A Study Of Venture Capital And Micro Venture Capital Finance

Prepared by: Chauhan Milan (12) Solanki Dipak (56)

Outline

Problem Statement Research Objectives Research Methodology Limitation Of The Study Entrepreneurship What is venture capital ? Venture capital in India and Gujarat Advantages and Disadvantages of Venture Capital Stages of Venture Capital Investing Social Entrepreneurship Grass root innovation and institution helping grassroots innovation Data Analysis & Data Interpretation Findings and conclusions

Problem Statement
A Study of Venture Capital and Micro Venture Capital Finance

Research Objectives
$To study the types and importance of entrepreneurship. $To make a detailed study of the functions and mode of finance adopted by venture capital firms.

$To study the scope and advantages accruing to venture capital firms by financing the micro ventures (grassroots innovator).

Research Methodology
$The research methodology used for this project is exploratory research $Qualitative study by the way of the interviews $Primary as well as Secondary Data is be used Data collection source: $Primary sources
Primary data shall be collected from venture Capital institution by interview

$Secondary sources
Secondary data shall be obtained from printing Sources websites of firm and magazine, journals as well as books

Limitation Of The Study

$ Unwillingness to share data was a root cause of limitation of the study $ Firms were only willing to talk qualitatively and were hesitate regard the data. $ Overall sample size is limited due to constraint of time and location. $ The study mostly covers venture companies in Gujarat $ Number they gave may be approximate numbers that came to their mind, and may differ from exact number

Entrepreneurship
"An entrepreneur is a person who is willing to take risks in
order to obtain positive results." (Cornell student, 2001)

Types of Entrepreneurs
$ Innovative Entrepreneurs $ Imitative Entrepreneurs $ Fabian Entrepreneurs $ Drone Entrepreneurs $ Solo operators $ Active Partners $ Simply partners $ Inventors $ Buyers $ Life timers

What is venture capital ?

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

Venture capitalists generally

$Finance new and rapidly growing companies $Purchase equity securities $Assist in the development of new products or services $Add value to the company through active participation $Take higher risks with the expectation of higher rewards $Have a long-term orientation

Venture capital in India

$ History of Venture Capital in India dates back to early 70s when Govt of India appointed a committee. $ In 1997, IT boom in India made VC industry more significant. Due to symbiotic relationship between VC and IT industry

Growth of V.C in India

Investment by Sector
Number of the deals

Investment by Industry (First Half 2007)

Venture capital in Gujarat

$ Started in 1990 at a World Bank initiative under the aegis of Gujarat Industrial and Investment Corporation (GIIC), GVFL Ltd. is a classical venture capital company focused on funding small and medium technology-based enterprises.

$ Over the past 17 years, GVFL Ltd. has raised five Venture Capital Funds with a cumulative corpus of Rs. 1362 million and is currently in the process of raising a SME Fund

Advantages and Disadvantages of Venture Capital Advantages

$Finance $Business Partner $Mentoring $Alliances $Facilitation of Exit

Disadvantages
$Pricing $Control $Intrusion

Stages of Venture Capital Investing

Seed Stage Early Stage
$ Start Up $ First Stage $ Formative Stage

Later Stage
$ Second Stage $ Third Stage $ Expansion Stage

Mezzanine (Bridge)
$ Balanced Stage

Social Entrepreneurship
$Social entrepreneurship may be defined as a professional, innovative, and sustainable approach to systemic change that resolves social market failures and grasps opportunities $Social entrepreneurs engage with a wide range of business and organizational models, both non- and forprofit, but the success of their activities is measured first and foremost by their social impact.

Contd
Importance of social entrepreneurship
$ Entrepreneurship promotes capital formation by mobilizing the idle saving of the public. $ It promotes balanced regional of economic power. $ It stimulates the equitable redistribution of wealth, income and even political power in the interest of the country. $ It also promotes countrys export trade so it is an important ingredient to economic development. $ It also induces backward and forward linkages which stimulated the process of economic development in the country.

$ It encourages effective resource mobilization of capital and skill which might otherwise remain unutilized and idle.

Grass root innovation

$ Innovative Pulley $ Cotton Stripper Machine $ Motorcycle Sprayer $ Kittanal $ Natural Water Cooler $ Foot Sprayer $ Kushal Sprayer $ Erisilk $ Solar Cooker $ Auto Air Kick Pump $ Oil Expeller $ 10 hp tractor

Institutions Helping Grass Root Innovation

$ Aavishkaar $ HONEY BEE $ GIAN (Grass root innovation augment network) $ Society for Research and Initiatives for Sustainable

$ Technologies and Institutions (SRISTI)

Aavishkaar
$ Aavishkaar seeks to invest early-stage capital in innovative small and micro-enterprises that are socially relevant, commercially viable and environmental friendly. $ Target 32% per investment return while furthering development $ Overall fund return should entice other private sources to enter rural and semi-urban India

$ Aavishkaar seeks to transform such nascent business ideas into sustainable enterprises that can create a positive impact in rural and semi-urban India.
$ Innovative agreements Responsible portfolio diversification Minimum 75% of investments made in equity

HONEY BEE
Honey Bee is a metaphor indicating ethical as well as professional values. A honey bee does two things: (i) it collects pollen from the flowers and flowers don't complain, and (ii) it connects flower to flower through pollination

GIAN
(Grass root innovation augment network)
$ GIAN recognized as an R&D institution by the Department of Scientific and Industrial Research , Government of India $ Facilitated filing of five trademarks protection applications $ Facilitated outside recognition and reward to grassroots innovators

$ Established the patent facilitation cell with the help of the Industries
GIAN recognized as an R&D institution by the Department of

Scientific and Industrial Research , Government of India

SRISTI
$ To expand space in society for building upon sustainable technological, institutional and educational initiatives and innovations at the grassroots with special focus on womens knowledge. $ To validate and add value to local innovations through experiments (on farm and on-station) and laboratory research for generating nature friendly sustainable technologies. $ To protect the intellectual property rights of grassroots innovators and to generate incentive models for recognizing, respecting and rewarding grassroots creativity and associated ethical values and norms. $ To provide venture support to grassroots innovators to scale up products and services based on grassroots innovations through commercial or non-commercial channels.

GOLDEN TRIANGLE

FOR REWARDING CREATIVITY AND INNOVATION

The real challenge we have realized is in linking Innovation, Investment and Enterprise. Innovation

knowledge network

Investment

Entrepreneurship

Data Analysis & Data Interpretation

Analysis of survey
2. Which kind of project do you prefer to invest?

Imitation 20% Invention 0% innovation invention imitation Innovation 80%

INTERPRETATION: This survey show that venture capitalist prefer the project which innovative in nature

Contd
3. If Innovation then what attributes does you look in a deal?

Degree of acceptability 17%

degree of innovation 33%

degree of innovation Scalability/commercializ ation Degree of acceptability

Scalability/com mercialization 50%

INTERPRETATION: Venture capitalist invest in innovation project which has High possibility of commercialization

Contd
4. Which innovation do you prefer to invest?

10% 10% 25%

Product Innovation Process Innovation Market/marketing innovation

18%

R&D management innovation Supply/ Supply source innovation 25% 12% Personnel innovation

INTERPRETATION: venture capitalist prefers to invest in product or process innovation, here the product and process innovation overlaps.

Contd
5. At which stage do you prefer to invest?

seeds capital start up second round later stage

GVFL

SBI

SIDBI

ICICI

CAN BANK

INTERPRETATION: this survey show venture capital firm to invest start up, second round and seeds capital

Contd
6. How do you support the new ventures?
technical patent registration support 0% Through investment professional management professional management 0% expert advice technical support Through investment 71% patent registration

expert advice 29%

INTERPRETATION: venture capitalist prefer to support project through investment and expert advice

Contd
7. How many years your firm stays in at different stages of investment?
7 6 5 4 3 2 1 0 SEED CAPITAL START UP SECOND ROUND LATER STAGE

IC IC I

FL

BI

BI

G V

ID

INTERPRETATION: Survey shows that venture capital firms prefer to invest in start up for 3 to 5 year while in second round more than 5 year but later stage is least preferred.

C A

N B

N K

Contd
8. What is the expected rate of return when a new venture is financed?
EXPECTED RATE OF RETURN
0% 20% 0%

0-10 11-20 21-30 ABOVE 30 80%

INTERPRETATION: venture capitalist prefer expected rate 21% to 30%

Contd
9. Does your firm finance to micro-venture? (If no, what are the main reasons?)

Rank No.
1 2 3 4 5

Rank Analysis Average

Higher level of risk Acceptability product Scale of commercialization Expectancy of low return New grass root idea

Weighted Avg.
Higher level of risk Scale of commercialization Acceptability product Expectancy of low return New grass root idea

INTERPRETATION: Venture capitalists are hesitant to finance the grass root project because the main reason behind it is higher level of risk and scale of commercialization

Contd
10. If some incubator is associated with the innovator then would you finance?

20%

YES NO

80%

INTERPRETATION: if incubator is associated with the entrepreneur then 80% ready to invest

Findings
$ Start up, second stage and later stage have been the most popular stage to invest, seeds capital still lack behind $ Most of the firms are not willing to invest in micro-venture because of the high level of risk, Scale of commercialization and acceptability of product. $ Most of the firms prefer to invest in innovation rather than invention and imitation. $ Venture capitalist support through investment and expert advices and expect 20 to 30 % rate of return on investment. $ If incubator associates then venture capital firms showed willingness to invest.

Conclusions
$ Innovation can be a key driver of success for India. The initial emphasis of the venture capital firm has been on new technology and new entrepreneurs, but there are already signs that the quest for a balanced portfolio is leading the new industries to explore new pastures. $ The venture capital financing companies have very narrow geographical spread. Most of this has one of two offices all over the country and the concentration is in metros and few state capitals. $ Role of institutions like SRISTI, GIAN and NIF should increase because they are the ones who support the grass root innovators, through incubation. Financial institutions can take the incubated projects and then finance them. Government should give special tax incentives to the venture capitalist firms so that they are motivated to finance such grassroots innovations.

Bibliography
$ http://www.innovic.com.au/home/resources/venture_capital_information.html $ http://answers.yahoo.com/question/index?qid=20061122071750AAxogUM $ http://www.tritonfoundation.org.au/index.php?option=com_content&task=view&id=43 3&Itemid=150 $ http://www.scottish-enterprise.com/sedotcom_home/services-tobusiness/businessfinance/equity/venture-capital.htm?siblingtoggle=1 $ http://www.indiavca.org/ven_about.aspx $ http://www.vcindia.com $ http://www.answers.com/topic/venture-capital?cat=biz-fin $ http://blog.yeabiz.com/2007/05/23/importance-of-entrepreneurship/ $ http://europa.eu/scadplus/leg/en/lvb/n26023.htm $ http://www.unctad.org/Templates/Page.asp?intItemID=4320&lang=1 $ http://www.gvfl.com/home.htm $ http://en.wikipedia.org/wiki/Entrepreneurship $ http://www.addto.com/article/startup/start1.htm $ http://www.mvp.cfee.org/en/glossary.html

Contd
$ $ http://www.altassets.net/hm_glossary.php#venture_capital http://www.nvca.org/def.html

$
$ $ $ $ $ $ $ $

http://www.indecommglobal.com/downloads/red%20herring.pdf
http://www.scribd.com/doc/190890/10-Pragmatic-Steps-To-Raising-Venture-Capital http://www.slideshare.net/search/slideshow?q=venture+capital+in+india&submit=post&commit=Search http://www.gvfl.com/home.htm http://www.themanagementor.com/EnlightenmentorAreas/sm/Entre/ WWW.GIAN.ORG WWW.SRISTI.ORG www.aavishkaar.org http://au.answers.yahoo.com/search/search_result;_ylt=AgzKgKn.yYP7v2d3y7SGtogJ5wt.;_ylv=3?p=definition+of +venture+capital+by+famous+authors&t=n-79598235_qLyVnP2rg2%2FezWJID.JYnQwAAAA%40%40&scope=&mc=&asktime=&sc

BOOK REFERRED

Handbook on venture capital --DAVID GLADSTONE, LAURAGLADSTONE Management of financial services --- M.Y. KHAN Entreprenuership and globalisation --D.D. SHARMA, S.K. DHAMECHA, B.R. GURJAR

Entreprenuership and small business management--B.S.BHATIA, G.S. BATRA

Entreprenuership theory at cross roads -MATHEW J. MANIMALA

Source of innovative entreprenuership ---

D. SELVANAYAKAM

Micro finance emerging challenges ---KISHANJIT BASU, KRISHNA JINDAL

Thank You