PRESENTATION ON VENTURE CAPITAL IN INDIA

BY

VENTURE CAPITAL MBA

IN (IB)-4 SEM
INDIA
Venture Capital Problem and Scenario !!
PRESENTATION OUTLINE
Need of Venture Capital
Potential of the Indian Venture Capital
Industry.
Growth of Indian Venture Capital
Industry.
Features of the SEBI (Venture Capital
Fund) Regulations, Act 1996.
Problems faced by Indian Venture
Capital Industry.
K. B. Chandrasekhar Committee.
Amendment to the SEBI on the basis of
Chandrasekhar committee (Venture
Capital Fund) Regulations, 1996.
 WHY VENTURE CAPITAL IN INDIA?

Venture capital plays most important

role in the emerging economies to:
Commercialize research and
scientific knowledge in the fastest
mode
Provide Risk Finance
Management Expertise to first
generation entrepreneurs
Tap potential intellectual properties
Promotion of Innovation and
Entrepreneurship
Quality IPOs
THE POTENTIAL OF INDIAN
VENTURE CAPITAL INDUSTRY !!

Second Largest English speaking

scientific and technical Manpower in
the World
India graduates 200,000 engineers and
over 40,000 managers every year as
quality human capital
GROWTH OF VENTURE
CAPITAL FUNDS IN INDIA
Inspite of large potential, size of VC
Industry in India is still very small
A growth of over 300% in number of the
Venture Capital Fund registered with
SEBI - from 8 in December 1998 to 26 in
Sept. 2000. Lot of inquiries and interest.
Total funds committed by SEBI
registered Venture Capital Funds have
grown from Rs. 207 crores (US $ 45
million approx.) in 1998 to Rs. 1,665
crores (US $ 362 million approx.), an
increase of nearly 600%
 SEBI (VENTURE CAPITAL
FUND) REGULATIONS, 1996
Investment Routes for Venture Capital:
VCFs could invest in Indian companies
Foreign and offshore investors could
invest in domestic VCFs
Foreign and offshore investors could
also make direct investments into
Indian companies through the FDI
route. However, such investments would
be subject to specific case by case
approval of the Government of India.
 SEBI (VENTURE CAPITAL FUND)
REGULATIONS, 1996 (CONTD)
Form of Organization for VCFs Only Trusts
and Companies could be registered as
VCFs.
Minimum Contribution by each investor
has to be Rs. 5 lacs. (US $ 10,500 approx..)
Filing of Placement Memorandum -
Placement Memorandum to be filed with
SEBI prior to funds raised by Venture
Capital Fund.
Investment Criteria VCF had to invest at
least 80% of corpus in the equity shares of
unlisted companies or listed undertakings
which were financially sick.
PROBLEMS FACED BY VENTURE
CAPITAL FUNDS
Entry Barriers
Restrictive Definitions of Venture Capital
Fund, Venture Capital Undertakings
resulting in limited scope of venture capital
activity
Multiplicity of regulations - Govt Guidelines,
Income Tax Rules and SEBI Regulations.
Offshore investors to seek Government
approval for each investment
No Registration provisions for Foreign
Venture Capital Investors (FVCIs)
Mutual Funds not allowed to participate in
VCFs.
PROBLEMS FACED BY VENTURE
CAPITAL FUNDS
Investment Barriers
Investment in unlisted securities and
securities of listed sick companies only -
investment not permitted in structured
instruments, debt instruments
VCFs not allowed to participate in book-
building for Initial Public Offerings
Taxation Issues

Investors as well as the venture capital fund

taxed for the income generated by the VCFs
 PROBLEMS FACED BY
VENTURE CAPITAL FUNDS
Exit Barriers
Limited exit options for investor as
well as for VCF
Lack of facilities for trading in unlisted
securities
Offshore investors to seek Government

(FIPB/RBI) approvals for each disinvestment

Approval for pricing required from RBI before

disinvestment by Foreign investors

maximum permissible investment limits to be
enhanced
Exit from Investments by VCF to
promoter could attract Takeover Code
K. B CHANDRASEKHAR COMMITTEE
Major Recommendations
Single window clearance and minimum
regulation for domestic Venture Capital
Fund and Foreign Venture Capital Investors
- SEBI to be the nodal regulator
Granting of QIB Status to VCFs and FVCIs
Tax pass through status to SEBI registered
Venture Capital Funds.
Free entry and exit for overseas investment /
disinvestment with minimum regulation
Flexible Investment Criteria
More disclosures to investors and no filing of
Placement Memorandum with SEBI.
BENEFITS TO THE FVCIS
Hassle Free Entry and Exit :
SEBI registered FVCIs permitted to make
investment on an automatic route within
the overall sectoral ceiling of foreign
investment as specified by the
Government of India.
SEBI registered FVCIs shall be granted a

general permission from the exchange

control angle for inflow and outflow of
funds
no prior approval of RBI would be
required for pricing for investment /
disinvestment. There would be only ex-
post reporting requirement for the
amount transacted.
TRADING IN UNLISTED
EQUITY
SEBI has approved the proposal to
permit OTCEI to develop a trading
window for unlisted securities where
Qualified Institutional Buyers (QIB)
would be permitted to participate.
Venture Capital Funds and Foreign
Venture Capital Investors are amongst
the QIBs.
A Happy and Prosperous day to all
friends.