Venture Capital

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THE GROWTH OF VENTURE CAPITAL IN INDIA
Article in International Journal of Commerce and Management · February 2017
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International Research Journal of Management and Commerce
Vol. 4, Issue 2, February 2017 Impact Factor- 5.564
ISSN: (2348-9766)
© Associated Asia Research Foundation (AARF)
Website: www.aarf.asia Email : editor@aarf.asia , editoraarf@gmail.com
THE GROWTH OF VENTURE CAPITAL IN INDIA
Dr. V. Santhi1
Head in Charge and Associate Professor
PSG College of Technology COIMBATORE-4
&
Dr. Nanda Gopal L2

Visiting Faculty
PSG College of Technology COIMBATORE-4
1. INTRODUCTION
Venture capital finance in India was known since nineties. It is now has successfully emerged
for all the business firms that take up risky projects and have high growth prospects. The private
organization which does not want to take finance from the society may have their view on
venture capital. It has potential to become an important source for financing of small-scale
enterprises (SSEs).Venture capital finance is often thought of as ‘the early stage financing of
new and young enterprises seeking to grow rapidly. According to Pratt: There is a popular
misconception that high-technology is the principal driving factor behind the investment decision
of a US venture capitalist. Only a small minority of venture capital investments are in new
concepts of technology where potential technical problems add a significant amount of risk to the
new business development.
2. Review of literature
A Study on Determinants of Investment Decisions: Venture Capitalist’s Perspective by Prashant

T. Patil, Dr. V. N. Sayankar, and Dr. Madhulika A. Sonawane. (2016), Venture Capital
industry in India is growing faster due to favourable economic conditions and conducive
A Monthly Double-Blind Peer Reviewed Refereed Open Access International e-Journal - Included in the International Serial Directories.
International Research Journal of Management and Commerce (IRJMC) ISSN: (2348-9766)
121 | P a g e
business environment. Entrepreneurial background, idea / product viability, business
sustainability and competition are the major determinants on demand side considered by VC
firms in screening of proposal for investment. And finally the study also reveals that investors
are looking for managerial control in the venture where they are going to invest as their
investments are at risk in early and growth stage of investments.
Groh, A. P. and Von Liechtenstein, H. (2011), contributed to the knowledge of the capital flow
from institutional investors via venture capital (VC) funds as intermediaries to their final
destination, entrepreneurial ventures. They found the top criteria to be the expected deal flow and
access to transactions, a VC fund's historic track record, entrepreneur local market experience,
the match of the experience of team members with the proposed investment strategy, the team's
reputation, and the mechanisms proposed to align interest between the investors and the VC
funds.
Selvakumar and Ketharaj, (2009) has given the inherent strength by way of its human capital,
technical skills, cost-competitive workforce, research and entrepreneurship. India can unleash a
revolution of wealth creation and rapid economic growth in a sustainable manner. There is a
need for risk finance and venture capital environment which can leverage innovation, promote
high-fi technology and harness knowledge based ideas.
Subbulakshami (2004) has published an edited volume on venture capital industry in India. The
book compiles various research articles in relation to the role of venture capital in fostering
entrepreneurship leading to overall economic growth. The origin and the regulatory framework
of Indian venture capital industry as well as the development of venture capital in US, Taiwan
and China.
Kumar and Kaura (2003) this study found out that a sustained effort was continuously required
in the target market which was highly meticulous. This research concluded that Indian venture
capitalists do not seemed to be biased in favor of high technology ventures and also the numbers
of successful ventures were not hi-tech.
Mason and Harrison; (1999), Mishra et al.; (2005) venture capital plays a key role in the
entrepreneurial process by providing equity capital and managerial support for young, rapidly-
growing, high risk and high tech private companies with the potential to develop into significant
global businesses.
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Fried and Hisrich (1994) described that venture capitalists eliminate the proposals that are
unable to meet the venture capital firms’ investment criteria. Some ventures were previously
unsuccessful in certain sectors, and seems generally unpromising. Some quick and broad criteria
were frequently used to select the deals that will be later on subjected to an in-depth evaluation.
Bygrave and Timmons, (1992) the nature of venture capital process involves transactions
between investors (limited partners), venture capital firms (general partners) and the portfolio
companies/entrepreneurs was highlighted in this study.
What is venture capital finance?
It is a capital invested in a project in which there is a substantial element of risk, typically a new
or expanding business. Entrepreneurs often turn to venture capitalists for money because their
company is so new, unproven and risky that more traditional forms of financing, such as through
banks, aren't readily available. Unlike other forms of financing where entrepreneurs are only
required to pay back the loan amount plus interest, venture capital investments most commonly
come in exchange for ownership shares in the company to ensure they have a say in its future
direction.
Definition
Startup companies with a potential to grow need a certain amount of investment. Wealthy
investors like to invest their capital in such businesses with a long-term growth perspective. This
capital is known as venture capital and the investors are called venture capitalists.
Need for the study
1. The study has been conducted to create awareness and to gain the practical knowledge
about venture capital finance.
2. To identify the venture capital funds that are listed in the securities exchange board of
India (SEBI).
Objectives of the study:
1. To get a new insight and to be familiarize about venture capital funds.
2. To identify the top ten performing Venture Capital funds in India.
123 | P a g e
3. To know about the present scenario of venture capital funds in our nation.
4. To analyze growth of venture capital investment in different sectors of our economy.
Scope of the study
There are different means of financing are available for an entrepreneur in India but this study
covers only venture capital financing other types of financing are excluded in this study.
Growth of venture capital in India
The development of the organized venture capital industry in India, as is in existence today, was
slow and belaboured, circumscribed by resource constraints resulting from the overall framework
of the socialistic economic paradigms. Although funding for new businesses was available from
banks and government-owned development financial institutions, it was provided as a
collateral-based money on project-financing basis, which made it difficult for the most new
entrepreneurs, especially those who were technology and services based, to raise money for
their ideas and businesses. Most entrepreneurs had to rely on their own financial resources, and
those of their families and well wishers or private financiers to realize their entrepreneurial
dreams.
In 1972, a committee on Development of Small and Medium Enterprises highlighted the need to
foster venture capital as a source of funding new entrepreneurs and technology. This resulted in a
few incremental steps being taken over the next decade-and-a-half to facilitate venture capital
funds into needy technologically oriented small and medium Enterprises (SMEs), namely:
National financial institutions like
1. Industrial Finance Corporation of India Ltd (IFCI-1948) provides medium and long term
finance to industries. Risk Capital Foundation, sponsored by IFCI, was set-up in 1975 to
pro-mote and support new technologies and businesses.
2. Industrial Credit and Investment Corporation of India Ltd (ICICI-1955) the primary objective
is to meet the foreign exchange requirements of industrial concerns and for promoting medium
and large industries in the private sector. Programme for Advancement of Commercial
124 | P a g e
Technology (PACT) Scheme was introduced by ICICI in 1985 In 1988, ICICI emerged as a
venture capital provider with Unit Trust of India. As now, there are a number of venture capital
institutions in India. Financial banks like ICICI have stepped in to this and have their own
venture capital subsidiaries.
3. Industrial Development Bank of India (IDBI-1964) coordinates the activities of other financial
institutions, supplements their resources to plan and promote the medium and the large
industries, the Seed Capital Scheme and the National Equity Scheme was set up by IDBI in
1976. The idea of venture capital gained momentum in the budget of 1986-87. A 5% cess was
levied on all know-how imports to create the corpus of the venture fund floated by IDBI
in 1987. Later, a study was undertaken by the World Bank to examine the possibility of
developing venture capital in the private sector, based on which the Government of India
took a policy initiative and announced guidelines for venture capital funds (VCFs) in India in
1988.
4. Industrial Reconstruction Bank of India (IRBI-1985) functions both as a lending and a

reconstruction agency and provides finance in term loans, in the form of term loans underwriting
guarantees etc.
5. Small Industries Development Bank of India (SIDBI-1990) for developing and financing
small scale industries.
Specialized institutions like:
1. Risk Capital and Technology Finance Corporation Ltd (RCTC-1988) Provides risk capital and
technology finance for the project envisaging promotion, transfer and adaption of new
technologies.
2. Technology Development and Information Company of India Ltd (TDICI-1988) the TDICI
was set up jointly with the ICICI and UTI to provide assistance in the form of project loan etc, to
small and medium industries conceived by technocrat entrepreneurs.
3. Tourism Finance Corporation of India Ltd (TFCI-1989) Provides assistance in the form of
rupee loans, underwriting securities, equipment leasing for developing tourism industry
including holiday report, hotels, amusement parks and entertainment complex.
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State level financial institutions like
1. State Finance Corporation (SFCs-1951) provides assistance to medium and small scale
industries in their respective states.
2. State Industrial Development Corporations (SIDCs) provide assistance in the form of term
loans, underwriting securities and direct subscription. Some of them engage in preparation of
feasibility reports, conducting surveys, and in developing industrial estates.
The financial investment process has evolved a lot with time in India. Earlier there were only
commercial banks and some financial institution but now with venture capital investment
institution in India has grown a lot. Business forms now focus on expansion because they can get
financial support with venture capital. The scale and quality of the business enterprises have
increased in India now with international competition, there have been a number of growth
oriented business firms that have invested in venture capital.
The venture capital finance in India can be categorized in to following three groups
Venture capital promoted by
Central government State government Private sector companies
Central government
The power and authority is vested in the hands of government of India, some of the examples of
venture capital finance promoted by the Central Government controlled development finance
institutions are as follows SIDBI Venture Capital Limited (SVCL) IFCI Venture Capital Funds
Limited (IVCF).
State Government:
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The power and authority is vested in the hands of state government, some of the examples of
venture capital finance promoted by the State Government controlled development finance
institutions are as follows Gujarat Venture Finance Limited (GVFL), Kerala Venture Capital
Fund Pvt Ltd, Punjab Infotech Venture Fund, Hyderabad Information Technology Venture
Enterprises Limited (HITVEL).
Private sector companies
The power and authority is vested in the hands of private sector companies, some of the
examples of venture capital finance promoted by the private sector controlled are as follows
IL&FS Trust Company Limited and Infinity Venture India Fund.
The list of venture capital funds in India as on 2017 FEBRUARY
1. Aavishkaar India Micro Venture Capital Fund

2. Aboyne India Trust
3 ACA Private Equity Trust
4 Adharshila Venture Capital Fund
5 Aditya Birla Private Equity Trust
6 Akruti City Venture Capital Fund
7 Ambit Pragma Fund
8 Anand Rathi Realty Fund
10 Aditya Birla Real Estate Fund
11 Ariston IET Fund
12 ASK Real Estate Special Opportunities Fund
13 Ativir Venture Capital Trust
14 Aureos India Fund
15 Avendus Ace Fund Trust
16 Avigo India Private Equity Trust
17 Axis Infrastructure Fund -1
18 Axis Venture Capital Trust
19 Blume Ventures Fund 1
20 BTS India Private Equity Fund
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21 Business Excellence Trust
22 Business Excellence Trust II
23 BYTS Growth Fund
24 Canbank Venture Capital Fund
25 Cheeko Tel Pvt Ltd
26 CIG Realty Fund
27 Cinema Capital Venture Fund
28 DHFL Venture Capital Fund
29 Dhunn Carr Management and Research India Private Limited
30 Edelweiss Investment Trust
31 Emerging India Fund
32 Enam India infrastructure fund
33 Eureka Venture Fund
34 Faering Capital India Evolving Fund
35 Felicitas Venture Capital Trust
36 FIRE Capital Fund
38 Forum Synergies India Trust
39 Gaja Capital India Fund- I
40 Green India Venture Fund
41 Growth Plus Real Estate Fund
42 Gujarat Bio technology Fund
43 Gujarat Information Tech Fund
44 Gujarat Infrastructure Development Fund
45 Gujarat VCF – 1990
46 GVFL Venture Capital Fund
47 Halcyon Opportunities Special Situations Rupee Fund
48 HDFC Property Fund
49 High Street Venture Capital Trust
50 Hive Fund
51 i3E Trust
52 ICICI Econet Fund
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53 ICICI Emerging Sector Trust
54 IDFC - India Infrastructure Fund – 3
56 IDFC Infrastructure Fund – 2
57 IL&FS ORIX Trust
58 IL&FS Private Equity Trust
59 IL&FS Special Opportunities Fund
60 iLabs Venture Capital Fund
61 India Advantage Fund 1
62 India Advantage Fund –III
63 India Advantage Fund IV
64 India Advantage Fund RE S2
65 India Advantage Fund S3 I (earlier known as India Advantage Fund VIII)
66 India Advantage Fund V
67 India Alternatives Pvt Equity Fund
68 India Automotive Component Manufacturers Private Equity Fund-1
69 India Development and Construction Fund
70 India Education Fund
71 India Enterprise Development Fund
72 India Info line Venture capital Fund
73 Indian Infrastructure Advantage Fund
74 India Infrastructure Fund
75 India Innovation Fund
76 India Japan Fund
77 India Plus Trust
78 India Property Fund
79 India Reality Fund I
80 India Reality Venture capital Fund
81 India Rizing Fund
82 India Value Fund (previously known as India Human Capital Fund)
83 India Value Fund III
84 India Value Fund III – A
129 | P a g e
85 India Value Fund IV
86 India Infrastructure Development Fund
87 Indian Enterprise Fund
88 India Reit Fund
89 IndiaVenture Trust
90 Industrial Venture Capital Limited
91 Infinity Venture India Fund
92 Information Technology Fund
93 INFRAINDIA Trust
94 Intelligroup Venture Fund
95 iPro Capital Private Equity Trust
97 JM Financial Property Fund
98 Kaizen Trust
99 Kaizen Venture Capital Pvt. Ltd. (Previously known as Nilanchal Capitals Pvt Ltd)
100 Karnataka Information technology Venture Capital Fund
101 Karnataka Information Technology Venture Capital Fund-2
102 Kerala Venture Capital Fund
103 Kotak India Growth Fund II
104 Kotak India Venture Fund I
105 Kotak Mahindra realty fund
107 Kshitij Venture Fund
108 Landmark Real Estate Fund – I
110 LICHFL Fund
111 Marigold Mezzanine Investment Fund
112 Mcap Growth Fund
113 Milestone Private Equity Fund
114 Milestone Real Estate Fund (Formerly known as Indian Real Opportunity Venture
Capital Fund)
115 Morpheus Media Fund
116 Multiples Private Equity Fund
117 Nagarjuna Venture Capital Fund
130 | P a g e
118 National Venture Fund for Software and IT industry
120 Nine Rivers Capital Trust - 1
121 NV India Trust
122 Oman India Joint Investment Fund
123 Opulent Venture Capital Trust
124 Peninsula Realty Fund
125 Phi CapitalTrust
126 PI Opportunities Fund I
127 PI Opportunities Fund II
128 Punjab Infotech Venture Fund
129 Quest India Fund
130 Rajasthan Venture Capital Fund
131 RE Capital India Fund
132 Realty Excellence Trust
133 Realty India Trust
134 Red Fort India Realty Fund
135 Reliance Alternative Investments Funds (Formerly known as Reliance Venture Capital
Fund)
136 Reliance India Power Fund
137 RVCF Trust – II
138 Sashi Reddi Investment Capital Fund
139 SBI Macquarie Infrastructure Trust
140 SEAF India Investment Trust
141 Secura India Real Estate Fund
142 SGR Achievers Fund
143 SICOM Venture Capital Fund
144 SIDBI SME Venture Fund
145 Small is Beautiful
146 Solitaire Capital India
147 Sourabh Venture Trust
148 South Asian Regional Apex Fund
131 | P a g e
149 Special Opportunities Fund
150 Spice Capital Fund
151 Spring Healthcare India Trust
153 SREI Venture Capital Trust
154 Subhkam Growth Fund
155 Systematix Venture Capital Turst
156 Tamil Nadu Infotech Fund

157 Tara India Fund III Trust
158 TaraIndia Fund III Domestic Trust
159 Tata Capital Growth Fund-1
160 Tata Capital Healthcare Fund I
161 Tata Capital Innovations Fund
162 Tata Capital Special Situation Fund-Trust
163 TCG India Fund
164 Teepee Venture Capital Trust
166 The India Seed Investment Trust
167 The Technology Venture Fund
168 The Ventureast Funds
169 TVS Shriram Growth Fund
170 Urban Infrastructure VCF
171 Urjankur Nidhi Trust
172 UTI - India Technology Venture unit scheme
173 UVF Private Equity Trust
174 Venture east Telnet India Fund
175 Vistaar Religare Media Fund
176 vKarma Capital
177 Volrado Venture Partners
178 Wallford India Infrastructure & Realty Fund
179 West Bengal VCF
180 Zephyr Peacock India II
Source: http://www.sebi.gov.in/investor/venturecap.html
132 | P a g e
Top ten the most active venture capital funds in India
1.  Kalaari Capital
2.  Accel Partners
3. Venture East
4. Tiger Global Management
5. Nexus Venture Partners
6. Helion Venture Partners
7. Blume Ventures
8. Sequoia Capital
9. Saif Partners
10. IDG Ventures India
Source: https://thehackerstreet.com/venture-capital-firms-india/
Present scenario of venture capital in India
The present scenario of venture capital finance is quite different. Venture capital financing in
India is open to all, provided they find the unique business idea with growing market, an efficient
management team, an innovative business model and home-run potential. Once they find a start
up with all the necessary items that make it ideal for an investment, the Venture capitalists waste
no time to back it with an aim to gain huge profits. The success of Flipkart is no more new story
and is largely because of venture capital that the firm has managed to raise the finance. In less
than seven years, the firm has earned a revenue of over $1 billion.
The investors offering venture capital financing in India are mainly targeting sectors like
technology, software enterprise, consumer internet, online retail, healthcare, energy, advertising,
real estate, infrastructure, and private equity.
133 | P a g e
Top venture capital funded industries:
Top five VC funded industries from 2006-2016
Source: SEBI
The chart 1 displays the venture capital finance in the internet software and services was top with
the highest deal of 399 which amounted $-3275, and followed by software $-2260, and then
internet and catalog retail $-2807, next diversified consumer services $- 429 and the last by the
media which stood at $-496 during the study period from 2006-2016.
134 | P a g e
Venture capital investments in India from 2012-2016
Source: google.com
From the chart 2, it could be observed that venture capital investment in India registered 269
numbers of deals in the year 2012 but the amount was started raising in all the years of the study
except the year 2016, A tremendous inclination was observed in 2015 and it declined in the year
2016 for both amount as well as number of deals.
Findings of the study

1. Totally there are 180 venture capital finance company are available as of now which is listed
by SEBI.
2. Kalaari Capital stands top one among all the venture capital finance company in our country.
3. The internet software and services stands number one in venture capital finance.
4. The venture capital finance increased tremendously from the year 2012 to 2015, i.e $ 1.0
billion to $ 2.0 billion.
135 | P a g e
Conclusion
From the study we can get a clear idea about the venture capital financing in India and also its
challenges and prospects. Entrepreneurs are unfamiliar with venture capital because they feel
that venture capital is seeking an extraordinary high return on the investment. However, it is
important to understand that, even under the best of circumstances, only a minority of the
companies in which the venture capitalists investments will be successful. Keeping this in the
eyes of investors must be cautious before investing in venture capital finance.
Future prospects of venture capital: venture capital can play a more innovative and
developmental role in a developing country like India. It could help the rehabilitation of sick
units through people with ideas and turnaround management skills. Yet another area where VCFs
can play a significant role in developing countries is the service sector including tourism,
publishing, and healthcare. The experiences of developed countries and the detailed case study of
venture capital in India, however, indicate that the following elements are needed for the success
of venture capital in any country. They are Entrepreneurial tradition, unregulated economic
environment, disinvestments avenues, fiscal incentives, broad based education, venture capital
managers, promotion efforts, institute industry linkage and research and development activities.
References
1. A Study on Determinants of Investment Decisions: A Venture Capitalist’s Perspective by

Prashant T. Patil , Dr. V. N. Sayankar, Dr. Madhulika A. Sonawane The International
Journal of Business & Management (ISSN 2321–8916).
2. Committee, K. B. (2013). Report on Venture capital. Mumbai: SEBI.
3. A Study on Pre-Investment Actions of Indian Venture Capitalists by Dr. Bindiya Soni,

Dr. P. K. Priyan Pacific Business Review International Volume 5 Issue 12 (June 2013).
4. Selvakumar. M., Ketharaj, M. (2009). Venture capital for startups. Facts for You.
February, 29(5), 29-32.
136 | P a g e
5. Venture Capital and Private Equity in India: Systems Analysis and Development
Framework By Shravan K. Surineni project report on Master of Science in Engineering
and Management at the Massachusetts Institute of Technology June 2012
6. Taneja, S. (2002). Venture capital in India, New Delhi: Galgotia Publishing Company.
7. Toward a Model of Venture Capital Investment Decision Making Vance H. Fried and
Robert D. Hisrich Financial Management Vol. 23, No. 3, Venture Capital Special Issue
(Autumn, 1994), pp. 28-37
8. Financial Management by I.M. Pandey tenth edition.
Websites:
http://www.sebi.gov.in
http://shodhganga.inflibnet.ac.in/bitstream
http://www.businessnewsdaily.com
137 | P a g e
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See discussions, stats, and author profiles for this publication at: https://www.researchgate.

THE GROWTH OF VENTURE CAPITAL IN INDIA

Article in International Journal of Commerce and Management · February 2017

Santhi Venkatakrishnan Nanda Gopal Loganathan

SEE PROFILE SEE PROFILE

venture capital finance View project

TWO WHEELER MARKET IN INDIA View project

The user has requested enhancement of the downloaded file.

THE GROWTH OF VENTURE CAPITAL IN INDIA

Dr. Nanda Gopal L2

A Study on Determinants of Investment Decisions: Venture Capitalist’s Perspective by Prashant

What is venture capital finance?

Need for the study

Objectives of the study:

1. To get a new insight and to be familiarize about venture capital funds.

2. To identify the top ten performing Venture Capital funds in India.

4. To analyze growth of venture capital investment in different sectors of our economy.

Scope of the study

Growth of venture capital in India

National financial institutions like

4. Industrial Reconstruction Bank of India (IRBI-1985) functions both as a lending and a

Specialized institutions like:

Venture capital promoted by

Central government State government Private sector companies

Private sector companies

The list of venture capital funds in India as on 2017 FEBRUARY

1. Aavishkaar India Micro Venture Capital Fund

156 Tamil Nadu Infotech Fund

Present scenario of venture capital in India

Top five VC funded industries from 2006-2016

Findings of the study

1. A Study on Determinants of Investment Decisions: A Venture Capitalist’s Perspective by

2. Committee, K. B. (2013). Report on Venture capital. Mumbai: SEBI.

3. A Study on Pre-Investment Actions of Indian Venture Capitalists by Dr. Bindiya Soni,

8. Financial Management by I.M. Pandey tenth edition.

View publication stats

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