Venture capital In India

By Team -10

Venture Capital
Starting and growing a business always require capital. There are a number of alternative methods to fund growth. These include the owner or proprietor s own capital, arranging debt finance, or seeking an equity partner, private equity and venture capital

Goal
The goal of venture capital is to build companies so that the shares become liquid (through IPO or acquisition) and provide a rate of return to the investors (in the form of cash or shares) that is consistent with the level of risk taken

How does the VC industry work

Venture capital firms typically source the majority of their funding from large investment institutions such as fund of funds, financial institutions, endowments, pension funds and banks. These institutions typically invest in a venture capital fund for a period of up to ten years To compensate for the long term commitment and lack of both security and liquidity, investment institutions expect to receive very high returns on their investment venture capitalist may receive some return through dividends, their primary return on investment comes from capital gains when they eventually sell their shares in the company, typically between three to five years after the investment.

What do VC's look for

Venture capitalists are higher risk investors and, in accepting these risks, they desire a higher return on their investment. The venture capitalist manages the risk/reward ratio by only investing in businesses which fit their investment criteria and after having completed extensive due diligence. Venture capitalists have differing operating approaches. These differences may relate to location of the business, the size of the investment, the stage of the company, industry specialization, structure of the investment and involvement of the venture capitalists in the companies activities

The Opportunity
KBI growing fast and mostly global, less affected by domestic issues. Several emerging centers of innovation biotech, wireless, IT, semiconductor, pharmaceutical. Ability to build market leading companies in India that serve both global and domestic markets. India moving beyond supplier of low-cost services to higher-value products. Quality of entrepreneurship on ascending curve.

Setting the stage - Venture Capital in India

Phase I - Formation of TDICI in the 80s and regional funds as GVFL & APIDC in the early 90s. Phase II - Entry of Foreign Venture Capital funds (VCF) between 1995-1999 Phase III - (2000 onwards). Emergence of successful India-centric VC firms Phase IV (current) Global VCs and PE firms actively investing in India 150 Funds active in the last 3 years (Government, Overseas, Corporate, Domestic)

SEBI (Venture Capital Funds) Regulations , 1996

According to SEBI (Venture Capital) Regulations, 1996, a venture capital fund can be formed as a: Trust, registered under Indian Trusts Act, 1882 or Company, registered under Companies Act, 1956 or A body corporate, set up or established under the laws of the central or state legislature In all forms, the main objective of the entity should be to engage in venture capital investment and the trust deed or the memorandum should explicitly state that [Section 4].

Category wise distribution of investors

The Structure of a Venture Capital Investment

A typical venture capital investment is structured so that the venture capitalist gets convertible preferred stock in your company. This stock gives the venture capitalist a preference over the common shareholders in the event of a liquidation or merger Venture capital investments are also sometimes "staged." A certain amount of money is invested right away and additional money is invested later, as certain milestones are reached. From the company's perspective, it's important that these milestones are clearly defined and reasonably obtainable

Venture Capitalists' Rights

Venture capitalists also typically expect to receive the following rights with an investment: The right to elect one or more directors to the company's board of directors The right to receive various reports, financial statements and related information The right to have its stock registered for sale in a public offering at the company's cost The right to maintain its percentage share ownership in the company by participating in future stock offerings

The Stock Purchase Agreement

Once the company and the venture capitalist agree on the terms sheet The main agreement will be the stock purchase agreement, which typically contains the following information: The price of stock to be sold and the number of shares to be purchased Representations and warranties of the company Covenants of the company Conditions to closing of the deal A requirement to reimburse the venture capitalist's legal fees Exhibits and related agreements, which contain other rights for the venture capitalist

Money invested (millions)

Investor Sequoia Capital India Intel Capital Norwest Venture Partners Helion Venture Partners Nexus India Capital DFJ India Ventureast NEA IndoUS Ventures Canaan Partners Kleiner Perkins IDG India Ventures Inventus Capital Partners 7 2 7.5 13.75 19 4 8 16 4 2 24 10 14 45 33 17 26 12 19 8 7 10 9 4 75.5 61 54 50 30 29 22 30 30 30 10 100 2005 42 19 13.9 2006 184 37 8.1 2007 114 15 24.1 2008 138 53 17.7 2009 26 7 92.8 Total 504 131 156.6

 Nexus Venture Partners is the leading venture capital fund in India with total fund size of $320 million. Apart from investing in early to early growth companies, Nexus has also been incubating and investing in seed stage companies since 2006 Nexus will invest Rs. 20 lakhs to 2 crores ($50k-$500k) each in up to 50 companies over the next 5 years

They have been voted as: India s top venture by Red herring India s Best Venture Capital firm by Venturte Intelligence

Where they like to invest

Passionate and driven entrepreneurs Capital efficient business models Innovative product, process or business model addressing a significant customer pain point Large existing or potential market opportunity in India or globally Differentiated product or service that can create a competitive advantage Companies that can be standalone independent businesses, not features for another business

Investor

2005

2006

2007

2008

2009

Total

Sequoia Capital India Helion Venture

200

400

300

725

1,625

Partners Nexus India Capital Ventureast -

140

210

350

100 136

220 86

320 222

NEA IndoUS Ventures

189

189

IDG India Ventures Inventus Capital

150

150

Partners Norwest Venture Partners DFJ India Kleiner Perkins Intel Capital Canaan Partners -

125

125

Investment by Region

Six biggest mistakes in raising startup Capital

Half-baked business plans. Focusing too much on the idea and too little on the management Not asking for enough money Having too many lenders or investors Failing to get the proper legal agreements Poor cash flow management

Investment
They typically limit thier investments to 6-8 new investments a year. They are available as a team to thier partner companies. While the amount of involvement in a company depends on the stage of the company and the need of the entrepreneur, they typically get involved in recruiting talent, market intelligence, business development, strategy and future financings. Altruist Technologies Altruist Technologies provides Voice and Web based Value Added Services to wireless carriers. Aryaka Aryaka Networks delivers cloud-based application acceleration and WAN optimization with true business results.

Bigshoebazaar Online Wholesale Footwear Cloud Cloud.com is a pioneer in cloud infrastructure management software and distributors of the CloudStack Platform, a comprehensive software solution. Deccan Healthcare Deccan Healthcare, for more than 10 years now, has been developing, manufacturing and marketing high quality wellness product. Dimdim (Sale to Salesforce.com) Based on an open source platform, Dimdim allows anyone to experience live web meetings using just a browser.

 Dlight Design D.light Design is a fast-growing international consumer products company serving people without access to reliable electricity. Eka Software Solutions Eka Software is a leading provider of software for the global commodities markets. Eka's products and services help companies that buy, sell or trade commodities Gluster Gluster is exclusively focused on simplifying the task of storing and managing the explosion of unstructured data while transforming the economics of storage. Kaltura Open source online and mobile video management platform..

 Kirusa Kirusa's solutions include the hugely successful KV.SMS, the world's most advanced "Voice SMS" solution, which allows mobile users to send andworks on all handsets. Komli Komli is about innovation and client service in the online advertising space. Komli is a digital advertising and technology company enabling marketers to reach and acquire. MagicRooms MagicRooms is first Hotel GDS (Global Distribution System), a fully integrated system that radically changes the approach to hotel promotion and communication. CE Info Systems CE Info Systems (P) Ltd, an ISO 9001-2000 Company, is India's leader in providing services and solutions based on Internet & Mobile Applications

 mCheck mChek provides patent-pending, mobile-based, security and payment services enabling users to transact through their mobiles for wide-ranging day-to-day requirements. Mistral Solutions Mistral offers professional design services which include hardware and software development etc. Netmagic Solutions Netmagic Solutions is India's leading Managed IT Service Provider, specializing in Internet Data Centers, Managed Hosting Olx (Sale to Naspers) OLX is the next generation of free online classifieds.OLX provides a simple solution to the complications involved in selling, buying, trading, discussing, organizing.

THANK U ALL