VENTURE CAPITAL

MFS Presentation

Venture Capital

Venture capital means funds made available for startup firms and small businesses with exceptional growth potential.

Venture capital is money provided by professionals who alongside management invest in young, rapidly growing companies that have the potential to develop into significant economic contributors.

Venture capitalists raise money from investors and use it to fund businesses with innovative ideas that conventional moneylenders such as banks would not touch.

Continued

A big chunk of the businesses funded by VCs will inevitably fail. But the ones that succeed do so spectacularly and give huge returns. Google would never have reached the market if it hadn’t found VC funding at the right time.

The VC industry in India is betting on everything from sanitation projects to backwater purification systems to service apartments and energy from rice husks.

venture capital in India has finally broken out of Silicon Valley’s shackles and gone pan-India to back water purifications systems (Waterlife India), sanitation projects (Saraplast), cotton trading solutions for farmers (Zameen Organic), education and even beauty salons (R&R Salons) and service apartments.

Sabeer Bhatia has won several honors and awards. These include: "Entrepreneur of the Year," award by the venture capital firm Draper Fisher 1997.

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

Venture Capital Assistance Seeking Process

Initial Meetings

Prelimnary Project Review by Venture Capitalist

Term Sheet Signed by Venture Capitalist & Promoters

Due Diligence Review of Project

Venture Capitalist with Funds

Promoters with Project

Legal Documents/Agreement Signed

Investment made by Venture Capitalist in Project

Mentoring & Monitoring of Project

Divestment & Exit from Project

Promoters

Venture Capitalist

Advantages

It injects long term equity finance which provides a solid capital base for future growth.

The venture capitalist is a business partner, sharing both the risks and rewards. Venture capitalists are rewarded by business success and the capital gain.

The venture capitalist is able to provide practical advice and assistance to the company based on past experience with other companies which were in similar situations.

Advantages (Cont.)

The venture capitalist also has a network of contacts in many areas that can add value to the company.

The venture capitalist may be capable of providing additional rounds of funding should it be required to finance growth.

Venture capitalists are experienced in the process of preparing a company for an initial public offering (IPO) of its shares onto the stock exchanges or overseas stock exchange such as NASDAQ.They can also facilitate a trade sale.

Risk in each stage

Financial Stage Period (Funds locked in years)

Risk Perception Activity to be financed

Seed Money 7-10 ExtremeFor supporting a concept or

idea or R&D for product

development

Start Up 5-9 Very HighInitializing

operations or developing prototypes

First Stage 3-7 HighStart

commercials production and

marketing

Financial Stage Period (Funds locked in years)

Risk Perception Activity to be financed

Second Stage 3-5 Sufficiently highExpand market

and growing working capital

need

Third Stage 1-3 Medium

Market expansion,

acquisition & product

development for profit making

company

Fourth Stage 1-3 Low Facilitating public issue

Venture capital funds in India

VCFs in India can be categorized into following five groups:

1) Those promoted by the Central Government controlled development finance institutions. For example:

- ICICI Venture Funds Ltd. - IFCI Venture Capital Funds Ltd (IVCF) - SIDBI Venture Capital Ltd (SVCL)

2) Those promoted by State Government controlled development finance institutions.For example:

- Punjab Infotech Venture Fund - Gujarat Venture Finance Ltd (GVFL) - Kerala Venture Capital Fund Pvt Ltd.

3) Those promoted by public banks.For example:

- Canbank Venture Capital Fund - SBI Capital Market Ltd

Top cities attracting venture capital investmentsCITIES SECTORS

MUMBAI Software services, BPO, Media, Computer graphics, Animations, Finance & Banking

BANGALORE All IP led companies, IT & ITES, Bio-technology

DELHI Software services, ITES , Telecom

CHENNAI IT , Telecom

HYDERABAD IT & ITES, Pharmaceuticals

PUNE Bio-technology, IT , BPO

Case Study

Druva Software, a Pune-based start-up that makes proprietary backup software solutions for laptops, has raised $5 million in Series A funding (funding that follows seed funding) from Sequoia Capital India and Indian Angel Network (IAN).

The money will be used to expand the three-year old company’s marketing and sales footprint overseas, including in Europe and the US. So far, it has relied largely on Web-based channels to sell its products in those markets. 

80 per cent of data is duplicated,”. Druva, therefore, developed a software that would allow companies to cut out this duplication and enable laptops to work faster as well as increase storage capacity.

Druva had earlier raised seed funding from the Delhi-based Indian Angel Network and Hong Kong-based Accord International.

Druva was developing a continuous data protection product, which is the next level of back-up technology, we decided to fund them,” says Rehan Yar Khan, who represents IAN on the Druva board.

Some of the company’s earliest clients include NASA and the US Marine Corps. Druva Phoenix, Khan says, is now beginning to gain traction in the market

Successful Stories of VC

Indian Private Equity and Venture Capital Association (IVCA)

Indian Private Equity and Venture Capital Association (IVCA) is a member based national organization that represents venture capital and private equity firms, promotes the industry within India and throughout the world and encourages investment in high growth companies.

IVCA members comprise venture capital firms, institutional investors, banks, incubators, corporate advisors, accountants, lawyers, government bodies, academic institutions and other service providers to the venture