amount of Rs 4, 000 crore
INTEREST RATE:

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Sources - The Macro economic and monetary development annual statement on monetary policy.
INTERPRETATION/IMPACT:
The interest rate increase year by year. It is 6.11% in March-2006 and now in March 2008 it is 7.23%.
venture capital firms generally borrow from banks now if interest rates are increasing interest cost of
venture capital firms will also increase which led reduce the profitability of Venture Capital firms.
Because if anyone is investing in any option he will look for good return, so here if they will maintain
their own profits they will have to give less return to investors then investors will go for other options.
Here increases in bank rates affect Venture Capital firms in both ways from the suppliers as well as buyers
side.
CURRENCY RISK:

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INTERPRETATION/IMPACT
From the above chart we can see that exchange rate is highly fluctuated. Now a day the exchange rate
exceeds to 50 Rs. Per dollar. Now due to globalization venture capital firms are entering at global level.
Now for a particular country currency risk can be defined in two ways.
Indian venture capital is concentrated on global level due to increasing opportunity in global level.
They make a deal with global company. So there is directly affect the movement of exchange rate.
In second way, Foreign institutional investor incest their money Indian stock market and nowadays
due to crash down of market the investment of FII is decreasing. Due to this nobody likes to bring IPO. It
is directly affected to venture capital company because IPO is one way for exist.
REPO RATE
Now RBI has cut Repo Rate by 25 bps reduced to 7.25. It is directly affect the home loan rate. The rate of
home loan is reduced so it is very helpful for real estate sector. And most of the Venture Capital
companies invest their money in real estate sector. There is an improvement in the flow of credit to
productive sectors of the economy.
5.3 To find out opportunity and threats those hinder and encourage venture
capital financing in SME in India

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FIVE FORCE ANALYSIS
THREATS OF
SUBSTITUTE
PRODUCT
BARGENING RIVALARY BARGENING

POWER OF BUYER AMONG EXISTING POWER OF
FIRMS SUPPLIER
THREAT OF NEW
ENTRANTS
5.3.1 THREATS FROM NEW ENTRANTS / ENTRY BARRIERS:

1. Capital requirement:
Here if any investor wants to invest in venture capital firm, the investment should not be less than Rs. 5
lac, while for the venture capital firms minimum requirement for starting the investment is Rs. 5 crore. So
being a venture capital firm one must fulfill these types of conditions. Here the fund requirement for
starting up the venture capital firm is so high that an ordinary person cannot start this business. And in
addition the venture capitalists must have good industrial contacts and large network also to obtain funds
as well as to sell their services.
2. High risky business:

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We can see from the chart that generally more deals are taking place at early stage. But at the early stage it
is difficult to predict the success of the business so there is a high risk of getting failure in these types of
investments. So the investors of venture capital also found high risk in investing in venture capital firms.
And generally it is known that when there is high risk in investment the bargaining power of supplier is
high. It is clear that when company is in its later stage the risk associated with it is lower compared to the
early stage and at later stage there are many options with the companies to borrow the funds so the
investment is less risky.
Possible result of venture capital investments
No of company out of 10 Annual rate of return

investments.
Failure 4 0%
Viable 3 15%
Solid 2 50%
Superstar 1 100%
Blended average 24%
Source: IVCA Presentation 2007
Table: success ratio of venture capital deals
From the above table we can see the success ratio of the venture capital investment. 40% of the
investments are getting failure and only 10% of them are able to give100% return. And the average return
by the venture capitalists is only 24.5% which is not extra ordinary. This type of returns can be found in
many other investment options. So there isn’t any special reason to invest in venture capital. So if there is

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not any extra advantage of investment or special feature to attract investors bargaining power of suppliers
is high and entry barrier for new entrants are high. So threat from new entrants from this point of view is
low.
3. Exit Route Barrier:
Here the venture capital company can exit through IPO or through merger and acquisition with other
companies. Now-a-days, from the previous table of M&A deals and crash in stock market 2008 we can
see the comparison between M&A and IPO in the year 2007-2008.
4. Learning and Experience curve effect:
Venture capital funds, before going for an in-depth analysis, carry out initial screening of all projects on
the basis of some broad criteria:
Size of investment
Geographical location
Stage of financing
Knowledge about product and market
So the existing firms can have the benefit of experience in the industry, so on the basis of their capabilities
they can use that experience for the stake of the firm. But new firm don’t have the experience in the
industry so they may have a loss from this side. So threat from new entrant is low from this point of view
also. Experience person can also become competitive advantage.
5. Time constraint: As we have discussed above risk associated with early stage of financing is very high
compared to other stages because of uncertainty attached with early stage.
5.3.2 Rivalry among competitors
1. Fragmented industry:
Here the venture capital industry is highly fragmented no is market leader. The market for industry’s
product or services is becoming more global, putting companies in more and more countries in the same
competitive arena. The industry is young and crowded with aspiring contenders. As there was high growth
of stock market in the year 2006 and 2007 most of the VCs have entered in the market so now in crashed
market everyone is eager to sell their services in small market of buyers.

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Fig: number of venture capital firm in India

Investment pattern:
In venture capital industry, firms are investing on some basic criteria which they have decided by their
own requirement. Here some companies are investing in some particular industry and some of them have
also decided the stage of financing the company. So venture capital firm investing in early seed stage does
not directly compete with the firm investing in the later stage, one investing in LBO, MBO and MBI deal.
So the competition between is moderate while it is high within the stages. So the overall competition is
moderate to high.
Company Seed stage Start-up stage Early stage Later stage
IDBI venture funds 50 63 1 2
ICICI venture funds 5 109 68 73
SIDBI 5 19 2 3
RCTC venture capital fund 6 43 3 7
scheme
CANBANK VC fund LTD 2 40 3 13
Gujarat venture funds 1995 0 7 0 8
Industries venture capital 8 17 19 12
Ltd.
(source VC in India by “Satish Taneja” Galgotia publishing company)
Table: companies stage wise investment
Other factors are:
3 Effect of globalization
4 Emerging sector

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5 Fast growing market
5.3.3 Threat from substitutes:
Substitute at start up stage:

Here the company requires huge capital for starting the business and that time there is lot of risk. So the
company collects the money through IPO rather than through Venture Capital. Threat from substitute is
moderate.
Substitute at expansion stage:

Here the company wants to expand geographically and make merger and acquisition with another
company, and also make LBO, MBO/MBI deals so the requirement of investment is very high and there is
less risk and this stage company has good bargaining power because the company is already developed
and they can collect the money from anywhere. Nobody is ready to give money to the company at this
stage rather than venture capital. Threat from substitute is low.
At this stage the biggest substitute for the Venture Capital. is FDI. because at this stage firm requires a
huge capital for expansion and here the Venture Capital having only one competitive advantage over FDI
is management support provided by them. In all other sectors Venture capital firm and FDI are mostly
similar like control, financial burden and risk associated with them.

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WORKING CAPITAL MANAGEMENT:

As at this stage working capital requirement is not so high, so the firms can get the funds from any of the
substitute available at this stage which is as follows.
Factoring
Vendor finance
Parent company
Short term loan
If the company is going to borrow money from Venture Capitalists it will increase their interest cost while
company can get the funds from the above options at low interest rates. So the threat from substitute is
high at this stage. The overall we can say that threat from substitute moderate.
5.3.4 BARGAINING POWER OF SUPPLIERS:

Here suppliers are the investors who provide funds to venture capitalist. The investors are corporations,
individual, banks, pension funds, insurance companies.
1. Risky business: Here generally venture capitalists are investing in businesses which are highly
risky, but are confident. Generally the projects or proposals which do not get funds from other
cheap options or need management support will go for the borrowing from venture capital firms. It
also has been mentioned that most of the deals take place at early stage of business and it’s hard to
predict success of business at early stage, so the risk associated with investment is high, which lead
to increase the bargaining power of suppliers (investors)
Possible result of venture capital investments:

No of company out of 10 Annual rate of return
investments.
Failure 4 0%

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Viable 3 15%
Solid 2 50%
Superstar 1 100%
Blended average 24.5%
2. In the following stakeholder map we have arranged the most important stakeholders according to their
interest in the industry/single companies and to their power to exert any impact. So here from the interest
taken by the investors we can define their bargaining power. If they will take interest it will create high
impact on performance of the firm. With the expected globalization and development of capital markets
investors have a wider choice of investments. . A good track record and good investor relationships will
become even more important. Personal contacts are essential. So, high returns are the most powerful
means for attracting and maintaining investors. With a rising competition for the really qualified people
across all industries we expect salaries levels to rise. Due to this bargaining power of supplier is high.
2. Switching cost: Here this is the list of money supplier for the venture capital firms. These suppliers are
in large number and every contributor is so much important for the Venture Capital firm. Now all of them
are having many other options of investment and the risk associated with other options is low compared to
investment in Venture Capital firms. Thus, the bargaining power of supplier is high.
They are interested in high returns. Besides that, few investors have other preferences as well, like the
support for certain industries or technologies. The investment preferences of the investors influence,
where they put their money in. Therefore, it is very important for the Venture Capital companies to
demonstrate a good track record of high returns to attract funds. Bargaining power of suppliers is very
high.
5.3.5 BARGAINING POWER OF BUYERS

The "buyers" are the companies in which we invest. The venture capital firms select them on the basis of
their criteria and after evaluating them they limit the losses.
As the investment made by the Venture Capital firms are generally in risky projects, because if any firm
is getting firm at lower interest rates it will not go to the Venture Capital firms, but if their projects are

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more risky other investors won’t be ready to invest in their projects. At that time they will go to the
venture capitalists for borrowing the funds. On the basis of this discussion we can decide that the
bargaining power of buyers is moderate.
The bargaining power of buyers is very low, because of current crash in market no one can come with
IPO. So for getting fund company must go to the venture capital firm. So here the bargaining power of
buyer is very low.
Bargaining power of buyer is also dependent on when buyer borrows the money. In early stage
bargaining power of buyer is high because at that time Company can take finance from any other
substitute like friends, family, and angel investor and can bring IPO. In later or development stage
bargaining power of buyer is Low because at that time there is huge requirement of capital and at that time
company make M&A deal or MBI/MBO. So it is very risky. At this stage no other banks, institutions are
ready to give money to the company as there is a high risk associated with high capital requirements. So
here at this stage bargaining power of buyers is very low.
Advantages of financing by venture capital:

It injects long term equity finance which provides a solid capital base for future growth.
The venture capitalist is a business partner, sharing both the risks and rewards. Venture capitalists are
rewarded by business success and the capital gain.
The venture capitalist is able to provide practical advice and assistance to the company based on past
experience with other companies which were in similar situations.
The venture capitalist also has a network of contacts in many areas that can add value to the company,
such as in recruiting key personnel, providing contacts in international markets, introductions to strategic
partners, and if needed co-investment with other venture capital firms when additional rounds of financing
are required.
5.4 DRIVING FORCES FOR VENTURE CAPITAL FIRM

Growth of Small Scale industries

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Figure: Growth of Small Scale industries

To boost the micro and small enterprise sector, the bank has decided to refinance an amount of 7000 crore
to the Small Industries Development Bank of India, which will be available up to March 31, 2010. The
Central Bank said that it is also working on a similar refinance facility for the National Housing Bank
(NHB) of an amount of Rs 4, 000 crore.
According to one survey by National Entrepreneurship Development Board (NEBD), Ministry of

SSI & ARI, Govt. of India, on ‘Entry barriers to entrepreneurship as perceived by youth’.
In this survey out of 1625 respondents, 19.2% people have future plan to become entrepreneur for starting
the business and 80.8% persons are not ready for business. But out of this 80.8% person’s 58.3% person
are ready for becoming entrepreneurship if they get help in finance, project idea, and training for business
and management. So here there is a great opportunity for venture capital firms.
GE NINE - CELL INDUSTRY ATTRACTIVENESS -COMPETITIVE STRENGTH MATRIX

Industry attractiveness:

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Industrial Important weight Rating Score

Attractiveness
Growth rate 0.20 7 1.4
Intensity of competition 0.20 6 1.2
Regulatory policies 0.10 4 0.40
Domestic economic 0.20 8 1.6
factor
Domestic economic 0.20 8 1.6
factor
Product innovation 0.10 4 0.4
Total 1.00 6.4
Business strength
Business Importance APIDC IVCF UTI rank/ ICICI AVISHKAR
Strength Weight rank/ rank/ Score rank/ rank/score
score score score
Quick response 0.20 7/1.4 4/0.8 5/1.00 8/1.6 7/1.4
time
International 0.15 6/0.90 5/0.75 5/0.75 7/1.05 6/0.90
affiliation &
network
Entrepreneurial 0.20 7/1.4 5/1.00 4/0.8 6/1.20 7/1.40
edge
Intellectual 0.25 6/1.5 6/1.5 6/1.5 7/1.75 6/1.50
assets
Management 0.20 6/1.2 7/1.4 4/0.8 7/1.4 6/1.20
Support
Total 1.00 6.40 5.45 4.85 7.00 6.40

FINANCING IN INDIA
BUSINESS STRENGTH
Implication:
The First Zone consists of the three cells in the upper left corner. The ICICI venture capital firms falls in
this zone that it is in a favorable position with relatively attractive growth opportunities. This indicates to
invest in this service. The Second Zone consists of the three diagonal cells from the lower left to the
upper right. The APIDC, Aviskar, VCF, UTI fall in this phase. A position in this zone is viewed as having
medium attractiveness. Management must therefore exercise caution when making additional investments
in this service. The suggested strategy is to seek to maintain share rather than growing or reducing share.
The ICICI venture capital fund will try to go in upward line and tries to increase their strength and must
allocate their source on his strength like affiliation & network Management support and Intellectual assets.
For this company make Strategic Business Unit (SBU) for each deal. Company can make network with
other global companies. So it is useful when company makes deal in Merger& Acquisition deals and
company must have knowledge about global culture. Due to large network it may become useful
ingeneration a flow of deals The Company must hire experienced professional person because it can
become competitive advantage for company in Venture Capital Industry. The company can increase its
strength by providing better post investment services like strategic planning, better portfolio management
services and helpful in financing from other companies.

FINANCING IN INDIA
IMPACT OF UNION BUGDET 2013-2014 ON VARIOUS SECTORS

AGRICULTURE
270.49 bn allocated to the Ministry of Agriculture, an increase of 22% over the RE of current fiscal
year.
Allocation of 34.15 bn for agricultural research.
For FY14, target of agricultural credit kept at ` 7,000 bn.
Interest subvention scheme for short-term crop loans to be continued. Scheme extended for crop loans
borrowed from private sector scheduled commercial banks.
10 bn allocated for bringing Green Revolution to eastern India.
5 bn allocated to start a programme of crop diversification that would promote technological innovation
and encourage farmers to choose crop alternatives.
Rashtriya Krishi Vikas Yojana and National Food Security Mission provided ` 99.54 bn and 22.50 bn
respectively. Allocation for Integrated watershed programme increased from 30.50 bn in FY13 (BE) to
53.87 bn in FY14
Interpretation:
The programme of crop diversification would be an effective measure to alleviate rural poverty and
generate rural employment. While the measures announced in the Budget for the agriculture sector are
positive, legal impediments restricting the entry of big private players to marketing, storage and
processing facilities of agricultural commodities also need to be modified. In view of the sharp increase in
prices of food articles, especially proteins, fruits and vegetables and the growing food grains stocks in
public sector, the Government has maintained its focus on the agriculture sector through increased
allocations and introducing initiatives for creating efficient agricultural market. The hike in farm credit
limit and creation of a credit guarantee fund for Farmer Producer Organizations (FPOs) would provide
some respite to small and marginal.

FINANCING IN INDIA
Infrastructure
Infrastructure Financing
Infrastructure Debt
Fund (IDF) to be encouraged. These funds will raise resources and provide long- term low-cost debt to
infrastructure projects through take-out finance, credit Enhancement and other innovative means.
India Infrastructure Finance Corporation Ltd (IIFCL) in partnership with the Asian Development Bank
(ADB) will provide access to the bond markets for long term funds through credit enhancements to
infrastructure companies.
Allowed some institutions to issue tax free bonds up to ` 500 bn in FY14 strictly on capacity to raise
funds from the market.
With assistance from World Bank and the ADB, to build roads in the Northern Eastern states and
connects them to Myanmar.
Increased corpus of the Rural Infrastructure Development Fund (RIDF) operated by NABARD to ` 200
bn in FY14.
Allocation of ` 50 bn to NABARD to finance construction of warehouses, silos and cold storage units
designed to store agricultural produce.
Rural Infrastructure
Budgetary allocation of ` 801.94 bn for rural development schemes in FY14, representing an increase of
46% over FY13 (RE). Allocation of `330 bn to Mahatma Gandhi National Rural Employment Guarantee
Scheme (MGNREGS), 217 bn to Pradhan Mantri Gram Sadak Yojana (PMGSY) and ` 151.84 bn to Indira
Awaas Yojana (IAY).
Allocation of a portion of funds to new programme PMGSY-II which will benefit states which have
completed PMGSY; other states will continue with PMGSY.
Urban Infrastructure
Allocation of 148.73 bn for the Jawaharlal Nehru National Urban Renewal Mission (JNNURM). A
significant portion of this will be used to support the purchase of up to.
Roads and Highways

FINANCING IN INDIA
A regulatory authority for the road sector is proposed to be constituted to address the unattended
challenges including financial stress, enhanced construction risk and contract management issues.
3,000 km of road projects will be awarded in the first six months of FY14.10, 000 buses.
IMPACT:
Given the increased focus to revive growth in the infrastructure sector by boosting infrastructure financing
coupled with the measures to increase thrust on rural infrastructure and urban infrastructure, the Budget is
expected to have a positive impact on the infrastructure sector.
Banking, Financial Services and Insurance (BFSI)
Banking
Agricultural and Rural Finance
The target for credit flow to farmers raised from ` 5,750 bn in FY13 to ` 7,000 bn inFY14.
The interest subvention scheme for short term crop loans to continue and farm loans repaid on time to
get credit at 4% p.a. Scheme extended to crop loans borrowed from private sector Scheduled Commercial
Banks (SCBs).
Capital Support and Funding

A sum of ` 140 bn capital allocated to PSBs for FY14, keeping in view compliance of PSBs with Basel
III norms.
Setting up of India’s first Women’s Bank as a PSB with a provision of 10 bn as initial capital is
proposed. Necessary approvals and the banking license expected by October 2013.
National Housing Bank to set up Urban Housing Fund with a provision of ` 20 bn to the fund.
Infrastructure Debt Funds (IDF) to be encouraged.
The corpus of the Rural Infrastructure Development Fund (RIDF) will be raised to ` 200 bn.
50 bn will be made available to NABARD to finance construction of warehouses and godowns.
Issuance of infrastructure tax-free bonds up to ` 500 bn to be allowed during FY14.
Enhancing the refinancing capability of SIDBI from the current level of ` 50 bn to ` 100 bn per year.
Additional sum of ` 1 bn to be provided to India Microfinance Equity Fund.
A corpus of ` 5 bn to SIDBI to set up a Credit Guarantee Fund for factoring.

FINANCING IN INDIA
IMPACT:
The Budget is expected to have a positive impact on the banking industry. Some of the growth drivers of
the Indian banking sector include financial inclusion and enhanced payment systems which will help the
banking sector to achieve its aim of expansion and growth. A number of measures have been announced
towards enabling inclusive growth such as other banks including some co-operative banks adopting CBS
and e-payment systems, all branches of PSBs having ATMs, post offices becoming a part of the core
banking solution and offering real-time banking services and setting up of India’s first Women’s Bank as
a PSB. Measure have also been announced to enable better flow of credit to various sectors, including
agriculture, housing, infrastructure and MSMEs which is expected to encourage overall credit growth. In
addition, the Budget has emphasized on the financial strengthening of PSBs. The allocations made
towards capital infusion in PSBs are expected to bring more stability to the sector. The Government aims
to keep all the PSBs adequately capitalized for compliance with Basel III regulation
Finance
A standing Council of Experts will be established in the Ministry of Finance to understand the
international competitiveness of the Indian financial sector.
In cases of dividend distribution tax or tax on distributed income, current surcharge increased from 5%
to 10%.
Permissible premium rate to be raised from 10% to 15% of the sum assured by relaxing eligibility
conditions of life insurance policies for persons suffering from disability and certain ailments.
Concessional 15% tax rate on dividend received by an Indian company from its foreign subsidiary is
proposed during FY14.
To increase investment in long term infrastructure bonds in foreign currency, tax rate on interest paid to
non-resident investors declined in the prior year from 20% to 5%.
Extending this same benefit to investment made through a designated bank account in rupee denominated
long term infrastructure bonds is proposed.
Exempt of Securitization Trust from income tax. Levy of tax at certain rates during distribution of
income for companies, individual or HUF etc. No additional tax on income received by investors from the
Trust.
Investor Protection Fund of depositories to be exempted from income tax in some situations.

FINANCING IN INDIA
Parity in taxation between IDF-Mutual Fund and IDF-NBFC when the payment is made to a non-
resident.
IMPACT:
The Budget has few announcements having a marginally positive impact on the financial sector. On the
financial front, increased surcharge on the dividend distribution tax will impact earnings of corporates as
well as investors. However, corporates are expected to marginally benefit by the reduced taxation on
foreign dividends. Reducing tax rates on investments made through a designated bank account in rupee
denominated long term infrastructure bonds will be benefitting. Securitization Trust to be exempted from
income tax will also benefit investors.

FINANCING IN INDIA
CHAPTER- 6
FINDINGS AND RECOMMENDATION

FINANCING IN INDIA
6.1 THESE ARE THE VARIOUS FINDINGS FROM THE RESEARCH:

The trend of the venture capital industry has been on the increasing stage since Sensex crash down in
2008.
Venture capitalists in India consider the entrepreneur’s integrity &urge to grow as the most critical
aspect or venture evaluation.
The rate of growth of GDP in the Indian sector has a favorable impact on the venture capital growth.
It has been observed that since IPO has been an exit point of the venture capital but it becomes a barrier
at the time of recession.
Fluctuation in the currency ratio has a great impact on venture capital funding.
With the introduction of union budget 2013-14, there is specific improvement in the agriculture,
infrastructure and health sector and it ITES sector which will enhance the venture capital growth.
The SEBI norms for an IPO by a Venture Capital company / fund are relaxed. The requirement of three
years track record should be waived off for a Venture Capital company / fund registered with SEBI
It is estimated that the VC growth rate in the next 2 year will raise up to 33% in India.
The growth of SME brings opportunity to the venture capital funding in India.
With current union budget, there would be a growth in IT & ITES sector which has the largest share of
funding by VC in India.
In the second quarter of 2008, 50 venture-backed M&A deals were completed, 14of which had an
aggregate deal value of $2.4 billion. M&A volume of 120transactions in the first half of 2008 was down
28 % from the first half of 2007 when 169 transactions were completed. However after this Sensex crash
down it impact has been seen in 2009 where no of deal further decreases by 49 and lower down to 340
with the disclosed value of 13077.3. In 2010, there has been increase in the M&A where no of deals rises
to 501 with the disclosed value of 18604.8. In 2011, however the no of deals decreases by 11 but their
disclosed value has been rises to the highest 24345.8.
India’s GDP statistics for the first three months of 2012 were not at par with expectations. During April
the rate of industrial production was pretty unimpressive as well when compared on a year-on-year basis
and to March 2012. The fact that India has not been able to effect useful structural improvements has
hampered its possible growth as well. In the final quarter the national economy grew at 6.1 % and in the
next quarter it came down to 5.3%, which is the lowest figure recorded after 2004

FINANCING IN INDIA
The increasing industrialization enhances the private participation in venture capital organization and
currently there are 189 organizations registered with SEBI.
Less importance on developing different sector is lagging the Indian economy performance such as
GDP, Per Capita Income and growth rate
Currently, foreign venture capitalists require permission from the RBI for each investment and
liquidation
The focus of the government towards increasing investment in infrastructure, creating a regulatory
authority for the road sector, introducing investment allowance for attracting new high value investments,
creating industrial corridors besides announcement of projects in National Waterways, Road and Ports
sectors, devising a PPP policy framework in the coal sector to some extent would boost infrastructure
activities. Besides, a number of initiatives in the Oil & Gas sector are also commendable.
6.2 RECOMMENDATION:
FINANCING IN INDIA
Canalization of rules and regulations and establishing separate board to supervise venture capital by
proper promotion strategy.
Developing good infrastructure to attract more foreign venture capital.
Promoting and encouraging the entire sector to reduce the economy dependency on a particular sector.
Increase Tax rebates.
Regulate the unorganized financing sector.
Regulating the unorganized financial sector becomes difficult, rather making organized financial sector
more attractive to the users of such funds.
The investment should be in turnaround stage. Since there are many sick industries in India and the
number is growing each year, the venture capitalists that have specialized knowledge in management can
help sick industries. It would also be highly profitable if the venture capitalist replace management either
good ones in the sick industries.
It is recommended that the venture capitalists should retain their basic feature thatistaking high risk.
The present situation may compel venture capitalists to opt for less risky opportunities but is against the
spirit of venture capitalism. The established fact is big gains are possible in high risk projects.
There should be a greater role for the venture capitalists in the promotion of entrepreneurship. The
Venture capitalists should promote entrepreneur forums, clubs and institutions of learning to enhance the
quality of entrepreneurship.

FINANCING IN INDIA
CHAPTER- 7
CONCLUSION

FINANCING IN INDIA
CONCLUSION
As in India, small and medium-sized enterprises with active support from large industries (their
customers) and government have turned manufacturing into an art form. To achieve this, these enterprises
poured money into R&D and cut other expenses.
The government supported them by loosening up the tightly regulated labour market. Large and small
manufacturers found unique ways to cut labour costs by sometimes providing an employment guarantee
for a fixed period as a quid-pro-quo for less pay. Instead of laying-off workers, managements deployed
idled workers to new assignments. The result of such strategies is evident. India has emerged as the most
competitive industrial economy across the developing world through the last decade. Unemployment in
India has declined during the global economic crisis. Identifying a valuable market position ahead of
competitors is a necessary first step to high performance. Our focus on this paper suggests that high
performing manufacturers can build their market position by prioritizing investments in strategic
initiatives that support and strengthen their core differentiation. Our framework identifies the innovative
and distinctive capabilities that organizations must build to differentiate them from the competition: smart
shop floor, market-driven innovation infrastructure, data based decision making and responsive
relationships. This report shares insights into leading sector opportunities across India’s are available for
the investors and to focus their energies to build investment opportunities. But we do not stop at
identifying distinctive capabilities. We propose four key actions toward this goal: building brand image
for India, opportunities in Indian operating environment, using sustainability to build competitiveness and
developing Indian economy in overall sector. The challenge of building India's strong economy must be a
shared responsibility. The size and scale of investments make it imperative for industry, government and
other stakeholders to collectively find solutions to macro problems. This report emphasizes the need for
advertising the different opportunities in all sectors and providing employment opportunities for Indian
talent pool. It also highlights the need to canalize an Investor Services Organization to achieve more
policy and regulatory coordination across authorities at the central, state and local levels. The software
sector development has marked India as an emerging opportunity for the venture capitalists and by using
the same repo can be utilized for attracting the domestic and global venture capitalists towards Indian
economy. FDI Inflows to India will lead to a phenomenal growth in the economic life of the country. India
has become one of the most prime destinations for investments. Though the opportunities arising from the
global industry for the Indian industries are huge, but so are the challenges. The global economic

FINANCING IN INDIA
slowdown and cost pressures have made the Global industry outsource elements of technology, design and
sub-assembly Manufacture. The industries who achieve success are the ones who can innovate, adapt
cutting edge technologies, deliver customized solutions, develop and maintain a global standard in
Manufacturing qualities and specifications while maintaining their cost advantages. The Challenge,
therefore, for the India is to pro-actively respond to changing customer Expectations. This could require a
lot of effort and investment by the government as well as the entrepreneurs in the Indian context.

FINANCING IN INDIA
BIBLIOGRAPHY
BOOKS:
 Taneja Satish, “Venture Capital in India, Galgotia Publishing Company, 2002, pg1-44.
 Chary T Satyanarayana, “Venture Capital –Concept & Applications”, Macmillan India Ltd, 2005,
page 19-22.
 Pandey I M, “Venture Capital – The Indian Experience”, Prentice Hall of India Pvt. Ltd, 1999,
page 95-97.
 Thompson Arthur, Strickland A J, Gamble John E, Jain Arun K, “Crafting & Executing Strategy-
The Quest for Competitive Advantage”, Tata McGraw Hill, 14th edition,2006,page 44-80.
 Florida, R., & Kenney, M. (1988a). Venture capital financed innovation and technological change
in the US. Research Policy, 17(3), 119–137.
 Gompers, P. (1994). The rise and fall of venture capital.Business and Economic History, 23(2), 1–
26.
 Kenney, M., & von Burg, U. (1999). Technology and path dependence: the divergence between
Silicon Valley and Route 128. Industrial and corporate change, 8(1), 67–103.
WEBSITE:
 www.sebi.gov.in
 www.ivca.org3.
 www.nenonline.org.
 www.indiavca.org.
 www.vcindia.com
 www.ventureintelligence.in
 www.vccircle.com
 www.100venture.com
 www.msme.com
 www.nasscom.com
 www.nvca.org
 www.ciiionline.org
 www.thompsonrouters.com
FINANCING IN INDIA
 www.economicstimes.indiatomes.com

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A STUDY THE EFFECT OF IMPACT OF LEGAL AND ENVIRONMENT VENTURE CAPITAL

HMR Institute of Technology & Management Page 1

1.1.1 Concept of Venture Capital

HMR Institute of Technology & Management Page 2

1.1.2 Features of Venture Capital

1.1.2.2 High Tech

1.1.2.3 Equity Participation & Capital Gains

HMR Institute of Technology & Management Page 3

1.1.2.4 Participation in Management

1.1.2.5 Illiquid Investment

1.1.3 Difference between Venture Capital & Other Funds

Venture Capital vs. Development Funds

Venture Capital vs. Seed Capital & Risk Capital

HMR Institute of Technology & Management Page 5

Seed capital scheme Venture capital scheme

Venture Capital vs. Bought Out Deals

HMR Institute of Technology & Management Page 6

HMR Institute of Technology & Management Page 8

Post Investment Activities:

Sale on the OTC Market

HMR Institute of Technology & Management Page 12

Idea Establish the Expansion Troubleshooting

Business Breakeven- Investing in IPO Turnaround

BIG VENTURE FUNDS + FINANCIAL FUNDS

1.6 The players

HMR Institute of Technology & Management Page 13

Angels and angel clubs

Small and Upstart Venture Capital Funds

Medium Venture Funds

Large Venture Funds

HMR Institute of Technology & Management Page 14

HMR Institute of Technology & Management Page 15

1.2 Venture capital in India:

1.2.1 Evolution of VC Industry in India

Promoted by all India development financial institutions

HMR Institute of Technology & Management Page 16

Promoted by State Level Financial Institutions

Promoted by commercial banks

Private Venture Capital Funds

Hinditron, makers of embedded software.

1.2.2 INDUSTRY LIFE CYCLE:

HMR Institute of Technology & Management Page 18

(2000 onwards) - VC becomes risk averse and activity declines:

2000 2001 2002 2003 2004 2005 2006 2007 2008

HMR Institute of Technology & Management Page 21

1.2.3 Need for growth of venture capital in India

1.2.4 Regulatory and legal framework

HMR Institute of Technology & Management Page 22

HMR Institute of Technology & Management Page 23

Relaxation in Takeover Code:

Investments by Mutual Funds in Venture Capital Funds:

HMR Institute of Technology & Management Page 24

Hassle Free Entry and Exit:

1.2.5 Methods of Venture Financing

HMR Institute of Technology & Management Page 25

Other Financing Methods:

10. Is sought after by many VCs

Venture financing practices and procedures

1.2.6 VENTURE CAPITAL & ALTERNATIVE FINANCING COMPARISON

HMR Institute of Technology & Management Page 28

Figure: venture capital and alternate financing comparison.

1.2.3.1 Substitute in Early stage