Venture Capital Organization

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Venture Capital (VC) financing started in India in 1988 with the formation of Technology Development and Information Company of India Ltd. (TDICI) - promoted by ICICI and UTI. The first private VC fund was sponsored by Credit Capital Finance Corporation (CFC) and promoted by Bank of India, Asian Development Bank and the Commonwealth Development Corporation viz. Credit Capital Venture Fund. At the same time Gujarat Venture Finance Ltd. and APIDC Venture Capital Ltd. were started by state level financial institutions.

Venture capitalists take higher risks by investing in an early-stage company with little or no history, and they expect a higher return for their high-risk equity investment. Internationally, VCs look at an Internal Rate of Return (IRR) of 40% plus . However, in India the ideal benchmark is in the region of an Internal Rate of Return (IRR) of 25% for general funds and more than 30% for IT-specific funds. Most firms require large portions of equity in exchange for start-up financing.

VC financing differs from the conventional bank financing in the following ways:

  • VC financing invests in equity of the company while conventional financing generally extends term loans
  • Conventional financing looks to current income i.e. dividend and interest, while in VC financing returns are by way of capital appreciation
  • Assessment in conventional financing is conservative i.e. lower the risk, higher the chances of getting loan. But, VC financing is a risk taking finance where potential returns outweigh risk factors.
  • VCs are in for long run and rarely exit before 3 years while a bank will fund a project as long as it is sure that enough cash flow will be generated to repay the loans.

In addition, Venture Capitalists lend management support and provide entrepreneurs with many other facilities. They even participate in the management process. VC generally invests in unlisted companies and make profit only after the company obtains listing. VC extends need based support in a number of stages of investments unlike single round financing by conventional financiers.

VCs carry out very detailed due diligence and make 2-7 year investments. The VCs also hand-hold and nurture the companies they invest in besides helping them reach IPO stage when valuations are favourable. VCFs help entrepreneurs at four stages viz., idea generation, start-up, ramp-up and finally in the exit.

Generally a Venture Capitalist looks at the following aspects before investing in any venture.

  • A strong management team - each member of the team must have adequate level of skills, commitment and motivation that creates a balance between members in areas such as marketing, finance, and operations, research & development, general management, personnel management, and legal and tax issues.
  • A viable idea - establish the market for the product or service, why customers will purchase the product, who the ultimate users are , who the competition is, and the projected growth of the industry.
  • Business plan: the plan should concisely describe the nature of the business, the qualifications of the members of the management team, how well the business has performed, and business projections and forecasts.

So while approaching a venture fund one needs to be fully prepared and keep the above requirements in mind while submitting the business plan.


Kotak Private Equity Group (KPEG)

Kotak Private Equity Group (KPEG) is a specialist India Private Equity firm of Kotak Mahindra Group. We are leading managers of Private Equity Funds in India, focused on helping emerging corporates and mid-size enterprises evolve into tomorrow's industry leaders. KPEG provides these companies a combination of equity capital, strategic support and other value added services, playing a pro-active role with the entrepreneur in building the business.

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ICICI Venture Funds Management Company Limited

ICICI Venture (formerly TDICI Limited) was founded in 1988 as a joint venture with the Unit Trust of India. Subsequently, ICICI bought out UTI's stake in 1998 and ICICI Venture became a fully owned subsidiary of ICICI. ICICI Venture also has an affiliation with the Trust Company of the West (TCW), which provides it a platform for networking Indian companies with global markets and technology. Strong parentage and affiliates for ICICI Venture also translates into access to a broad spectrum of financial and analytical resources thus enabling a keen understanding of the Indian financial markets and entrepreneurial ethos.

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IFCI Venture Capital Funds Ltd. (IVCF) was originally set up by IFCI as a Society by the name of Risk Capital Foundation (RCF) in 1975 to provide institutional support to first generation professionals and technocrats setting up their own ventures in the medium scale sector, under the Risk Capital Scheme. In 1988, RCF was converted into a company, Risk Capital and Technology Finance Corporation Ltd. (RCTC), when it also introduced the Technology Finance and Development Scheme for financing development and commercialisation of indigenous technology. To reflect the shift in the company's activities, the name of RCTC was changed to IFCI Venture Capital Funds Ltd (IVCF) in February 2000.

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SIDBI Venture Capital Limited (SVCL)

SIDBI Venture Capital Limited (SVCL) is a wholly owned subsidiary of SIDBI, incorporated in July 1999 to act as an umbrella organisation to oversee the Venture Capital operation of SIDBI. SVCL mission is to catalyse entrepreneurship by providing capital and other strategic inputs for building businesses around growth opportunities and maximize returns on investment. SVCL will manage the various Venture Capital Funds launched/ being launched by SIDBI.

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IL & FS Group Businesses

IL&FS Investment Managers Limited (IIML), a subsidiary of Infrastructure Leasing & Financial Services Limited (IL&FS), is one of the oldest and largest private equity fund managers in India, with over $ 1.7 bn under management.

Established in 1989, IIML has been an early and in many instances, the first investor across various sectors such as Telecom, City Gas Distribution, Shipyards, Retail, and Media. Funds managed by IIML now span General Purpose Private Equity, Real Estate and Infrastructure.

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Gujraj Venture Finance Limited (GVFL)

Started in July 1990, at the initiative of the World Bank, GVFL Ltd. is regarded as a pioneer of Venture Capital in India. Over the past ten years, GVFL Ltd. has provided financial and managerial support to over 57 companies with a high growth potential.

GVFL Ltd invests all over India and across industries. It has created a niche for itself in small and medium scale companies. Investment and monitoring such companies require considerable effort and involvement as compared to large projects. Over the last ten years GVFL Ltd. has been developing an edge, dealing in such investments.

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