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					VENTURE CAPITAL
         &
 PRIVATE EQUITY
INDIAN EXPERIENCE

         BY
    G. N. BAJPAI
IMPERATIVES OF VENTURE CAPITAL
(VC)
 Technological progress is the key driver of economic growth
 Technological progress involves:
     Improvement in skills
     Better capital equipment
     New products, processes & business methods
 Technological progress in emerging economies will emerge
  from enterprises catch-up
 Technology capacity is necessary to adopt technologies to
  local conditions
 VC encourages technological progress via research &
  development
 VC converts research & development into new ventures
FINANCING STAGES DURING LIFE-
CYCLE OF INITIATIVE
 VC funding is special which enterprises tap at different
  stages of life cycle of initiative
 Seed - to prove concept

 Start-up - product development & market testing

 First stage - commercial production

 Second stage - expansion to scale

 Later stage - expansion of profitable enterprise

 Bridge/ Mezzanine - preparation for going public
SNAPSHOT OF INDIAN VENTURE
CAPITAL SCENARIO

                                        Snapshot of Indian Venture Capital Scenario
                    12000                                                                                                                                      10000
Total Invested ($

                    10000
                     8000
    millions)



                     6000
                     4000
                                                                                                      1200             1100                  1050
                     2000           20               80               250                500
                        0

                                9   7            9   8            9   9                  0            0   1            0   2            0    3                 t   )
                             6-               7-               8-                  2   00          0-               1-               2-                    cas
                       1   99           1   99           1   99             99
                                                                               -
                                                                                             2   00           2   00           2   00                 o re
                                                                      1   9                                                                      (F
                                                                                                                                        -   08
                                                                                                                                   0 07
                                                                                             Year                              2
SOURCE: www.nishithdesai.com/Research-Papers/VCF-Xroads.pdf
EVOLUTION OF PRIVATE EQUITY
FINANCE
TOTAL FUNDS: ($M)
                                     30                         125
                                                                                    2847




    5239

               PHASE I PRE-1995                                 PHASE II 1995-97

               PHASE III 1998-2001                              PHASE IV 2002-2005


                         PHASE I              PHASE II           PHASE III       PHASE IV
                         PRE-1995             1995-97            1998-2001         2002-2005
NUMBER OF                      8                        20            50             75
   FUNDS
   PRIMARY                Seed, Early         Development         Seed, Early      Growth/
   STAGES                 stage &                 Diversified     stage &          Maturity-
  &                       Development                             Development      Diversified
  SECTORS
                          Diversified                             Telecom & IT

Sources: TSJ Media, ICVA publications (various Years)
EVOLUTION OF PRIVATE EQUITY
FINANCE (cont.)
           3500
           3000
           2500
           2000
           1500
($m)




           1000
             500
                  0
                         Phase I                Phase III        Phase IV
                                    Phase II
                       World Bank,             Overseas          Overseas
                                   Government
                       Government             Institutional     Institutional   Primary Sources of
   Development              25          110         2168.1         3107         Funds

   Growth / Maturity                                  21.9         1882
   Seed/ Early stage        5            15           657           250

                       Phase I      Phase II        Phase III      Phase IV
                       Pre- 1995    1995-97         1998-2001       2002-05


Data Sources: TSJ Media, ICVA publications (various Years)
EVOLUTION OF PRIVATE EQUITY
FINANCE (cont.)
                                                           Evolution of Private Equity Finance
                                             600
Number of Transactions
                                             500
                                             400
                                             300
                                             200
                                             100
                                                  0     Phase I World                 Phase III       Phase IV
                                                                         Phase II
                                                           Bank,                      Overseas        Overseas
                                                                        Government
                                                         Government                  Institutional   Institutional
                                                                                                                     Primary Sources of
                         Seed Stage                          10             20           273              58
                                                                                                                     Funds
                         Development stage                   20             45           273             288
                         Growth/ Maturity Stage               0             0             2              100
                         Total Number of Transactions        30             65           548             446

                                                        Phase I         Phase II       Phase III        Phase IV
                                                        Pre- 1995       1995-97        1998-2001         2002-05

  Data Sources: TSJ Media, ICVA publications (various Years)
EVOLUTION OF PRIVATE EQUITY
FINANCE (cont.)
                             Evolution of Private Equity Finance (cont.)
                                         PhaseI             Phase II       Phase III        Phase IV
                                                                                           Overseas
                                   World Bank,                         Overseas
Primary sources of Funds                                Government                             Institut
                                        Government                         Institutional
                                                                                               ional
Seed/ Early stage ($m)             5                    15             657                 250
Number of transactions             10                   20             273                 58
Development ($m)                   25                   110            2168.1              3107
Number of transactions             20                   45             273                 288
Growth / Maturity ($m)                                                 21.9                1882
Number of transactions                                                 2                   100
  Total Number of
    transactions
                                   30                   65             548                 446

Average Investments
    ($m)
                                   1                    2              5.2                 11.75

Sources: TSJ Media, ICVA publications (various Years)
                         INDIA RISK CAPITAL INVESTMENTS BY
                         STAGE 2003-05
                                    2005                                             2004                                              2003
Stage of            Volume              Value        Averag           Volume             Value          Averag         Volume                 Value         Averag
Company                                              e Deal                                             e Deal                                              e Deal
Development                                          Size                                               Size                                                Size
                  Deal   %        Amt      %          $M        Deal      %         Amt $     %           $M        Deals     %         Amt       %          $M
                  s      Shar     $M       Share                s         Share     M         Share                 No.       Shar      $M        Sha
                  No.    e                                      No.                                                           e                   re
 Early Stage

( India Based)    22     15.1      79       3.6        3.6       19       28.4      125.9        11.6     6.6         18      47.4     134.7          27     7.5
 Early Stage
(Cross-Border)     6      4.1      71       3.2       11.8
Sub-Total Early   28     19.2     150       6.9       5.36
Stage
Growth Stage      24     16.4     332       15.2      13.8       13       19.4      244.9        22.5     18.8        10      26.3      55.8      11.2       5.6

  Late Stage      40     27.4     638       29.1       16        15       22.4      238.4        21.9     15.9        4       10.5      41.9          8.4    10.5
     PIPE         49     33.6     763       34.9      15.6       20       29.9      477.3        43.9     23.9        4       10.5     184.5          37     46.1
    Buyout         5      3.4     306           14    61.2                                                            2        5.3      82.2      16.5       41.1
     Total        146            2189                  15        67                 1087                  16.2        38               499.1                 13.1

                   Report of the committee on Technology Innovation & Venture capital Govt of India Planning Commission New Delhi July 2006
VC IN INDIA
 Securities & Exchange Board of India (SEBI) regulates both Domestic
  Venture Capital Funds & Foreign Venture Capital Investors & Registration
  benefits
 Income passes through to investors without tax when Trusts are
  registered under the Indian Trust Act & Venture Capital Companies
 FVCIs freely remit funds to India for investments in Indian venture capital
  undertakings (VCUs) & SEBI registered DVCFs
 FVCIs are exempt from both the entry & exit pricing regulations that
  otherwise apply to foreign investors, such as market-related pricing on
  disinvestment
 Sale of shares by VCFs to company insiders post- listing is exempt from
  SEBI takeover code
 VCFs automatically obtain (“QIB”) Qualified Institutional Buyer status,
  which is useful in participating in new security placements
 Exemption from one year lock-in for disinvestment post-IPO for shares
  purchased prior to the IPO
 VCFs do not get treated as promoters for purposes of IPO
WHAT IS INDIA WORKING ON?
 Securities & Exchange Board of India (SEBI) to:
    Obviate restriction on preferential offering
    Permit investment in projects/SPVs& surplus funds in
     bank deposits etc.
    Mitigate restrictions of Substantial Acquisition &
     Takeover Regulations
 Reserve Bank of India (RBI) to:
    Grant general permission under FEMA and clear
     inconsistencies
    Allow banks to value VCF investments on cost basis
    Allow investment in real estate
 Government of India:
    Revisit tax issues for greater participation
    Allow investments in VCF by pension funds
    Streamline regulations under companies act including
     winding up & valuation guidelines
CONTACT DETAILS

  Mr. G. N. Bajpai
  Chairman
  Mob : 98335 64458
  Email : gnbajpai@intuit-consulting.com
  Add :    Intuit Consulting Pvt. Ltd.
           Trade World, ‘B’ Wing, 7th Floor,
           Kamala Mills Compound,
           Senapati Bapat Marg, Lower Parel,
           Mumbai – 400 013. India.
  Tel :    +91-22-40043041-44
  Fax :    +91-22-40043045

				
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