VENTURE CAPITAL

APURV GOURAVMITCON Institute of Management,

Pune, Maharastra

INDIA

Email– apurvgourav@gmail.com

HistoryThe father of modern venture capital industry – Georges doriot.In 1946, Doriot co-founded American Research and Development Corporation (AR&DC) with Ralph Flanders, Karl Compton and others, Digital Equipment Corporation. in 1968 it provided AR&DC with 101% annualized Return on Investment (ROI). AR&DC's $70,000 USD investment in Digital Corporation in 1957 grew in value to $355 million USD.

Cont….

Slow Growth in 1960s & early 1970s, and the First Boom Year in 1978

The industry raised approximately $750,000 in 1978.

Highs & Lows of the 1980s in US.

Capital raising

For any business , capital can be raised from owned sources or from borrowed sources.

Owned sources – raising capital from the sale of equity & preference share.

Borrowed sources – raising capital from loan & debentures.

Concept of venture capital

Venture capital consists of two words “venture” & “capital”.Venture – it means chance, hinting at speculation to try one's luck , involving risk , or hazard or exposure to insecurity or danger. Another meaning of venture courage or boldness.The capital investment may be in the form of equity participation or through supplying of debts.

What is venture capital

Venture capital financing is an alternative financing source particularly when an industry is techno. Based ,the entrepreneur inexperienced and the investment carries high risk of loss.Commercial bank and other financial institutions do not provide to such project.Venture capital can also include managerial and technical expertise

Stages involved in VC

Early stage financing:

a) seed capital/pre-start up

b) start-up, and

c) second round financing.

Cont….

Later stage financing:

a) development capital

b) bridge/expansion financing

c) turnaround

Criteria for investment

minimum individual investment =

total investment pool _______________________________

( partners * companies each can

comfortably manage)

Setting the stage - Venture Capital in India

Phase I - Formation of TDICI in the 80’s and regionalfunds 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 successfulSetting the stage - Venture Capital in IndiaIndia-centric VC firms

Phase IV – (current) Global VCs and PE firms actively

investing in India

300 Funds active in the last 3 years (Government,

Overseas, Corporate, Domestic)

Top Cities attracting PE Investments(2007)

city No. of deals Value (US million$)

Mumbai 109 5995

Delhi/NCR 63 2688

Bangalore 49 685

Chenai 41 1380

Ahmedabad 32 824

Kolkata 14 492