Venture Capital in India – a trend that has made its way to our country from the West over the last decade. It involves the providing of capital to a business venture for
• Seed capital in order to kick-start the business,
• Early-stage operations of a business,
• Later-stage expansion plans
The main features of venture capital funding are:
• Allocated to high-risk but high potential ventures to float and run its operations till it breaks-even
• It is a very important funding model for start-ups since they do not have access to capital markets.
• The venture capitalist usually makes and recovers money by owning equity in the company.
• Most venture capital investors seek either an innovative business model or a novel technology to invest in.
• Focus is given to building businesses that would lead the market in both domestic and international spheres
Regulations for Venture Capital: In India, venture capital funds can be categorized under the following sub-heads:
• Central Govt. controlled development funds by financial institutions like ICICI, IFCI, SIDBI. • State Govt. controlled development funds by financial institutions of various states
• Public Banks promoted funds like SBI Capital Markets Ltd
• Private Organisations promoted funds like IL&FS.
• Funds by overseas players like Walden International etc All these venture capital funds are governed by the Securities and Exchange Board of India (SEBI), which is the nodal agency for registration and regulation of both domestic and overseas venture capital funds.
The following regulations control all VC funds in this country: • SEBI (Venture Capital Funds) Regulations 1996
• SEBI (Foreign Venture Capital Investors) Regulations 2000.
Trends in India: In India, it has been seen that venture capital investment is made into high growth sectors like
• Technology and the knowledge-based industries (KBI sector).
• Biotech, wireless, IT, pharmaceuticals are some other growing sectors that attract venture capitalists.
Why you should tap this form of funding:
• It will give your business long-term equity finance which will provide a solid capital base for future growth.
• The venture capitalist is like your business partner, sharing both your risks and rewards.
• The venture capitalist will provide practical advice and assistance to you based on past experience with other businesses that were in similar situations.
• The venture capitalist also has a network of contacts in many areas that can add value to your business, such as in recruiting key personnel, providing contacts in markets, introductions to strategic partners, and if needed co-investments with other venture capital firms when additional rounds of financing are required.