PROJECT TITLE:-

STUDY OF VENTURE CAPITAL IN INDIA

(SYNOPSIS)
Submitted by Mandeep Singh Roll No 689 submitted to Raman Kumar

Introduction of venture capital

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

2.2 Features of Venture Capital

2.2.1 High Risk By definition the Venture capital financing is highly risky and chances of failure are high as it provides long term startup capital to high risk-high reward ventures. Venture capital assumes four types of risks, these are:  Management risk  Market risk  Product risk  Operation risk - Inability of management teams to work together. - Product may fail in the market. - Product may not be commercially viable. - Operations may not be cost effective resulting in increased cost decreased gross margins.

Research objective:

 To understand concept of Venture Capital.  To understand Venture Capital industry in global scenario.  To study the evolution and need of Venture Capital Industry in India.  To understand the legal framework formulated by SEBI to encourage Venture capital activity in Indian Economy.  To find out opportunity and threats those hinder and encourage Venture Capital Industry in India.  To know the impact of political and economical factors on Venture Capital investment.

Limitation of project Limitations: A study of this type cannot be without limitations. It has been observed that venture capitals are very secretive about their performance as well as about their investments. This attitude has been a major hurdle in data collection. However venture capital funds/companies that are members of Indian venture capital association are included in the study. Financial analysis has been restricted by and large to members of IVCA.

Research Design & Instruments

In India neither venture capital theory has been developed nor are there many comprehensive books on the subject. Even the number of research papers available is very limited. The research design used is descriptive in nature. (The attempt has been made to collect maximum facts and figures available on the availability of venture capital in India, nature of assistance granted, future projected demand for this financing, analysis of the problems faced by the entrepreneurs in getting venture capital, analysis of the venture capitalists and social and environmental impact on the existing framework.) The research is based on secondary data collected from the published material. The data was also collected from the publications and press releases of venture capital associations in India. Scanning the business papers filled the gaps in information. The Economic times, Financial Express and Business Standards were scanned for any article or news item related to venture capital. Sufficient amount of data about the venture capital has been derived from these reports.

Scope: The scope of the research includes all type of venture capital firms whether setup as a company or a trust fund. Venture capital companies and funds irrespective of the fact that they are registered with SEBI of India or not are part of this study. Angel investors have been kept out of the study as it was not feasible to collect authenticated information about them.