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Chapter-19: HYBRID FINANCE PREFERENCE SHARE CAPITAL:
Hybrid financing combines elements of both
equity and debt. It allows companies to enjoy
benefits of both by giving investors residual
claims as with equity shares as well as
guaranteed payments like debt instruments
ADVANTAGES AND DISADVANTAGES OF
HYBRID SECURITIES:
Advantages:
• Higher yield
• Less volatile market price
• Risk diversification
Disadvantages:
Calculation of return on hybrid securities is not
as simple as on equity or bond securities and,
therefore, investing through these is more
complicated.
TYPES OF HYBRID SECURITIES:
While there are many types of hybrid
securities, the most common are:
• Preference Shares
• Warrants
• Convertible Debentures/Bonds
• Foreign Currency Convertible Bonds
• Mezzanine Financing
Preference share can be issued either with or
without a maturity date, in contrast to equity
shares, which is never issued with one.
The term "perpetual or irredeemable
preference shares" refers to preference shares
that do not have a maturity date.
Preference shareholders have a higher priority
claim on both the company's income and
assets than the equity shareholders have.
Types of Preference Shares:
The various kinds of preference shares that can
be issued are as follows:
Cumulative Preference Shares:
A cumulative preference share is one that
holds the right to a definite sum of dividend or
dividend at a predetermined rate.
Non-Cumulative Preference Shares:
A non-cumulative preference share grants the
holder the right to receive a dividend payment
that is predetermined in advance.
Participating Preference Shares:
These shares give the holder the right to
participate in any surplus profits that remain
after equity shareholders have been paid
dividends at a predetermined rate.
Non-Participating Preference Shares:
A non-participating preference share is a share
that only receives a predetermined rate of
dividend payment each year and does not get
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any additional rights in profits or in the surplus
when the company is wound up.
Redeemable Preference Shares:
These shares are issued on the condition that
the company will redeem them after the
specified period or even earlier at the
company's option.
Non-Redeemable Preference Shares:
The preference shares that do not come with
an arrangement regarding redemption, are
referred to as Non-Redeemable Preference
Shares.
Convertible Preference Shares:
The holders of these shares have the right to
have them converted into equity shares, at
their discretion, in accordance with the terms
and circumstances of the issue of which they
are a part.
Non-Convertible Preference Shares:
A non-convertible preference share is one in
which the owner of the preference share does
not have the right to have his holdings
converted into equity shares.
Adjustable-rate Preference Shares:
Adjustable-rate preference shares do not
qualify for a fixed dividend rate. The dividend
pay-outs depend on the interest rates
prevalent in the market.
Purpose of issuing Preference Shares:
The following are some of the reasons why
preference shares may be issued:
* It is an improved method for acquiring capital
in an uninteresting primary market.
* If a firm's shares can't be bought and sold, it
might have trouble obtaining funds, but the
possibility of getting one's money back at some
point in the future could entice investors to
invest in the company.
* In most cases, the preference shares are
redeemed when there is a surplus of cash and
there are no other successful ventures in which
to invest the money.
* If there is a loss or a reduction in profit, there
will be no dividend paid out, which is not the
case with debentures or loans.
Redemption of Preference Shares:
Redemption refers to the process of repaying
an obligation at predetermined times and
amounts over the course of its existence.
It is a contract that gives the holder the right to
redeem preference shares at an agreed upon
price either at the conclusion of a specific time
period or before the end of that time period.
Perpetual Non-Cumulative Preference Shares:
This type of Preference Shares is issued by
Indian banks as part of Additional Tier 1
Capital, subject to extant legal provisions, only
in Indian rupees and should meet the following
terms and conditions to qualify for inclusion in
Additional Tier 1 Capital for capital adequacy
purposes:
* The instruments should be issued by the
bank (not a bank-created SPV) and fully paid
up.
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* Bank boards may decide how much PNCPS to
raise.
* Perpetual Non-Cumulative Preference Shares
(PNCPS) in Additional Tier 1 Capital cannot
exceed 1.5% of risk-weighted assets.
* Once this minimum total Tier 1 capital is met,
any additional PNCPS issued by the bank can
be added.
* Excess PNCPS can be considered Tier 2 capital
if less than 2% of RWAS, while meeting
minimum Total Capital of 9% of RWAS.
* The PNCPS have no maturity date, step-ups,
or other redemption incentives.
* Investor dividends may be fixed or floating,
based on a market-determined rupee interest
benchmark rate.
* PNCPS shouldn't have a "put option."
* However, banks may issue instruments with
a call option at a specific date.
* The call option on the instrument is
acceptable after it has run for at least five
years;
* To exercise a call option, a bank must have
RBI (Department of Regulation) clearance;
* A bank must not do anything that generates
an expectation that the call will be exercised.
* The dividend/coupon reset date need not be
co-terminus with the call date to avoid such
expectations.
* Banks may, at their discretion, consider a gap
between dividend/coupon reset date and call
date.
Redemption of Preference Shares by Fresh
Issue of Shares:
A company can use the proceeds from fresh
issue of shares to redeem preference shares.
For securities premium account, Section 52 of
the companies Act, 2013 provides that the
securities premium account may be applied by
the company:
* Towards issue of un-issued shares of the
company to be issued to members of the
company as fully paid bonus securities.
* To write off preliminary expenses of the
company
* To write off the expenses of, or commission
paid, or discount allowed on any of the
securities or debentures of the company.
* To provide for premium on redemption of
preference shares or debentures of the
company.
* For the purchase of its own shares or
securities.
* However, certain class of companies, as may
be prescribed and whose financial statements
comply with accounting standards prescribed
for such class of companies, under section 133
of the companies Act 2013, cannot apply the
securities premium account for the purposes
mentioned against point’s no. 2 and 4 above.
FEATURES OF WARRANTS:
The holder of a warrant has the right but not
the responsibility to purchase a predetermined
number of equity shares at a predetermined
price during a predetermined time period.
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This right is granted by the warrant.
To protect the interest of the minority
shareholders, the pre-determined price of
warrant conversion in cases of preferential
allotment cannot be less than either:
1) The average of the weekly high and low of
the closing prices of the related shares quoted
on the stock exchange during the 6 months
preceding the relevant date or,
2) The average of the weekly highs and lows of
the closing prices of the related shares quoted
on a stock exchange during the 2 weeks
preceding the relevant date.
The warrants do not carry any dividend or
voting rights. Only after warrants are
converted into equity shares, the investor gets
these rights.
FEATURES OF CONVERTIBLE DEBENTURES:
The following are the provisions that apply to
fully or Partially Convertible Debentures, also
known as FCDs and PCDs, in accordance with
SEBI guidelines:
(a) It is required that the conversion premium
as well as the timing of the conversion be
determined and reported in the prospectus.
(b) If the conversion takes place at or after 18
months but before 36 months from the date of
allotment, the holder of the debenture will
have the option to convert either partially or
fully if the conversion takes place during this
time period.
(c) Unless the conversion duration is made
optional with "put" and "call" options, a
conversion term, that is longer than 36
months, will not be approved.
(d) If the fully convertible debentures have a
conversion time that is longer than 18 months,
there will be a mandatory requirement for a
credit rating.
DIFFERENCES BETWEEN WARRANTS AND
CONVERTIBLE DEBENTURES:
(a) The debenture and the option in a
convertible debenture cannot be separated
from one another.
(b) Warrants have the ability to be issued on
their own. They do not have to be associated
with any other instrument.
(c) Warrants can normally be exercised for
monetary compensation.
(d) The conversion of convertible securities
results in just an accounting transfer, but the
exercise of warrants leads to the injection of
additional capital into the company.
(e) The vast majority of convertibles have a call
provision, which provides the issuer with the
option to either refund the debt or force
conversion.
(f) Compared to warrants, convertibles often
have more time until they expire.
(g) In case of warrants issued on preferential
basis, 25% amount is paid upfront and this is
forfeited if the holder decides not convert
these into equity shares.
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VALUATION OF WARRANTS: Log is a mathematical operation.

The maximum value that a warrant can have is Natural Log tables are available on internet,
determined by taking the current stock price from which Long of any number can be found
and subtracting the exercise price from it. out easily.

The following variables have an effect on the
gap that exists between the current market
price of the warrant and its minimum
acceptable level:
1. The fluctuation in the prices of the stocks
2. Remaining time before expiration
N is Cumulative Distribution Function of the
standard normal distribution.
It represents a standard normal distribution
with mean = 0 and standard deviation = 1
Applying the Black Scholes model involves four
steps:

3. Risk free interest rate First Step: Calculate d, and d₂

4. The Value of the Stock 𝐒 𝛔𝟐

𝐥𝐨𝐠 𝐧 ( 𝟎 ) +(𝐫+ )𝐭
𝐄 𝟐
d1 =
5. Exercise Price 𝛔√𝐭

𝟏𝟐𝟓 𝟎.𝟎𝟖+𝟎.𝟏𝟔
𝐥𝐨𝐠 𝐧 ( )+ ( )𝟎.𝟓𝟎
Applying the Black Scholes Model: d1 = 𝟏𝟎𝟎 𝟐
𝟎.𝟒𝟎√𝟎.𝟓𝟎
Black Scholes model is used for valuation of 𝟎.𝟐𝟐𝟑𝟏+𝟎.𝟎𝟖
= = 1.0718
options. This model takes into consideration 𝟎.𝟐𝟖𝟐𝟖

five variables viz., volatility, underlying stock 𝒅𝟐 = 𝒅𝟏 - 𝝈√𝒕

price, time, strike price, and risk-free interest
rate. =1.0718 - 0.2828 = 0.7890

Consider the following information regarding Second Step:

Company X to help show how the calculation
works:
Current stock price = so = Rs. 125
Total Number of warrants issued = 1.6 lakh.
Exercise Price = E= Rs. 100
Time to expiration of warrants = 6 months
(0.50 year), represented by t
Annual Standard Deviation of Stock Price
Changes = 0.40, represented by σ
Risk free Interest Rate = 8%, represented by r
Find N (d,) and N (d₂):
N (d,) and N (d₂) represent the probabilities
that a random variable, that has a standardized
normal distribution, will assume values d, and
d₂.
These values can be obtained from the
Probability Tables, readily available on
internet.
N (d₁) = N (1.0718) = 0.8582
N (d₂) = N (0.7890) = 0.7849
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Third Step: Estimating the present value of the
exercise price, using the continuous
discounting principal
𝐄 𝟏𝟎𝟎 𝟏𝟎𝟎
= 𝒆𝟎.𝟎𝟎∗𝟎.𝟓𝟎 = 𝟏.𝟎𝟒𝟎𝟖 = Rs. 96.08
𝒆𝒓𝒕
Fourth Step:
Plug the numbers, obtained above, in the Black
Scholes Formula:
𝐄 The valuation of an optionally convertible
Current price (𝑪𝒐 ) = 𝑺𝒐 N (d₁) — 𝒆𝒓𝒕 N (d₂)
= 125 * 0.8582 – 96.08 * 0.7849 = 107.27 -75.41
= Rs. 31.86
* Excel makes it relatively simple to apply each
of these formulas for calculating option prices.
* The functions NORM.DIST, EXP and LN have
been used for computing the values in the
above illustration and the dilution effect has
not been considered.
VALUATION OF COMPULSORILY CONVERTIBLE:
(PARTLY OR FULLY) DEBENTURES:
Debentures that can be converted into equity
shares at the choice of the holder can be issued
internationally under the heading of
"convertible debentures."
Value of a Partially Convertible Debenture:
What kind of value does a partially convertible
debenture have, such as the one that. TISCO
had issued?
The holder of such debentures was entitled to
receive
* Interest at a predetermined rate throughout
the term of the debenture,
* Equity shares upon partial conversion, and
* Payment pertaining to the portion of the
debenture that was not convertible.
Valuation of Optionally Convertible
Debentures:
debenture is similar to that for a compulsorily
convertible debenture. A premium may be paid
by the market for the option, available with
the debenture-holder, to decline the
conversion.
Conversion Ratio and Conversion Price:
The conversion ratio can be defined CR as the
number of equity shares that can be obtained
in exchange for one debenture upon
conversion.
The conversion price is the price per share that
the holder really pays when the conversion
takes place and it is denoted by the letter P.
OBJECTIVE OF ISSUING WARRANTS AND
CONVERTIBLE DEBENTURES:
(i) They make it possible for businesses to
inexpensively issue debt;
(ii) They give businesses the potential to offer
equity shares at some point in the future and
put an additional charge on top of the current
pricing.
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FEATURES OF FOREIGN CURRENCY
CONVERTIBLE BOND (FCCB):
*Foreign currency convertible bond (FCCB) is a
bond issued in a currency other than the
issuer's domestic currency. These bonds may
also have a call option, whereby, the right of
early redemption lies with the bond issuer, or
put option whereby, the right of early
redemption lies with bondholder.
MEZZANINE FINANCING:
Mezzanine financing is normally for raising
funds for specific projects or to finance an
acquisition. It gives the lender the right to
convert the debt in to equity of the company in
case of default.
INNOVATIVE HYBRIDS:
There can be a number of innovative hybrids.
In these cases, the formation of a hybrid
security involves different combinations of two
distinct forms of securities:
a conventional debt or equity security and an
over-the-counter derivative (a forward
contract, or swap, or option).
Chapter-20: Startup Finance
STARTUP DEFINITION IN INDIA:
Under the Startup India Action Plan, startups
that meet the definition as prescribed under
GSR Notification 127 (E), are eligible for
recognition under the program.
An entity shall be considered a startup
* If it is incorporated as a private limited
company (as defined in the Companies Act
2013) or registered as a partnership firm
(registered under Section 59 of the Partnership
Act 1932) or a limited Liability partnership
(under the Limited Liability Partnership Act,
2008) in India, and
* Up to 10 years from the date of its
incorporation/registration.
* If its turnover for any of the Financial Year
since Incorporation / registration has not
exceeded 100 crore and
* It is working towards innovation,
improvement or development of products or
processes of services or if it is a scalable
business with a high potential of employment
generation or wealth creation
CHALLENGES FACED BY STARTUPS:
The main challenges, faced by startups, may be
listed as under:
* Failure to plan appropriately
* Unrealistic Expectations
* Knowledge and skills gaps
* Time management and productivity
* Lack of Leadership
* Fierce Competition, lack of demand, and
Ineffective marketing
* Winning Trust of Customers
* Hiring Suitable Candidates
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* Partnership Decision Making.
* Financial Management
* Securing funding
* Cyber Security
STATE STARTUP POLICY:
It includes provisions to provide incentives to
key startup stakeholders such as incubators
and institutions of higher education, amongst
others, in order to encourage the accumulated
development of India's startup ecosystem.
Following the introduction of the Startup India
Initiative in the year 2016, a total of 36of these
startup policies were drafted.
There is at least one startup that has been
recognized by the DPIIT operating in each of
the 36 states and Union Territories.
PITCH PRESENTATION:
The pitch presentation is a slide presentation
usually using either Power point or Keynote
Slides in the background that helps the
entrepreneur to showcase its business and
provide the reasons for which an investor
should invest into the business.
PROGRAMMES AND COMPETITIONS FOR
STARTUPS:
Incubator Grand Challenge:
As part of the Atal Innovation Mission's
Established Incubation Center’s (EIC)
programmer, the Incubator Grand Challenge
has been introduced as a means of recognizing
incubators.
To date, Rs. 54.65 crore has been distributed to
nine different incubators through Aim’s
Grants-in-Aid program me.
The EIC programmer provides ramp up support
to accomplished incubators in Ord to
supplement, enhance, and improve their
incubation capacity manifold.
Startup India Yatra:
The following is a list of the important
elements that are included in Startup India
Yatra:
* The mobile van for the Startup India travels
across the states and records ideas
* The Startup Yatra has been carried out in 23
states and 220 districts, having an effect on
about 780,000 people interested in starting
their own businesses.
* A total of approximately1, 450opportunities
for entrepreneurs to participate in an
incubator programmer have been made
available.
*Throughout the course of the day, a boot
camp will be held, which will include idea
validation, awareness workshops, and pitching
sessions.
Rule 170(1) of GFR 2017:
There is an exemption from the requirement to
submit an earnest money deposit or bid
security in public procurement bids, as stated
in Rule 170(1) of GFR 2017, which was updated
in 2017.
Rule 173 was notified vide GFR 2017 in order to
relieve the condition of past turnover and prior
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experience for DPIIT recognized startups in all
proposals for government tenders.
The Insolvency and Bankruptcy Code 2016:
The Insolvency and Bankruptcy legislation of
2016 provides a framework for the expeditious
resolution of insolvency cases involving
corporate persons, partnership firms, and
individual debtors. According to the terms of
the IBC, start-up companies that have simple
debt structures or that meet such conditions as
may be specified, must have their operations
wound down within 90 days after making an
application for winding down on a fast track
basis.
INSPIRE:
The objective of the INSPIRE "Innovation in
Science Pursuit for Inspired Research" , is to
foster an environment that encourages
youngsters to think creatively and innovatively
by celebrating the planting of one million
unique ideas and innovations in the fields of
science and societal applications.
National Startup Award:
The purpose of this award is to recognize and
recognize and reward excellent startups and
ecosystem enablers that are contributing to
the economic ecosystem by stimulating
innovation and injecting competition.
This award is in the quest to recognize and
reward excellent startups and ecosystem
enablers.
SCO Startup:
The SCO (Shanghai Cooperation Organization)
Startup forum is also organized, which is a
venue for the stakeholders from the Startup
environment from all SCO Member states to
communicate and collaborate with the
purpose to promote entrepreneurship and
innovation to establish knowledge exchange
ecosystems and boost scaling prospects by
giving solutions in the field of innovation.
Women Capacity Development Programmed
(WING):
The Women Capacity Development
programmer, often known as WING, offers
training and a platform for women-led
businesses as part of its capacity development
efforts.
This is done with the goal of increasing
awareness of the project.
GEM Startup Runway:
GEM entrepreneurial runway has introduced a
designated area for startups to set up shop and
sell their wares. Through the Starting Runway
Corner, participants in the programmer will
have the opportunity to engage with
government purchasers and market their
products and services as part of their startup
businesses.
Innovation Zones:
The government is establishing Innovation
Zones at the level of Urban Local Bodies (ULBS)
in order to enhance the basic level of public
service delivery and governance.
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This is done in order to improve the overall
quality of life for citizens and to handle local
problems in the areas of sanitation,
cleanliness, health, trash, water, taxation,
traffic, enforcement, and any and all other
facets of citizen services supplied ayULBS.
States Startup Ranking:
The States Startup Ranking was established in
April 2017 with the intention of harnessing the
force of competitive unionism and fostering
the growth of a thriving startup ecosystem
across the nation. The primary purpose of this
study is to assess the states and territories with
regard to certain intervention areas that are to
crucial to the development of a healthy
ecosystem.
Startup India Showcase:
It was launched on the 16th of January 2016.
These startups act as flagbearers for the high
quality of Indian Startups.
technologies for people to test out and get in
touch with.
Animal Husbandry Startup Grand Challenge:
The Animal Husbandry Startup Grand
Challenge was initiated by the Department of
Animal Husbandry and Dairying in
collaboration with Startup India.
The purpose of the competition is to encourage
the development of novel and practical
approaches to resolving challenges and issues
that are prevalent in the animal husbandry and
dairy industries.
Ayushman PMJAY Startup Grand Challenge:
In cooperation with Startup India, the
Ayushman PMJAY Startup Grand Challenge is
extending an invitation to India's newest
businesses to develop innovative solutions for
the National Health Authority Support for
Ayushman Bharat Jan Arogya Yojana's efficient
Implementation.

This online networking platform offers a Textile Grand Challenge:

variety of social and digital connect chances,
In addition, the initiative resulted in the
and it also provides assistance in the process of
beginning of the Textile Grand Challenge.
discovering new business opportunities.
The primary objective is to introduce
Digital Demo Day:
innovation into the sector of concern, which
The Digital Demo Day is a conference and will, in the long run, contribute to the
display for new technology companies who are industry's expansion.
just getting started in Germany.
Innovation Challenge:
It provides a platform for industrial tech
An Innovation Challenge was launched with
startups, primarily in the fields of virtual reality
the goal of developing a Portable Device for
(VR), augmented reality (AR), and internet of
Water Quality Testing.
things (IoT) cyber security, smart devices,
drones, and robotics, to showcase their digital
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For the purpose of ensuring that portable
drinking water satisfies the requirements of BIS
IS 10500: 2012(Second version) and later
revisions, the standard Drinking water Quality
Protocol, 2019, has set certain significant
factors that need to be adhered to in order to
be compliant.
MNRE Startup Grand Challenge:
An MNRE startup grand challenge has been
kicked off to achieve the goal of lowering
carbon emissions while also ensuring energy
security and access.
The possibilities that are now available aim to
investigate the potential for bigger
contributions from renewable resources in the
fields of livelihood, health, water, and
innovation in products, services, and business
models.
Startup India Single Use Plastic International
Challenge:
Government of India has created the Startup
India Single use plastic International Challenge
in order to encourage inventors and startups to
develop design solutions.
The Prevent Waste Alliance, which is an
initiative of the German Federal Ministry for
economic Cooperation and Development and
the ECCA Family foundation, is the
organization that is providing funding for this
programmer, which is being executed by the
Incubation Network.
Research Park:
As of May, 2021, the following eight new
research parks had been established:
*IIT Delhi
*IIT Kanpur
*IIT Gandhinagar
*IIT Mumbai
*IIT Guwahati
*IIT Kharagpur
*IIT Hyderabad
*IIsc Bangalore
Single Point Registration Scheme:
The Ministry of Micro, Small, and Medium
Enterprises has initiated a scheme known as
Single point Registration.
The Government Stores Purchase Programmed
was initiated in 1955-1956 with the purpose of
increasing the proportion of purchases made
from the micro- and small-scale business
sectors. Under the Single Point Registration
Scheme, the National Small Industries
Corporation (NSIC) is willing to register any
micro and small businesses that have an Udyog
Aadhar Memorandum (UAM) or an EMPart - II
(Optional).
Extra Mural Research:
Extra Mural Research or Core Research Grant
by Science and Engineering Research Board
(SERB) under Ministry of Science and
Technology is a funding scheme that is
designed to encourage both upcoming and
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established researchers in the fields of science
and engineering to pursue individual-centric
competitive financing models for their
research.
Candidates need to prove that they are
TAX EXEMPTIONS:
Section 56 (2) (viib):
It was implemented by means of the Finance
Act 2012 with the intention of discouraging the
generation and use of unaccounted money
through the subscription of shares of a closely
held company at a value that is higher than the
Fair Market Value of the shares of such
Company.
On the basis of a self-declaration, startups
have been granted an exemption from income
tax under section56 (2) (viib) for the issuance
of shares at a price higher than their fair
market value.
ESOPS:
ESOPs are subject to double taxation. Once,
during the time of the exercise, the whole
amount of the Fair market value that is greater
than the Exercise Price is subject to taxation as
a perquisite. Second, when the ESOP is finally
put up for sale.
Section 80-IAC:
The turnover criteria for eligible startups have
been increased to Rs.100 crores from the limit
of Rs.25 crores as a result of the amendment
that was provided by the Finance Act in Section
80-IAC of the Income Tax Act. Eligible startups
can claim deductions under this section for any
three consecutive years out of 10 years
beginning from the year in which such eligible
startups are incorporated.
This modification went into effect from April
2021.
Section 54 GB:
Under the provisions of Section 54 of the Act, a
person or a Hindu Undivided Family (HUF) may
be excused from paying tax on capital gains
that result from the sale of residential property
(a house or a piece of land) as long as certain
conditions are met.
These conditions include the following:
* The net consideration that results from such
a transfer must be utilized for subscription in
the equity shares of an eligible startup
company that satisfies prescribed conditions.
*Additionally, such an eligible startup must
utilize the aforementioned amount for the
purchase of new property within 1 year of the
date that the assesse subscribes in equity
shares.
* In the event of closely held companies in
which there has been a significant shift in the
voting power of the company, there are
limitations placed on the ability to deduct
business losses.
Relaxation by MCA:
In accordance with the notification issued by
MCA, in case of a private company which is a
startup, (i) a deposit does not include an
amount of Rs. 25 lacs or more received by a
startup business in a single tranche from a
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person, by way of a convertible note which is performance. In the case of a grant, the
convertible into equity shares or repayable investor will not receive any return on their
within 10 years from the date of issue, and (b) investment.
the maximum limit in respect of deposits to be
Stages of Startups and Sources of Funding:
taken from members set forth in Rule3 (3) of
the deposit Rules (i.e. 35% of the aggregate of Idea Phase:
the paid-up share capital, free reserves, and
At this point, the entrepreneur has the
securities premium account is not applicable.
business concept in their head and is working
FUNDING: to turn it become a real, the quantity of money
that is required is relatively low and most of
The term "funding" refers to the sum of money
the money that is needed to be raised can
that is necessary to begin and continue
come from unofficial sources.
operating a business for the purposes of
product creation, manufacturing, expansion, Seed Stage:
sales and marketing, inventory, and office
The government has also initiated a few loan
spaces.
programmers to offer entrepreneurs collateral-
Types of Startup Financing: free financing and to assist them in gaining
access to low-cost finance.
Debt Financing:
At this point, it is possible to raise funds
It entails borrowing money from a lender,
through a method known as "crowdfunding,"
paying that money back with interest within a
in which a big number of people give a modest
predetermined amount of time, and adhering
amount of money apiece.
to the deadlines that have been established for
the payback of the loan. Series a Stage:

Equity Financing: At this point in the process, monies are being

raised so that the company can develop its
It comprises selling equity shares of the
user base, product offerings, extend to other
company in exchange for the capital that was
geographies, and so on.
provided. In the case of equity financing, there
is no requirement to make any payments Scaling:
toward the principal.
Funding for these late-stage firms comes from
Grant: venture capital funds that have larger ticket
sizes. When the market response has already
A grant is an incentive, typically financial, that
been validated, it is best to approach venture
is granted by one organization to another
capital firms, as this is often the best time to
organization in order to promote the
do so.
achievement of a goal or to encourage superior
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Exit Options: *Competitive Analysis

The investor has the option of selling their * Sales and Marketing Financial Assessment
shares to other venture capitalists or private
* Exit Avenues
equity companies in order to make their exit.
FUNDING SCHEMES AND PROGRAMMES:
If the company's founders want to recover
control of their business but lack the liquid SIDBI Funds of Funds Scheme:
assets necessary to execute the acquisition,
The government of India established a fund
they can buy the shares back from the fund of
with a total value of Rs. 10,000 crores with the
investors who initially invested in the business.
goals of increasing the amount of available
Process to Startup Fund Raising: capital, stimulating private investment, and
ultimately fostering the expansion of the
The process of soliciting financial support can
Indian startup ecosystem.
be broken down into the following stages:
The money was originally intended to be used
*Determining whether or not money is
as a fund of capital for new businesses.
required

*Assessing the need for funding

* Assessing Investment Readiness

*Preparation of Pitch deck/presentation

* Investor Targeting

* Due diligence by Interested Investor

*Term Sheet

INVESTORS' OUTLOOK IN STARTUPS:

The following are the aspects of a startup that

investors look for in order of importance to
them:
Credit Guarantee:
*Objective and Problem Solving
A credit guarantee programmer with a corpus
*Management and Team of Rs. 500 crore per year for the next 4 years
* Market Landscape has been launched with the intention of
making it simpler for early-stage entrepreneurs
*Scalability and Sustainability to secure funding.
*Customers and Suppliers
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Its goal is to provide coverage of guarantee for
about 15,000 crores for 3,000 startups, with
the average loan amount to eligible borrowers
being 5 crores.
Startup India Seed Fund Scheme:
Startup India Seed Fund scheme was launched
by the Department for Promotion of Industry
and Internal Trade (DPIIT) on 19th April 2021
with an estimate of Rs. 945 crores provide
funding to startups for proof of concept,
product trials, prototype development,
commercialization and market entry.
Startup India Global Venture:
Startup India Global Venture is held every year
by the Department for Promotion of Industry
and Internal Trade in order to mobilize Global
Capital for Innovation in India.
Venture Capital Assistance Scheme:
The purpose of the Venture Capital Assistance
Scheme, which is administered by the Ministry
of Agriculture and Farmers Welfare, is to
provide eligible projects with monetary
assistance in the form of an interest-free loan
from SFAC in order to make up for any shortfall
in the capital requirements for the successful
execution of the project.
SIP-EIT:
Encourage innovation, recognize the value and
capabilities of global intellectual property, and
encapsulate opportunities for growth in the
ICTE sector, are the goals of the Support for
International Patent Protection in Electronics
and Information Technology (SIP-EIT)
programmer, which is run by the Ministry of
Electronics and Information Technology.
Start-up India for Financing SC/ST and/or
Women Entrepreneurs:
Start-up Small Industries Development Bank of
India makes arrangements for bank loans
ranging from 10 lakhs to 1 crore to be given to
at least one borrower belonging to a scheduled
caste or scheduled tribe, as well as at least one
woman, for the purpose of establishing a
greenfield business in India.
There is a minimum age requirement of 18
years old for the SC/ST or female entrepreneur.
IREDA NCEF Refinance Scheme:
Indian Renewable Energy Development Agency
(IREDA) has prepared and issued a revised
refinance scheme assisted by the National
Clean Energy Fund (NCEF) narrating about the
revival of the operations of existing biomass
power and small hydro power projects that
have been affected due to unanticipated
circumstances.
Biotechnology Ignition grant:
The Biotechnology Industry Research
Assistance Council has established the
Biotechnology Ignition grant in order to
provide financial support for the numerous
innovative concepts that have not yet satisfied
the requirement for mentorship and funding.
Technology Development Fund:
It is a programmer that is being carried out by
DRDO.
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The purpose of the scheme is to encourage the
participation of public and private industries,
particularly micro, small, and medium-sized
enterprises (MSMEs), in order to establish an
atmosphere conducive to the development of
cutting-edge technological capabilities for use
in defense applications through the
incorporation of a research and development
culture in industry.
High Risk High Reward Research by Science and
Engineering Research Board (SERB):
This is a programmer run by the Department of
Science and Technology that provides
assistance and encourages the submission of
novel ideas and proposals that are anticipated
to have a significant impact on the field of
science and technology.
PROGRAMS RUNNING IN 2022:
1. India Croatia Startup Challenge 2022:
It was first introduced in 2022, and applicants
were invited to submit their materials
beginning in April of the same year.
The following categories are outlined in the
statement of the problem:
• Clean Water and Sanitation
• Reduced Inequality
• Decent work and Economic Growth
2. I-DAPT Health Tech Hackathon:
An all-India I-DAPT Health-tech Hackathon (H2)
is being organized by the I-DAPT HUB
FOUNDATION, and it is looking for student
innovators who are developing cutting-edge
innovative ideas in the Health Net or Med-Tech
field. Applications for this event can be
submitted beginning in May 2022.
3. NCL -IIT BHU Cleantech Innovation Challenge
2022:
The following types of individuals are eligible
to submit an application for this competition:
*Students already enrolled at any university or
institute in India solo founders, entrepreneurs,
and other individuals
* New businesses and businesses that focus on
innovation, as well as professionals and
employed individuals
Chapter-21: PRIVATE EQUITY AND
VENTURE CAPTIAL
Why does VC Exist:
Venture capitalists flourish in the high-risk
environment that traditional financial
institutions avoid. They are willing to provide
financial backing to very new businesses that
have no assets and likely to do business with
people with little or no prior expertise as well.
CHARACTERISTICS OF VENTURE CAPITAL
INVESTMENTS:
1. Investors in venture capital are typically
willing to take on a high level of risk in the hope
of achieving a high rate of return on their
investment.
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2. The venture capitalist not only provides the
aided company with funding, but also takes an
active interest in leading the company.
3. The venture capitalist will often make a
subscription to stock or quasi-equity financing
instruments, which gives it the opportunity to
partake in both the risk and the profit of the
company in which it invests.
4. The financial burden that is placed on the
aided company is often minimal in the early
years of the partnership.
5. The venture capitalist typically has an exit
strategy in place for his or her investment in the
business being aided after three to seven years.
FINANCING OPTIONS AVAILABLE THROUGH
VENTURE CAPITAL:
The following are the three primary forms of
venture capital financing:
1. Financing for the Initial Stages of
Development
2. Financing for Expansion
3. Acquisition Financing
THE PROCEDURES INVOLVED IN OBTAINING
VENTURE CAPITAL FUNDING:
In most cases, the financing of venture capital
is accomplished through the following six
primary steps:
1. The Beginning of a Transaction
2. Screening and shortlisting
3. Detailed Evaluation and rating of proposals
4. The Final Deal Negotiations
5. Post-Investment-Related Activities
6. Exit Plan
ADVANTAGES AND DISADVANTAGES OF
VENTURE CAPITAL FUNDING:
The following are some of the benefits that
come along with financing through venture
capital:
1. The investor will receive a significant amount
of wealth and expertise from the investment,
despite the fact that the investment is time
consuming and fraught with risk.
2. The amount of funding that can be delivered
through equity is enormous.
3. The business owner is in a less precarious
situation because there is no responsibility for
the company to repay the investor's money.
The following is a list of the drawbacks of
financing through venture capital:
1. The procedure is drawn out and difficult
because there is a significant amount of risk
involved.
2. The founder loses his or her independence
and control of the business after an investor
becomes a part owner.
3. Since the investments are made with a long-
term objective, the return of the earnings is
often delayed.
4. Both the potential for the investment's
purpose and the return on investment are
undetermined and uncertain.
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THE IMPORTANCE OF PRIVATE EQUITY AND
VENTURE CAPITAL FOR
• Entrepreneurs prefer venture capital
investments over loan financing because the
latter places on them a significant amount of
responsibility to pay interest.
• Venture capitalists invest for a period of five
years; after that, when the company has
reached a substantial size or stature, the
venture capitalists sell their ownership and
make returns that are multiples of their
initial investment.
ROLES AT A VC:
Venture capital companies employ a wide
variety of people with specialized skills and
backgrounds.
• Those with the least experience strive to
become analysts. They undertake research
on the market and analyse potential business
opportunities and also look at the
competitive environment to help the
decision makers at the Venture Capital Fund
take proper and informed decisions.
• The associate role is the one that comes
immediately following the analyst post.
Associates at a company do not participate in
the decision-making process, but they may
surely make a good first impression on those
who are responsible for making decisions.
• Principals are persons who are on the cusp of
becoming partners in the company. They
hold a position of authority inside the
company, yet they cannot be ranked among
the most senior employees of the company.
• Partners are considered to be the most
senior members of a venture capital firm,
placing them a tier above principals.
• There are two types of partners: general
partners and managing partners.
The difference between these two titles is
determined by whether the individual only
has a say in the decisions pertaining to
investments or whether they also have the
ability to weigh in on operational matters.
• Venture partners are not involved in the day-
to-day operations of the organization nor the
decisions about investments made by the
company.
Carry interest is a percentage of the returns
that funds make once they cash out of
investment opportunities.
The Entrepreneur in Residence (EIR) are
typically persons that have a positive
association with the venture capital firm and
may have previously helped the VC firm gain
money by providing them with an exit.
Limited Partners (LPs) are individuals or
institutions that have already put money into
the funds managed by the venture capital firm
in which they are now investing.
General Partners:
The actual management of the fund is often
handled by experienced investment experts
who have a history of successful performance.
And they have to juggle a number of different
jobs:
• Arrange capital
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• Invest
• Grow
• Exit
Hurdle Rate:
This is the minimum annual return, measured as
an internal rate of return (IRR), that Rajan is
required to guarantee for LPs.
If the fund is unable to achieve this rate of
return, it is considered to be unsuccessful (and a
lot of VC funds fail).
Voting rights clauses: These clauses are needed
for significant business decisions such as when
to go public or when to sell the company.
Anti-dilution clauses: In the event that the
business secures the subsequent round of
funding at a lower value, the number of shares
owned by the fund will be changed in such a
way that the fund continues to own the same
percentage of the startup as it did prior to the
round.
RETURNS FOR VENTURE CAPITAL:
There is a correlation between high risk and
high rewards. When compared to the return
that public equity markets generate (12-15%)
and far greater than the return that debt
markets give (8-10%), venture capital is
predicted to generate a return in the range of
25-35% annually.
WHAT ARE THE PROSPECTS FOR VENTURE
CAPITAL IN THE NEAR FUTURE?
• Companies and funds save their cash
reserves for a longer period of time
• The stock valuations are brought back under
control
• The production of batteries is going to have a
very eventful year
• Businesses that are more developed and
have better access to finance will go public
• The market for venture capital is becoming
more decentralized
• Biotechnology and medical startup
companies continue to attract a lot of
interest
• The values of customers will influence the
evolution of businesses.
INVESTMENT IN PRIVATE EQUITY:
A non-publicly traded form of capital is known
as private equity," Private equity is comprised
of funds and investors that either directly invest
in private enterprises or that engage in buyouts
of public corporations, which ultimately results
in the delisting of public stock.
The Limited Partners (LP) of a private equity
fund normally own 99% of the fund's shares and
have limited liability, while the General Partners
(GP) own 1% of the fund's shares and have full
liability.
These later parties are furthermore accountable
for carrying out and managing the investment.
* Private equity is a different type of private
financing that exists apart from public markets
and involves funds and investors directly
investing in firms or engaging in buyouts of such
companies.
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* Private equity firms make their money by PRIVATE EQUITY STRUCTURE
charging investors in a fund fee for
management and performance. Private Private
Equity Limited Equity Fund
Partners
* One of the benefits of private equity is that it Firm (Limited
(General) (Investors) Partnership)
makes it easier for entrepreneurs and company
founders to gain access to alternative forms of Public
capital, and it also reduces the pressure of Pension
Funds
having to perform well on a quarterly basis.

* Private equity can be structured in a variety of Corporate

Pension Funds
ways, ranging from complex leveraged buyouts
to venture capital. Insurance
Companies
Sources of Private Equity:
High Net
Investment in private equity comes mostly from Worth
institutional investors and accredited Individuals
individuals who in a position to commit
significant sums of money over extended Family Offices

periods of time.
Endowments

Foundations

Fund-of-funds

Sovereign
Wealth Funds

BENEFITS OBTAINED THROUGH PRIVATE

EQUITY:

Companies and startups can benefit in a

number of ways from private equity
investments.

Companies favour it because it gives them

access to cash as an alternative to conventional
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financial processes like bank loans with high • Fund of funds
interest rates or listing on public markets.
• Venture Capital
DRAWBACKS TO THE PRACTICE OF PRIVATE
THE LEGAL AND ADMINISTRATIVE STRUCTURE
EQUITY:
OF INDIA:
• It may be challenging to liquidate holdings in
Private equity funds in India are typically
private equity since, in contrast to public
organized as trusts and registered with the
markets, there is no ready-made order book
Securities and Exchange board of India as
that brings together buyers and sellers.
alternative investment funds in accordance with
• The price of a company's shares in private the Securities and Exchange board of India
equity transactions is not established by the (Alternative Investment Funds) Regulations,
forces of the market but rather through talks 2012.
between potential buyers and sellers, in
Private equity funds can also be established in
contrast to the situation that typically exists
the form of companies or limited liability
for publicly traded companies.
partnerships, in addition to trusts (LLP).
• The rights of shareholders in private equity
The SEBI (Alternative Investment Funds)
are typically decided on a case-by-case basis
Regulation, 2012:
through negotiation rather than being
determined by a broad governance Alternative Investment Fund or AIF means any
framework, as is the case with their fund established or incorporated in India which
counterparts in public markets. is a privately pooled investment vehicle which
collects funds from sophisticated investors,
WHAT IS THE PROCESS BEHIND PRIVATE
whether Indian or foreign, for investing it in
EQUITY?
accordance with a defined investment policy for
Private equity firms seek funding for their funds the benefit of its investors.
from a variety of investors, including
Applicants can seek registration as an AIF in one
institutional investors and accredited investors.
of the following categories, and in sub-
The funds then invest in a variety of assets. categories thereof, as may be applicable: [Ref.
Regulation 3(4)]
The following is a list of the most common
forms of funding through private equity: 1) Category I AIF

• Funding in difficult times a) Venture capital funds (Including Angel Funds)

• Leveraged Buyouts b) SME Funds

• Real Estate Private Equity c) Social Venture Funds

d) Infrastructure funds
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2) Category II AIF Angel investor" means any person who
proposes to invest in an angel fund and satisfies
3) Category III AIF
one of the following conditions, namely,
Category I AIFS:
(a) An individual investor who has net tangible
AIFs which invest in start-up or early-stage assets of at least two crore rupees excluding
ventures or social ventures or SMEs or value of his principal residence, and who:
infrastructure or other sectors or areas which
(i) Has early-stage investment experience, or
the government or regulators consider as
socially or economically desirable and shall (ii) Has experience as a serial entrepreneur, or
include venture capital funds, SME Funds, social
(iii) is a senior management professional with at
venture funds, infrastructure funds and such
least ten years of experience;
other Alternative Investment Funds as may be
specified. (b) A body corporate with a net worth of at
least ten crore rupees; or
Category II AIFS:
(c) AN AIF registered under these regulations or
AIFs which do not fall in Category I and III and
a VCF registered under the SEBI (Venture Capital
which do not undertake leverage or borrowing
Funds) Regulations, 1996. Angel funds shall
other than to meet day-to-day operational
accept, up to a maximum period of 3 years, an
requirements and as permitted in the SEBI
investment of not less than Rs. 25 lakhs from an
(Alternative Investment Funds) Regulations,
angel investor.
2012.
CRUCIAL STAGES IN THE PROCESS OF INVESTING
Category III AIFS:
IN PRIVATE EQUITY:
AIFs which employ diverse or complex trading
The following is a rundown of the steps that are
strategies and may employ leverage including
often included in transactions with private
through investment in listed or unlisted
equity:
derivatives.
• Teaser sent by investment bankers
[Ref. Regulation 3(4)(c)] Various types of funds
such as hedge funds, PIPE Funds, etc. are • Non-disclosure agreement (NDA)
registered as Category III AIFS
• Memorandum Regarding Confidential
Angel fund: Information
Is a sub-category of Venture Capital Fund under • Valuations
Category 1 Alternative Investment Fund that
• Expression of interest
raises funds from angel investors and invests in
accordance with the provisions of Chapter III-A • Permitting Access to Data
of AIF Regulations?
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• Management meetings
• Formal notice of intent
• Contract for the purchase of shares
DUE DILIGENCE:
Refers to the investigation or research that is
often carried out by a company that is in the
process of acquiring another business.
The essential steps involved in doing due
diligence are summarized in the following.
a. Financial Matters
b. Corporate Matters
e. Customer Relationship and Sales
d. Contractual Matters
e. Employee Management Issues
f. Litigation
g. Tax Issues
h. Intellectual Property Matters
i. Transactions Involving Related Parties
EXIT STRATEGIES:
Exit strategies are always evolving to keep up
with shifting market conditions, however some
of the more prevalent tactics include the
following:
• Initial offering to the public:
An initial public offering (IPO), also known as
flotation or listing, is a strategy that a company
uses to get its shares listed on a stock exchange.
The shares are made available for purchase by
the general public as a result of this exercise.
• Trade Sale:
When implementing this tactic, the private
equity investor will sell all of their shares to a
third-party purchaser.
A business that competes in the same market is
often treated in the same manner.
In comparison to an IPO, this strategy provides
an additional benefit in that the revenue can
almost immediately be realized.
• Secondary Buyout:
The exit strategy will result in the private equity
investment having a shorter lifespan than what
was initially anticipated.
The investment made by the first buyer is put to
an end as a result of this exit strategy, which
calls for the sale of the private equity
investment to another private equity fund.
This paves the way for the private equity
investor to have a smooth exit from the
company, which is beneficial for a number of
reasons (including the fact that the company
may no longer be interested in the investment,
etc.).
• Procedure with Two Separate Tracks:
While the private equity firm is evaluating its
investment in the public market, this plan
provides assistance in the search for an exit
strategy that is appropriate for the situation.
This paves the way for the private equity
investor to have a successful departure from
the company for a variety of reasons, including
the possibility that the company is no longer
interested in the investment, etc.
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• Recapitalization Through the Use of
Leverage:
It is a strategy for a partial exit that gives the
company the opportunity to acquire additional
cash without selling the company itself.
This type of strategy can be used not only to
pay large dividends or buy back shares of the
company, but it can also be used to protect the
business from being taken over by an adversary.
Chapter 22: ARTIFICIAL INTELLIGENCE
(PART-I)
The term "artificial intelligence" (AI) refers to
the replication of human intelligence in
computers that have been trained to think like
people and emulate the activities that humans
engage in.
APPLICABILITY OF ARTIFICIAL INTELLIGENCE:
There are many different industries that have
found applications for artificial intelligence,
such as medical diagnosis, stock trading, robot
control, law, remote sensing, scientific
discoveries, and even toy manufacturing.
CONTRIBUTION OF GOOGLE:
Search Engine Algorithm -Google Rank Brain:
The adoption of Google's Rank Brain, a search
engine algorithm that is based on machine
learning and its use was officially confirmed on
October 26, 2015. It assists Google in
processing search results and providing users
with search results that are more relevant to
their queries.
Al Hub:
Al Hub provides developers and data scientists
working on artificial intelligence (AI) systems
with access to a collection of components to
use in their work.
The AI Hub is a one-stop shop for plug-and-play
machine learning (ML) content. This content
includes pipelines, Jupyter notebooks,
TensorFlow modules, and more.
Kubeflow Pipeline System:
Kubeflow Pipelines is a new component of
Kubeflow, which is a well-known open-source
project initiated by Google. It packages
machine learning code in a manner analogous
to the construction of an application in order
to make it accessible to other users within an
organisation.
Google Duplex and Hold for Me:
An innovative artificial intelligence technology,
known as Google Duplex, was not only able to
comprehend what was being said on the other
end of the line, but it could also provide
appropriate responses to the questions that
were asked of it and add "ums" and pauses in
its speech so that it appeared to be more
human-like.
ARTIFICIAL INTELLIGENCE IN BANKING AND
FINANCE:
a) Customer service/engagement (Chatbot):
Chatbots are able to efficiently handle the
majority of the tasks that are frequently
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accessible, such as checking account balances, Hybrid Information System (HIS):
viewing micro statements, making fund
An efficient learning system, also known as an
transfers, and so on.
HIS system, is one that not only combines the
b) Robo Advice: beneficial aspects of various learning
paradigms and representations, but also
The robo- advisor will be able to make
overcomes the limitations of processing
appropriate investment recommendations in a
capabilities.
certain product class, even getting as detailed
as recommending a particular product or THE FUTURE SCOPE OF ARTIFICIAL
equity, based on the results of this study and INTELLIGENCE:
the goals that the client has set for themselves.
In Artificial Intelligence, the computer
c) Predictive Analytics with a General-Purpose performs the following functions:
Focus:
a. The processing of the natural language in
General-purpose semantic and natural order to make it possible for it to communicate
language applications as well as extensively effectively in English, natural language
applicable predictive analytics has the ability to
b. For the purpose of storing the auditory
recognise specific patterns and correlations
inputs, it requires the Knowledge
hidden within the data that older technologies
Representation.
were unable to recognise.
c. Once the inputs have been saved, the next
d) Cybersecurity:
step in automated reasoning is to use the
Al has the potential to dramatically increase knowledge that has been saved to answer and
the efficiency of cybersecurity systems by question or draw any graphics.
utilising data from previously experienced
d. Machine Learning is required in order to
threats and learning the patterns and signs
adopt all of the functions in order to take
that might initially appear tobe unconnected in
advantage of newly processed and stimulated
order to forecast and thwart assaults.
ideas and patterns.
e) Scoring Credit and Direct Lending for
NEURAL NETWORKS:
Customers:
Neural networks have the potential to evolve
Analysing data from a wide variety of
into models that are significantly more
traditional and non-traditional data sources is
sophisticated, more flexible, and potentially
one of the most important roles that Al plays in
more accurate when utilized in applications.
the process of assisting alternative lenders
estimate the creditworthiness of clients. When there are numerous input variables and
those variables have non-linear correlations
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with the target variable, neural nets are
especially successful.
RATIONAL AGENTS:
A rational agent could be anything that makes
decisions, including a person, company,
machine, or even a piece of software. After
taking into account the agent's previous and
current perception it performs an action that
will result in the best possible outcome.
TOOLS & TECHNIQUES OF ARTIFICIAL
INTELLIGENCE:
The tools and techniques used by Artificial
Intelligence are as under:
Search and Optimization:
A planning algorithm will perform a process
known as means-ends analysis, in which it will
search through trees consisting of goals and
sub-goals in an effort to locate a path leading
to the ultimate goal.
Local searches in configuration space are used
by robotics algorithms for moving limbs and
grasping items.
Logic:
Although logic is most commonly employed for
the representation of information and the
resolution of problems, it is adaptable enough
to be used in a variety of contexts.
Forms of logic such as circumscription, default
logics, and non-monotonic logics are designed
to assist with default reasoning and the
qualifying problem.
Probabilistic Methods for Uncertain Reasoning:
Bayesian networks are a very general tool that
can be used for a variety of problems, including
reasoning (using the Bayesian inference
algorithm), learning (using the expectation-
maximization algorithm), planning (using
decision networks), and perception.
Probabilistic algorithms can also be used for
filtering, prediction, smoothing, and finding
explanations for streams of data, so assisting
perception systems in their analysis of
processes that occur across time.
Classifiers and Statistical Learning Methods:
Classifiers are functions that determine the
closest possible match by comparing a pattern
to the pattern being compared.
They are particularly interesting candidates for
usage in AI because of the fact that they may
be modified according to examples.
ARTIFICIAL INTELLIGENCE AND MORALITY:
The implications of artificial intelligences in
terms of morality and ethics, one faction
contends that currently there are a large
number of people living in extreme poverty
without work, another contends that there is
very little to no reason to create mechanical
labourers (that can think independently).
Al machines, like any other type of machine,
carry out the instructions provided by their
human programmers.
There is therefore, a need for using Artificial
Intelligence judiciously lest it proves to be a
curse rather than a boon.
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Chapter-23: BUSINESS ANALYTICS AS
MANAGEMENT TOOL
Business analytics (BA) refers to the
combination of skills, technologies, and
practices that are used to analyse the data and
performance of an organization in order to
gain insights and make decisions in the future
that are driven by data.
The objective of business analysis is to
determine which datasets are valuable and
which have the potential to boost revenue,
productivity, and efficiency.
ESSENTIALS OF BUSINESS ANALYTICS:
Business Analytics is most commonly used to:
a) Analyze data coming from a range of
different sources. Anything from cloud
applications to marketing automation tools
and customer relationship management
software could fall under this category.
b) Find patterns within the data sets by
employing more complex analytics and
statistical methods.
c) Keep an eye on key performance indicators
(KPIs) and trends as they evolve in real time.
d) Back and support decisions based on the
most recent available facts.
TYPES OF ANALYTICS:
There are four primary approaches to business
analysis which is as follows;
1. Descriptive analytics:
This method involves the interpretation of
historical data and key performance indicators
to discover patterns and trends.
2. Diagnostic analytics:
This type of analysis focuses on previous
performance to understand which factors drive
particular trends.
3. Predictive analytics:
This is the practice of applying statistics to
estimate and evaluate future outcomes by
employing statistical models and techniques
derived from machine learning.
4. Prescriptive analytics:
This particular kind of business analytics not
only forecasts results, but it also has the ability
to make suggestions regarding the particular
activities that need to take place in order to
get the greatest potential conclusion.
ELEMENTS OF BUSINESS ANALYTICS:
The various elements of business analytics are
as follows:
1. Data Mining
2. Text Mining
3. Data Aggregation
4. Forecasting
5. Data Visualization
Data Mining:
Data mining is the process of searching through
big data sets in order to find patterns and
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relationships that, when analyzed, can assist in
the resolution of issues that arise in
commercial enterprises.
Data Mining Process: How does it Work:
The process of data mining can be split down
into four basic steps, which are as follows:
1. Data collection
2. Data preparation
3. The Data Mining Process
4. The interpretation and analysis of the data
Data Mining Software and Tools:
There are a large number of companies that
offer data mining tools, and these products are
generally packaged as part of larger software
platforms that contain a variety of other types
of data science and advanced analytics tools.
Alteryx, AWS, Databricks, Dataiku, Data Robot,
Google, H2O.ai, IBM, Kanime, Microsoft,
Oracle, RapidMiner, SAP, SAS Institute, and
Tibco Software are among the many vendors
that offer solutions for data mining.
Benefits of Data Mining:
a) Increased productivity in terms of marketing
and sales
b) Improved quality of service to customers
c) Improvements in the management of the
supply chain
d) Increased production uptime
e) Stronger risk management
g) Reduction in cost
Text Mining:
Text mining, also known as text data mining, is
the process of converting unstructured text
into a structured format in order to find
relevant patterns and fresh insights.
Data Aggregation:
The process of collecting raw data and
presenting it in a summary format for the
purposes of statistical analysis is referred to as
data aggregation.
There are two different approaches to
accumulating data:
1. Time aggregation:
Every single data point that pertains to a single
resource over a particular time period.
2. Spatial aggregation
Every single data point for a collection of
resources over a predetermined amount of
time.
Forecasting:
The process of making predictions about what
will occur in the future by taking into account
what has happened in the past and what is
happening in the present is referred to as
forecasting.
Forecasting Methods:
1. Qualitative Research Approach:
The qualitative approach of forecasting, which
is sometimes referred to as the judging
method, generates subjective findings because
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it is based on the personal judgements of
experts or forecasters.
2. Quantitative Technique:
The quantitative technique of predicting is
based on a mathematical procedure, which
gives it the qualities of being consistent and
objective.
Features of Forecasting:
The following is a list of some of the
characteristics of creating a forecast:
1. Involves future events
2. Covers recent and historical occurrences
3. Uses various techniques of forecasting
The Process of Forecasting:
The following are some of the stages that make
up the process:
1. Establishing a foundation for future
projections
2. Formulating projections for the company's
ongoing business activities
3. Making adjustments to the forecast
4. Taking a look back at the steps
Data Visualization:
The process of representing data through the
use of popular graphics, such as charts, plots,
infographics, and even animations, is referred
to as data visualisation.
Types of Data Visualization:
a) Ablest:
This is a grid with rows and columns that can
be used to compare different variables.
b) Pie charts and stacked bar charts:
They offer a straightforward method for
arranging data and contrasting the proportions
of the various constituent parts.
c) Line graphs and area charts: These are
graphical representations that depict how one
or more quantities have changed over time by
plotting a set of data points in a certain order.
d) Histograms:
This graph depicts a distribution of numbers
using a bar chart (with no spaces between the
bars), reflecting the quantity of data that falls
within a given range.
e) Scatter plots:
These graphics are helpful in revelling the link
between two variables, and they are widely
employed within the analysis of regression
data.
f) Heat maps:
These are handy graphical representations that
allow for the visualisation of behavioural data
according to location. This can be a spot on a
map, or it could even be a webpage.
g) Tree maps:
Tree maps present hierarchical data as a set of
nested forms, most often rectangles; these
maps are becoming increasingly popular.
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EXCEL PROFICIENCY:
The ability to edit text documents, develop
templates, and automate the generation of
tables of content in Microsoft Word is often
required to be considered proficient in
Microsoft Office.
Being proficient with Excel requires being able
to execute and create functions, pivot tables,
and charts.
BIG DATA ANALYTICS:
Big data analytics is the application of more
advanced analytical methods to very large,
diverse data sets.
These data sets might be organised, semi-
structured, or unstructured, come from a
variety of sources, and range in size from
terabytes to zettabytes.
Uses of Big Data Analytics:
Big Data Analytics can be used for the
following purposes:
a) Enhancing the integration of the customers
Gathering data that is structured, semi-
structured, and unstructured from the various
touch points that customers have with the firm
in order to obtain a comprehensive
understanding of the client’s action and the
factors that motivate them so that we many
better personalised marketing.
b) Detecting and minimizing frauds
c) Improving the efficiency of the supply chain.
Importance of Big Data Analytics:
Companies that combine their use of big data
with more advanced analytics can increase
their value in a number of different ways,
including the following:
1. Reducing cost.
2. Speedier and quality decisions.
3. Developing and marketing new products and
services.
How does Big Data Analytics Work:
The term “big data analytics" refers to the
process of collecting, processing, cleaning, and
analysing massive datasets with the goal of
assisting businesses in operationalizing their
big data.
1. Collection of Data.
2. Processing of Data.
3. Data Cleaning.
4. Analysis of Data.
Predictive analytics:
This is a method that analyses the past data of
an organisation in order to create forecasts
about the future and to spot potential threats
and opportunities
Big Data Analytics Tools and Technology:
The following is a list of some of the most
important actors in big data ecosystems:
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a) Hadoop:
Is an open-source system that stores and
analyses large datasets on clusters of
commodity hardware in an efficient manner?
b) NoSQL databases:
Are non-relational data management systems
that do not require a fixed scheme?
c) MapReduce:
This framework serves two different purposes.
The first step is called mapping, and it
distributes data to different nodes within the
cluster using various filters.
The second step is called "reducing," and it
involves organising and condensing the results
obtained from each node in order to respond
to a query.
d) "Yet another Resource Negotiator"
The job scheduling and resource management
in the cluster can be improved with the
assistance of the cluster management
technology.
e) Spark:
Is an open-source cluster computing
framework that provides an interface for
programming complete clusters by utilising
implicit data parallelism and fault tolerance.
f) Tableau:
Is a platform for end-to-end data analytics that
enables you to prepare, analyse, collaborate,
and share your insights derived from large
amounts of data.
Challenges of Big Data:
In order for enterprises to make the most of
incoming data, they will need to handle the
following issues:
• Making big data accessible
• Maintaining data quality
• Data Security
• Identifying appropriate tools and platforms
WEB AND MOBILE ANALYTICS:
Mobile web analytics is a term that is used in
the business world to describe the process of
collecting data from customers who browse a
website using their mobile phones.
It is helpful in determining which aspects of the
website work best for mobile traffic and which
mobile marketing campaigns work best for the
business.
Problems with Tracking:
• Visitor identification
• JavaScript page tagging
• HTTP Cookies
• Image Tags
• IP address
IMPORTANCE OF BUSINESS ANALYTICS:
a) Boosts performance by providing a clear
picture of what is working and what isn't
working for your company
b) Enables choices to be made more quickly
and accurately
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c) Reduces the likelihood of potential negative
outcomes by guiding a company toward
decisions that are optimal in terms of
consumer Behaviour, trends, and performance.
d) Inspires change and creativity by providing
answers to concerns surrounding customers.
individuals who are hesitant to be convinced of
the benefits of BA.
4. Business analytics require the engagement
of IT, which means having the appropriate
technological infrastructure and tools in place
to manage the data.

Benefits of Business Analytics: 5. Executive ownership is also required for

1. It enables your company to make
preparations for unforeseen circumstances.
2. The trends in an organization's sales,
earnings, and other critical indicators can be
modelled with BA, and then those trends can
be projected into the future.
3. This gives businesses the ability to see
changes that may take place yearly, seasonally,
or on any scale, providing them with the
opportunity to prepare and plan ahead.
business analytics.
6. The problem of data storage limitations may
also be faced by smaller organisations.
Business Analytics Skills:
In order to be a successful business analyst,
one needs to possess a particular set of skills as
mentioned below:
• Critical thinking
• The ability to solve problems

4. Larger businesses can benefit greatly from • Communication

the use of BA because it makes it simpler to
• Attention to detail
forecast order volume and reduce waste.

5. Businesses are able to test out new

marketing initiatives thanks to business Chapter-24: GREEN AND SUSTAINABLE
analytics.
FINANCING
Challenges of Business Analytics:

1. Data analytics will achieve the maximum

success, when all parties inside the ISO STANDARDS FOR GREEN FINANCE:
organisation fully support its adoption and The various ISOs are
execution.
1. ISO 32210: Framework for Sustainable
2. It might be challenging to get approval from Finance
everyone in senior management for a BA plan.
2. ISO 14007: Environmental costs and Benefits
3. This should include goals that are both
explicit and measurable in order to assist those
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3. ISO 14008: Monetary valuation of
environmental impacts 4. ISO 14097: Assessing
and reporting investments related to climate
change
ISO 32210:
It is of the utmost importance to move at a
faster pace toward a global economy that is
more sustainable in order to achieve the targets
set for climate change and to bring activities
into alignment with sustainable development
goals.
ISO 32210 "Sustainable finance:
The objective of the standard is to provide
assistance to organisations in:
A) Activities geared toward contributing to long-
term sustainability goals are being transitioned.
B) Creating value by seizing the new investment
opportunities afforded by the ongoing
transition in the global economy,
C) Improving investment portfolios' ability to
generate long-term financial returns while also
minimizing their impact on the environment
D) Identifying and mitigating risk,
E) Aligning the interests being pursued with the
expectations of the stakeholders.
ISO 14008:
ISO 14008 utilizes a coordinated collection of
technologies to combine economic studies with
environmental management in a standardised
manner. It is required in order to evaluate risks
and possibilities; firms must be aware of all
costs and externalities.
ISO 14007:
ISO 14007 offers instructions on how to use
those values for cost and benefit analyses after
organisations have determined monetary
values for environmental consequences. The
concept of dependencies, or how organisations
depend on the environment, is also explained in
this standard.
ISO 14097:
The standard accomplishes three goals.
1. Aid finance managers and investors in
identifying opportunities and dangers
associated to climate change.
2. Provide the information and data required to
make defensible decisions to reduce or
eliminate climate-related risks and to seize
opportunities.
3. Facilitate the shift to a low-carbon economy
with fewer risks to the climate and spur more
investment in the prospects.
About Green Bonds:
Green bonds are a type of unsecured debt
instrument that is used to finance green
projects that provide benefits to the
environment. Green bonds can be issued up
front by either public or private actors in order
to raise capital for projects or for the purposes
of re-financing.
The various types of bonds are explained below:
a) Organization-guaranteed Bonds:
Not only the financed asset, in this case the
solar farm, but also the issuing organisation
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itself is taken into consideration when
determining the credit-worthiness of an
organization-guaranteed bond, which is also
referred to as a general obligation bond .
The lenders may, at a later time, exercise their
option to transform the bond into stock.
b) Asset Backed Bonds:
When it comes to asset-backed bonds, the
issuer's creditworthiness is not dependent on
any of the issuer's other cash flows; rather, it is
only related to the predicted revenue from the
solar farm.
c) Hybrid Bonds:
There are two different ways that a hybrid
bond, which is a dual-recourse bond and is also
known as a covered bond, might be formed.
In the first approach, the farm is listed as an
asset owned by the issuer; however, in the
event of a payment default, the lender will take
ownership of the farm.
In the second approach, the farm is held by a
special purpose entity (SPE), and in the event of
a default, the lender receives ownership of the
SPE's assets.
Benefits of Green Investment:
a) Providing an additional source of financing
for environmentally friendly projects
b) Making it possible to finance more
environmentally friendly projects over the long
term by reducing the maturity mismatch:
c) Improving the issuers' reputations and
providing more transparency regarding
environmental strategy:
d) Offering potential cost advantages:
e) Facilitating the "greening" of traditionally
"brown" sectors
f) Making newly developed environmentally
friendly financial products accessible to
investors who are committed to the long term2
Advantages and Disadvantages of investing and
issuing Green Bonds:
The advantages of investing in green bonds are
as under:
a) Investors can balance financial and
environmental returns
b) Meets ESG/green investing requirements
c) Improved risk assessment in an opaque fixed
income market through proceeds reporting
d) Potential use of pure-play, project, and ABS
to actively hedge against climate policy risks in
a portfolio with emissions-intensive assets
e) Recognized by UNFCCC as non-state actor
"climate action"
f) Private interaction with issuers on ESG topics
relevant to green bond issuance results in more
thorough credit profiles of borrowers.
g) Added openness of proceeds use and
reporting requirements gives green bond
investors an informational edge (on spending
efficiency, project specifics and updates, impact
performance).
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h) Tracking and reporting proceeds utilisation
improves internal governance and the issuer's
credit quality.
The disadvantages of investments in green
bonds are:
a) A market that is still in its infancy and is quite
small, with bond amounts that are relatively
low.
b) The absence of universal criteria can increase
the potential for confusion, as well as the
damage to one's reputation if the green
integrity of a bond is called into question.
c) There is a restricted amount of room for the
legal enforcement of green integrity
d) A lack of uniformity can result in research
that is more difficult to understand and a
requirement for further due diligence that is not
always met.
The advantages of issuing green bonds are as
under:
a) Presenting and carrying out the issuer's
approach to environmental, social, and
governance concerns.
b) Strong demand from investors might result in
oversubscription, which opens up the possibility
of increasing the amount issued.
c) Increasing the investor base diversity of bond
issuers, potentially lowering their sensitivity to
changes in bond demand.
e) Advantages to one's reputation (for example,
marketing can promote the issuer's support for
green investment and the issuer's green
credentials.)
f) Clarification of the sustainability plan and
increased confidence in its validity.
g) The ability to take advantage of "economies
of scale," given that the majority of issuance
expenses are associated with the process of
setting up the system.
h) The monitoring and reporting of how profits
are used leads to improvements in internal
governance structures, as well as
communication and the exchange of knowledge
between the treasury and project sides of a
corporation.
The disadvantages of issuing green bonds are:
a) The one-time and continuing transaction
costs associated with labelling and the
accompanying administrative, certification,
reporting, verification, and monitoring
requirements.
b) The risk to a bond's reputation if its "green
credentials" are called into question.
Have the right to claim for damages in the event
of a "green default," which occurs when
c) Investors an issuer violates the terms of an
agreement even though the bond was paid in
full.

d) There is evidence of an increase in investors

who "buy and hold" green bonds, which may
result in decreased bond volatility on the
secondary market.
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PROGRESS OF GREEN FINANCE IN INDIA:
a. Improvement in General Awareness:
Evidence based on Google Trends reveals that
more people are becoming aware of green
finance and the role it plays in the development
of sustainable economic practices.
b. Green Lending:
As part of the green finance initiative, the
Reserve Bank has included the small renewable
energy sector under its Priority Sector Lending
(PSL) scheme in 2015.
C. Green Bonds:
Green bonds are the bonds issued by any
sovereign entity, inter-governmental groups or
alliances and corporates with the aim that the
proceeds of the bonds are utilised for projects
classified as environmentally sustainable.
SEBI Guidelines on issue of Green Bonds in
India:
The Securities and Exchange Board of India
(SEBI) had come out with a Concept Paper for
issuance of Green Bonds in India.
The Concept Paper brought out the need for
enhanced disclosures for issuance of green
bonds so as to differentiate it from other form
of debt securities issued and listed in India and
the Circular is largely in line with the concept
paper.
Definition of "Green:
The SEBI Circular defines the term "Green" or
"Green Debt Securities" in the following
manner:
1. Renewable and sustainable energy including
wind, solar, bioenergy, other sources of energy
which use clean technology etc.
2. Clean transportation including mass/public
transportation etc.
3. Sustainable water management including
clean and/or drinking water, water recycling
etc.
4. Climate change adaptation
5. Energy efficiency including efficient and green
buildings etc.
6. Sustainable waste management including
recycling, waste to energy, efficient disposal of
wastage etc.
Disclosure requirements:
In order to issue Green Debt Securities, the
provisions of SEBI (Issue and Listing of Debt
Securities - ILDS) Regulations, 2008 are to be
complied with.
Responsibilities of the issuer:
a. The issuer must maintain a decision-making
process which it uses to determine the
continuing eligibility of the project(s) and/or
asset(s), which would include, without
limitation, a statement on the environmental
objectives of the Green Debt Securities and a
process to determine whether the project(s)
and/or asset(s) meet the eligibility
requirements.
b. The issuer must ensure that all project(s)
and/or asset(s) funded by the proceeds of
Green Debt Securities, meet the documented
objectives of Green Debt Securities.
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c. The issuer should utilise the proceeds only for
the stated purpose(s), as disclosed in the offer
document, (Source: SEBI website)
Business Responsibility and Sustainability
Reporting (BRSR)
BRSR was introduced with the aim of making it
mandatory for the top 1000 listed companies to
report their sustainability performance in order
to maintain transparency with stakeholders.
BRSR is a questionnaire-based reporting that is
divided into 3 sections as follows:
Section A: General Disclosures:
This section contains details of the listed entity;
products/services; operations; employees;
holding, subsidiary and associate companies
(including joint ventures); CSR; transparency
and disclosure compliances.
Section B: Management and Process
Disclosures:
This section contains questions related to policy
and management processes, governance,
leadership and oversight.
Section C: Principle-Wise Performance
Disclosures:
Companies are required to report upon KPIs in
alignment with the nine principles of the
National Guidelines on Responsible Business
Conduct (NGRBC).
The section classifies KPIs into two
subcategories that companies are required to
report upon, viz.,
• Essential Indicators (Mandatory), and
• Leadership Indicators (Voluntary).
ESG related reports provide stakeholders with
comparable information of the top companies
to help them make informed investment
choices. ESG criteria are used by socially
conscious investors to screen potential
investments.
Listed below is an overview of the three criteria
used to evaluate companies for ESG investing:
Environment:
This can include a company's carbon footprint,
toxic chemicals involved in its manufacturing
processes, its corporate policies addressing
climate change and sustainability efforts that
make up its supply chain.
Social:
Social factors include everything from LGBTQ+
equality, racial diversity in both the executive
suite and staff overall, and inclusion programs
and hiring practices.
Governance:
Governance includes everything from issues
surrounding a company's leadership, executive
pay, diversity in leadership, how well that
leadership responds to and interacts with
shareholders' audits, internal controls, and
shareholder rights.
Nationally Determined Contribution (NDC)
submitted by India after Paris Agreement:
• By India's Nationally Determined
Contribution (NDC), the Government pledged
to undertake the following activities:
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• To put forward and further propagate a technology in India and for joint collaborative
healthy and sustainable way of living based R&D for such future technologies.
on traditions and values of conservation and
The eight key parameters highlighted in the
moderation.
NDC were:
• To adopt a climate-friendly and a cleaner
• Sustainable Lifestyles,
path than the one followed hitherto by
others at corresponding level of economic • Cleaner Economic Development,
development.
• Reduce Emission Intensity of GDP
• To reduce the emissions intensity of its GDP
• Increase the Share of Non-Fossil Fuel Based
by 33 to 35% by 2030 from 2005 level.
Electricity,
• To achieve about 40% cumulative electric
• Enhance Forests Carbon Sink,
power installed capacity from non-fossil fuel-
based energy resources by 2030, with the • Adapt to Climate Change,
help of transfer of technology and low cost
• Mobilise Finance, and
international finance, including from Green
Climate Fund. • Technology Development and Transfer.

• To create an additional carbon sink of 2.5 to 3 Comparative Resolutions - COP21 and COP26
billion tonnes of CO2 equivalent through
Paris Agreement COP26 in 2021
additional forest and tree cover by 2030.
COP21 in 2016
• To better adapt to climate change by
1 Reduce emissions Reduce the carbon
enhancing investments in development
intensity of its intensity of the
programmes in sectors vulnerable to climate
GDP by 3335% by economy to less
change, particularly agriculture, water
2030 from 2005 than 45% by 2030
resources, Himalayan region, coastal regions,
levels
health and disaster management.
2 Increase the share Meet 50% of the
• To mobilize domestic and new and additional
of non-fossil fuel- country's energy
funds from developed countries to
based electricity requirements from
implement the above mitigation and
to 40% by 2030 RE sources by 2030
adaptation actions in view of the resource
required and the resource gap. 3 Increase Raise the non-fossil
renewable energy fuel-based energy
• To build capacities, create domestic
generation to 175 capacity of the
framework and international architecture for
GW by 2022 2 country to 500 GW
quick diffusion of cutting-edge climate
by 2030
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4 - Reduce the total The pattern for the INR denominated green
projected carbon bonds is similar.
emission by one
Despite being relatively secured, the higher
billion tons by 2030
borrowing cost of green bonds in India could be
5 - Become carbon on account of asymmetric information higher
neutral and achieve risk perception and other governance issues.
net zero emissions
b. Borrowing Cost and Information Asymmetry:
by the year 2070
High borrowing cost has been perhaps the most
important challenge and our analysis indicates
Task Force set up by the Government: that it could be due to the asymmetric
information.
In January 2021, a Task Force on Sustainable
Finance has been set up by the Department of Therefore, developing a better information
Economic Affairs, Ministry of Finance, and management system in India may help in
Government of India. reducing maturity mismatches, borrowing costs
and lead to efficient resource allocation in this
The Terms of Reference of the Task Force
segment.
include:
c. Market Infrastructure Development:
• defining the framework for sustainable
finance in India, establishing the pillars for a In this context, some of the studies noted the
sustainable finance roadmap, importance of

• suggesting draft taxonomy of sustainable (a) Increased coordination between investment

activities, and and environmental policies and

• Suggesting a framework of risk assessment
by the financial sector.
CHALLENGES AND WAY FORWARD:
a. Borrowing Cost:
The average coupon rate for green bonds issued
since 2015, with maturities between 5 to 10
years, have generally remained higher than the
corporate and government bonds with similar
tenure.
(b) an implementable policy framework for both
national and state levels in addressing the
existing frictions.
d. Other Public Policies:
Other approach could be engaging with industry
bodies that have taken initiatives towards
expanding green buildings' that are designed to
consume less water and energy resources,
maintain better waste management and
provide healthier spaces for living.
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NGFS Recommendations to Supervisors:
a) Determine how climate-related and
environmental risks transmit to the economy
and financial sectors in the jurisdiction and
identify how they are likely to be material for
supervised entities.
b) Develop a clear strategy, establish an internal
organisation and allocate adequate resources to
address these risks.
c) Identify the exposures of supervised entities
that are vulnerable to these risks and assess
potential losses should they materialise.
d) Set supervisory expectations to create
transparency for financial institutions in relation
to the supervisors' understanding of a prudent
approach to these risks.
e) Ensure adequate management of these risks
by financial institutions and take mitigating
action where appropriate.
NATIONAL EFFORTS TOWARDS GREEN AND
SUSTAINABLE FINANCING:
India has started along the path of becoming
carbon neutral and has proposed a "Green
Deal" with the goal of accomplishing this by the
year 2070. In the Indian Budget for 2022,
several measures as follows have been
announced by the finance minister:
a) The scope of the Parvesh portal for Green
Clearances, which was launched in 2018, will be
expanded, to provide information to the
applicants.
b) Green Energy, and Clean Mobility Systems
which have immense potential to assist
sustainable development at scale and
modernize the country are included among
Sunrise Opportunities.
c) Energy Transition and Climate Action have
been emphasised along with Solar Power.
d) As a part of the government's overall market
borrowings in 2022-23, sovereign Green Bonds
will be issued for mobilizing resources for green
infrastructure.
RBI VIEWS ON CLIMATE RISK AND SUSTAINABLE
FINANCE:
The Sustainable Finance Group (SFG) in the
Department of Regulation (DoR), Reserve Bank
of India (RBI), carried out a survey in January
2022 to assess the status of climate risk and
sustainable finance in leading by scheduled
commercial banks.
The Survey's results were revealing and
observations from the results were as follows:
Board-level engagement and responsibility:
Board-level engagement on climate risk and
sustainable finance is inadequate.
In about a third of the banks that were
surveyed, responsibility for overseeing
initiatives related to climate risk and
sustainability was yet to be assigned.
Strategy:
A majority of the banks did not have a separate
business unit or vertical for sustainability and
ESG-related initiatives.
Only a few banks had a strategy for embedding
ESG principles in their business, scaling up their
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sustainable finance portfolio and incorporating
climate change risks into their existing risk
management framework.
Risk management:
Almost all the surveyed banks recognized the
urgency of the issue, and most of them
considered climate-related financial risks to be
a material threat to their business.
Physical and transition risks were seen as the
main sources of climate-related risks.
Transition to low-carbon exposure:
Most of the surveyed banks have decided to
gradually reduce their exposure to high-carbon
emitting/polluting businesses in the coming
years.
A few banks have either mobilized new capital
to scale up green lending and investment or set
a target for incremental lending and investment
for sustainable finance.
Most banks have launched a few loan products
to tap the opportunities from climate change.
Climate-related financial disclosures:
A majority of the banks have not aligned their
climate-related financial disclosures with any
internationally accepted framework.
Moving towards a low-carbon environment in
banking operations: Most banks have either
taken some measures or have plans to decrease
the absolute carbon emissions arising from their
operations and increase the proportion of
renewable energy in their total sourced
electricity.
Capacity building and data gaps:
Most banks are looking at capacity building to
better understand the financial implications of
climate risk.
Important Takeaways and Recommendations of
the Survey:
a) Governance
b) Risk Management
c) Climate-related financial disclosures
d) Possibilities arising from the shift toward a
greener future
e) Building capability and strengthening human
resources (HR)
f) Taking steps in the direction of a lower carbon
footprint in banking operations
Physical risks:
Refer to the economic costs and financial losses
resulting from the increasing severity and
frequency of:
• Extreme climate change-related weather
events (or extreme weather events) such as
heatwaves, landslides, floods, wildfires and
storms (i.e., acute physical risks);
• Longer-term gradual shifts in climate such as
changes in precipitation, extreme weather
variability, ocean acidification, and rising sea
levels and average temperatures (i.e., chronic
physical risks or chronic risks); and
• Indirect effects of climate change such as loss
of ecosystem services (e.g., desertification,
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water shortage, degradation of soil quality or made much simpler by the availability of
marine ecology). SPACS.

Transition risks are the risks related to the DISADVANTAGES OF SPAC:

process of adjustment towards a low-carbon
a) Inability to Track Use
economy.
b) Poor Returns
Liability risks are the risks arising from people or
businesses seeking compensation for losses c) Low Market Cap
suffered from physical and transition risks.
d) Increasing Regulatory Oversight

e) Increased Disclosure Norms

Chapter: 25 SPECIAL PURPOSE f) Shareholding dilution
ACQUISITION COMPANIES
g) Deficiency in available capital

h) Compact Timeframe for Compliances

A company that does not carry any commercial
operations and is incorporated purely for the
purpose of raising capital through an Initial
Public Offering (IPO) or is incorporated for the
goal of acquiring or merging with an existing
company, is known as a special purpose
acquisition company (SPAC).
ADVANTAGES OF SPAC:
The following is the benefits:
i) Narrow Scope for Financial diligence
j) Absence of underwriting and comfort letter
SPAC FORMATION & TIMELINES:
After the initial public offering (IPO), the
proceeds are deposited into a trust account,
and the SPAC normally has between 18 and 24
months to find and finalize a merger with a
target firm.

1. It shortens the time it takes for a company This process is frequently referred to as de-
to become publicly traded. Spacing.

2. Both valuations and finances will be raised

as well.

3. It grants a greater degree of control over the

stipulations of the transaction.

4. There is less regulatory oversight of SPACS.

5. When compared to an IPO, the process of

going public with a high-leverage company is
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Typical SPA

SAPC life cycle Up to 19 months Up to 5 months

Not approved Investor Approved

meetings &
shareholder
vote

YES Wind-up
Formation SAPC and
Closing of
Target return
and IPO Negotiations Agreement SPAC
investment
Phase search reached? merger to
NO (“De-SPAC) shareholders

Avoid
overlapping

SAPC continues target search

8+weeks Up to 24 months*
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THE SPAC MERGER: CHARACTERISTICS OF SPACS:

SPAC will normally be required to seek the
permission of shareholders for a merger, and it
will also prepare and file a proxy statement.
This document will contain a description of the
proposed merger as well as aspects pertaining
to governance, all of which will be seeking
approval from the shareholders. Within four
business days of the closing, a Form 8-K must
be filed with the United States Securities and
Exchange Commission (SEC). This Form 8-K,
which is commonly referred to as the Super 8-
K, must contain information that is equivalent
to what would be required in a Form 10 filing
of the target company.
STAKEHOLDERS:
Typically, special purpose acquisition
companies (SPACs) have three different
stakeholder groups: sponsors, investors, and
targets.
Sponsors:
• Once the public offering is complete, SPACs
are often traded on stock exchanges as
units, or as distinct common shares and
warrants, depending on the structure of the
offering.
• All of the stakeholders of the SPAC are given
voting rights at a shareholder meeting so
that they can either agree to or disagree
with the proposed combination of the two
companies.
• The SPAC is often led by an experienced
management team that includes at least
three people who have previous expertise in
private equity, mergers and acquisitions,
and/or operating roles.
• In most cases, the management team of the
SPAC is entitled to receive 20% of the equity
of the vehicle, excluding the value of any
warrants that may be issued.

The process of creating a SPAC is started by

sponsors.

Their contributions to SPAC, which take the

form of non-refundable fees to bankers,
attorneys, and accountants, are intended to
cover the costs of running the organization. In
the event that the Sponsor is unable to form a
combination within a period of two years, the
SPAC will have to be dissolved, and the
investors will be entitled to a full refund of
their money.
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PROCESS:

SPECIAL Ownership
PARENT PURPOSE TARGGET
COMPANY ACQUISITION COMPANY
COMPANY Acquisition

I FUNDS
P

INVESTO INVEST INVESTO

RS ORS RS

When the company's founders have provided This will result in the formation of a publicly
the initial money the management team will traded operating company as a result of the
approach an investment bank to execute the combination of SPAC and the target firm.
initial public offering (IPO).

Both the investment bank and the

management team will collect a fee equivalent
to around 10% of the IPO's total value.

After successfully raising cash through an initial

public offering, the SPAC's management team
has between 18 and 24 months to find an
acquisition target and successfully close on it.

After the acquisition has been announced, the

SPAC is required to either conduct a tender
offer process or hold a mandatory vote of the
shareholders.
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SPAC CAPITAL STRUCTURE:

Sponsor Public
(Individuals/ SPAC
Organisations) investors

Founder TURST DEEP

Shares/Warrants
Sponsor
Holding
Company TRUSTEES

IPO PROCEEDS

(Invested in Short-Term
Govt. Securities)

COMPOSITION OF SHAREHOLDING AFTER IPO: WARRANTS:

Public Shares 80% Founder Shares 20% The warrants are purchased in their whole by
the sponsor, whereas the units offered for sale
TRUST ACCOUNT:
to the general public often include only a
In connection with the closure of the IPO, a portion of a single warrant.
sum equal to or greater than 100% of the gross
The public warrants are typically settled in
proceeds of the IPO is used to finance the trust
cash, with the investor being required to pay
account, with roughly 95% of the funds coming
an amount equal to the warrant's strike price
from the general public and 5% from the
in exchange for a share of the company's stock.
sponsors.
The founder warrants cannot be redeemed for
The money in the trust account is invested in
cash.
government securities, or it is kept as cash, to
pay for the business combination.
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FORWARD PURCHASE: To change the conditions of the warrant
agreement, approval is required from fifty
Affiliates of the sponsor or institutional
percent of the warrant holders.
investors engage into a forward purchase
agreement with the SPAC, devoted to purchase Promissory Note:
equity (stock or units) in conjunction with the
The SPAC does not have adequate cash to pay
De-SPAC transaction to the extent that the
off expenses prior to the completion of the
additional funds are necessary to complete the
IPO, the sponsor agrees to engage into a
transaction.
promissory note with the SPAC in order to lend
IPO AGREEMENTS: funds to the SPAC in the form of a loan until
the completion of the SPAC's first public
The establishment of the SPAC as well as the
offering.
initial public offering of the SPAC both involve
the customary signing of a series of contracts Sponsor Constituent Document:
and other documents.
A new limited liability company is established
Charter: for the sole purpose of acting as the sponsor
for the special purpose acquisition company
The SPAC Charter is the document that
(SPAC). In the constituent documents, the
establishes the public shares as well as the
owners of the sponsors put their relationship
founder shares and includes an anti-dilution
with one another and their relative
modification to the conversion ratio for the
participation in the SPAC in writing.
founder shares.
Letter Agreement:
Securities Purchase Agreement:
The letter agreement may include a lock up
The Sponsor and the SPAC enter into a
agreement, an indemnification from the
Securities purchase Agreement, which provides
sponsor towards SPAC for certain claims that
for the issue of founder shares to the Sponsor
may be made against the trust account, a
of the SPAC.
voting agreement obligating the officer,
The number of founder shares is typically set at directors, and sponsor to vote their founder
25% of the total amount of publicly traded shares and public shares, if any, in favour of
shares that are initially registered on the the De-SPAC transaction, an obligation to
registration statement. forfeit founder shares to the extent that green
shoe is not exercised in full, and an agreement
Warrant Agreement:
to not sponsor other SPACs until the De-SPAC
The SPAC and the transfer agent both sign the transaction has been completed.
warrant agreement, which outlines the
parameters of the warrant and must be done
so before the warrant may be issued.
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Registration Rights Agreement: Shareholder Approval:

The SPAC enters into a registration rights
agreement granting the sponsor and such
other holder’s broad registration rights with
respect to the founder shares, founder
warrants, and any other equity held by the
sponsor and such other holders in the SPAC.
Private Placement Warrants Purchase
Agreement:
In accordance with the terms of the Private
placement warrants purchase agreement that
it has signed with the SPAC, the sponsor has
agreed to purchase founder warrants.
The procedure of de-Spacing is quite similar to
that of merging two public companies, with the
exception that the buyer, in this case the SPAC,
needs to get approval from the shareholders.
Founder Vote Requirements:
At the time of the initial public offering (IPO),
the founder shareholders, also known as the
sponsor or any other holders, will make a
commitment to vote in favour of the De-SPAC
transaction for any founder shares owned by
them as well as any public shares purchased
during or after the IPO.

Securities Assignment Agreement: Redemption Offer:

The compensation for independent directors is The redemption offer will not be valid for
provided by the SPAC in the form of the cost- public warrants until such time as those
plus sale of founder shares. warrants are either exercised, exchanged, or
otherwise voided in accordance with the terms
Administrative Service Agreement:
of a vote.
A monthly charge is paid by the SPAC to the
sponsor in exchange for the sponsor providing
utilities, office space, secretarial support, and
other administrative services in accordance
with an administrative service agreement
between the sponsor and the SPAC.

DE-SPAC PROCESS:

The following procedures make up each stage

of the De-SPAC process:

● Requirements for Shareholder Approval

● Founder Approbation Votes

● Disclosure of Material on a Super 8-k Form

● Redemption Offer