WORKING AND

[BANKING AND INSURANCE]

FUNDING OF
VENTURE
CAPITAL IN INDIA

PRASHANT TYAGI
RT1809A10
10807688

Submitted To: Mr. SACHIN KASHYAP

“I never invest in someone who says they’re

going to do something; I invest in people who say
they’re already doing something and just want
funding.” John Doerr, Venture Capitalist
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CONTENTS:
1. Acknowledgement
2. Literature review
3. Introduction:
 What is venture capital?
 Meaning of venture capital.
 What is venture capitalist?
 Factor to be considered by venture capital in selection of investment proposal.
4. Venture capital in India
5. Stages of venture capital funding
6. Method of venture financing
7. The Venture capital process
8. Player in venture capital industry
9. Venture capital industry life cycle in India
10. Growth of venture capital in India
11. Problem of venture capital in India
12. Venture capital in India
13. Regulatory issues
14. SEBI guidelines for venture capital
15. Findings
16. Suggestions
17. Conclusion
18. Bibliography

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ACKNOWLEDGEMENT
I would like to confer my heartiest thanks to my coordinator of Banking and
Insurance, Mr. SACHIN KASHYAP for giving me the opportunity to excel and
work in the field of Venture capital, and especially its practical applications.
While preparing my term paper I got to have an in depth knowledge of
practical applications of the theoretical concepts and definitely the things
which I have learned will undoubtedly help me in future, to analyze many
processes going on in our economy.

PRASHANT TYAGI

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LITERATURE REVIEW

In the last decade, one of the most admired institutions among industrialists
and economic policy makers around the world has been the US venture capital
industry [Dossani and Kenney 2002]. The sensitivity of venture capital process
to government policies and other factors that influence entrepreneurship and
innovation was highlighted in a study by the US General Accounting office on
behalf of the Joint Economic Committee [Premus 1985]. Venture capital
entrepreneurship and innovation have been closely connected. Entrepreneurs
have long had ideas that require substantial capital to implement but lacked
the funds to finance these projects themselves [Gompers and Lerner 2002].
Venture capital evolved as a response to this felt need. Venture capital
represents one solution to financing the high risk, potentially high-reward
projects [Gompers and Lerner 2002]. The experience of US, Taiwan and Israel
show that technological innovation and the growth of venture capital markets
are closely interrelated [Premus 1985]. It has been reported that capital
markets overlook small business opportunities because of high information
and transaction costs, generally known as capital gap problem [Premus 1985,
Smith and Smith 2002]. Though venture capital can meet this gap to some
extent, venture capital is a special form of venture financing. In the case of
venture capital, the capital market has to be conducive for supporting venture
funding. At some level, entrepreneurship occurs in nearby every society, but
venture capital can only exist when there is a constant flow of opportunities
that have great upside potential [Dossani and Kenney 2002]. This study is a
country overview of the venture capital industry supported by a set of case
studies.

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INTRODUCTION
A number of technocrats are seeking to set up shop on their own and capitalize
on opportunities. In the highly dynamic economic climate that surrounds us
today, few ‘traditional’ business models may survive. Countries across the
globe are realizing that it is not the conglomerates and the gigantic
corporations that fuel economic growth any more. The essence of any
economy today is the small and medium enterprises. For example, in the US,
50% of the exports are created by companies with less than 20 employees and
only 7% are created by companies with 500 or more employees. This growing
trend can be attributed to rapid advances in technology in the last decade.
Knowledge driven industries like InfoTech, health-care, entertainment and
services have become the cynosure of bourses worldwide. In these sectors, it is
innovation and technical capability that are big business-drivers. This is a
paradigm shift from the earlier physical production and ‘economies of scale’
model. However, starting an enterprise is never easy. There are a number of
parameters that contribute to its success or downfall. Experience, integrity,
prudence and a clear understanding of the market are among the sought after
qualities of a promoter. However, there are other factors, which lie beyond the
control of the entrepreneur. Prominent among these is the timely infusion of
funds. This is where the venture capitalist comes in, with money, business
sense and a lot more.

WHAT IS VENTURE CAPITAL?

The venture capital investment helps for the growth of innovative
entrepreneurships in India. Venture capital has developed as a result of the
need to provide non-conventional, risky finance to new ventures based on
innovative entrepreneurship. Venture capital is an investment in the form of
equity, quasi-equity and sometimes debt - straight or conditional, made in new
or untried concepts, promoted by a technically or professionally qualified
entrepreneur. Venture capital means risk capital. It refers to capital
investment, both equity and debt, which carries substantial risk and
uncertainties. The risk envisaged may be very high may be so high as to result
in total loss or very less so as to result in high gains.

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MEANING OF 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 capital is an important
source of equity for start-up companies.

Professionally managed venture capital firms generally are private partnerships

or closely-held corporations funded by private and public pension funds,
endowment funds, foundations, corporations, wealthy individuals, foreign
investors, and the venture capitalists themselves.

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

When considering an investment, venture capitalists carefully screen the

technical and business merits of the proposed company. Venture capitalists
only invest in a small percentage of the businesses they review and have a
long-term perspective. They also actively work with the company's
management, especially with contacts and strategy formulation.

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FACTOR TO BE CONSIDERED BY VENTURE CAPITALIST IN SELECTION

OF INVESTMENT PROPOSAL

There are basically four key elements in financing of ventures which are studied in depth by
the venture capitalists. These are:

1. Management: The strength, expertise & unity of the key people on the
board bring significant credibility to the company. The members are to be
mature, experienced possessing working knowledge of business and capable of
taking potentially high risks.

2. Potential for Capital Gain:: An above average rate of return of about 30 -

40% is required by venture capitalists. The rate of return also depends upon
the stage of the business cycle where funds are being deployed. Earlier the
stage, higher is the risk and hence the return.

3. Realistic Financial Requirement and Projections:: The venture capitalist

requires a realistic view about the present health of the organization as well as
future projections regarding scope, nature and performance of the company in
terms of scale of operations, operating profit and further costs related to
product development through Research & Development.

4. Owner's Financial Stake:: The financial resources owned & committed by

the entrepreneur/ owner in the business including the funds invested by
family, friends and relatives play a very important role in increasing the
viability of the business. It is an important avenue where the venture capitalist
keeps an open eye.

VENTURE CAPITAL IN INDIA

Venture capital was introduced in India in mid eighties by All India Financial
Institutions with the inauguration of Risk Capital Foundation (RCF) sponsored
by IFCI with a view to encourage the technologists and the professional to
promote new industries. Consequently the government of India promoted the
venture capital during 1986-87 by creating a venture capital fund in the
context of structural development and growth of small-scale business

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enterprises. Since then several venture capital firms/funds (VCFs) are

incorporated by Financial Institutions (FIs), Public Sector Banks (PSBs), and
Private Banks and Private Financial companies.
The Indian Venture Capital Industry (IVCI) is just about a decade old
industry as compared to that in Europe and US. In this short span it has
nurtured close to one thousand ventures, mostly in SME segment and has
supported building technocrat/professionals all through. The VC industry,
through its investment in high growth companies as well as companies
adopting newer technologies backed by first generation entrepreneurs, has
made a substantial contribution to economy. In India, however, the potential
of venture capital investments is yet to be fully realized. There are around
thirty venture capital funds, which have garnered over Rs. 5000 Crores. The
venture capital investments in India at Rs. 1000.05 crore as in 1997,
representing 0.1 percent of GDP, as compared to 5.5 per cent in countries such
as Hong Kong.

STAGES OF VENTURE CAPITAL FUNDING

The Venture Capital funding varies across the different stages of growth of a
firm.
1. Pre seed Stage:: Here, a relatively small amount of capital is provided to an
entrepreneur to conceive and market a potential idea having good future
prospects. The funded work also involves product development to some
extent.

2. Seed Stage:: Financing is provided to complete product development and

commence initial marketing formalities.

3. Early Stage / First Stage:: Finance is provided to companies to initiate

commercial manufacturing and sales.

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4. Second Stage:: In the Second Stage of Financing working capital is provided

for the expansion of the company in terms of growing accounts receivable and
inventory.

5. Third Stage: Funds provided for major expansion of a company having

increasing sales volume. This stage is met when the firm crosses the break-
even point.

6. Bridge / Mezzanine Financing or Later Stage Financing:: Bridge / Mezzanine

Financing or Later Stage Financing is financing a company just before its IPO
(Initial Public Offer). Often, bridge finance is structured so that it can be repaid,
from the proceeds of a public offering.

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METHODS OF VENTURE FINANCING

Venture capital is typically available in three forms in India, they are:

 Equity: All VCFs in India provide equity but generally their contribution
does not exceed 49 percent of the total equity capital. Thus, the
effective control and majority ownership of the firm remains with the
entrepreneur. They buy shares of an enterprise with an intention to
ultimately sell them off to make capital gains.

 Conditional Loan: It is repayable in the form of a royalty after the

venture is able to generate sales. No interest is paid on such loans. In
India, VCFs charge royalty ranging between 2 to 15 percent; actual rate
depends on other factors of the venture such as gestation period, cost-
flow patterns, riskiness and other factors of the enterprise.

 Income Note: It is a hybrid security which combines the features of both

conventional loan and conditional loan. The entrepreneur has to pay
both interest and royalty on sales, but at substantially low rates.

Other Financing Methods: A few venture capitalists, particularly in the

private sector, have started introducing innovative financial
securities like participating debentures, introduced b ASSESSING
VENTURE CAPITAL

Venture funds, both domestic and offshore, have been around in India for
some years now. However it is only in the past 12 to 18 months, they have
come into the limelight. The rejection ratio is very high, about 10 in 100 get
beyond pre evaluation stage, and 1 gets funded.

Venture capital funds are broadly of two kinds - generalists or specialists. It is

critical for the company to access the right type of fund, ie who can add value.
This backing is invaluable as focused/specialized funds open doors, assist in

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future rounds and help in strategy. Hence, it is important to choose the right
venture capitalist.

THE MANAGEMENT

Most businesses are people driven, with success or failure depending on the
performance of the team. It is important to distinguish the entrepreneur from
the professional management team. The value of the idea, the vision, putting
the team together, getting the funding in place is amongst others, some key
aspects of the role of the entrepreneur. Venture capitalists will insist on a
professional team coming in, including a CEO to execute the idea. One-man
armies are passe. Integrity and commitment are attributes sought for. The
venture capitalist can provide the strategic vision, but the team executes it. As
a famous Silicon Valley saying goes "Success is execution, strategy is a dream".

THE IDEA

The idea and its potential for commercialization are critical. Venture funds look
for a scalable model, at a country or a regional level. Otherwise the entire
game would be reduced to a manpower or machine multiplication exercise.
For example, it is very easy for Hindustan Lever to double sales of Liril - a soap
without incremental capex, while Gujarat Ambuja needs to spend at least
Rs4bn before it can increase sales by 1mn ton. Distinctive competitive
advantages must exist in the form of scale, technology, brands, distribution,
etc which will make it difficult for competition to enter.

VALUATION

All investment decisions are sensitive to this. An old stock market saying
"Every stock is a buy at a price and vice versa". Most deals fail because of
valuation expectation mismatch. In India, while calculating returns, venture
capital funds will take into account issues like rupee depreciation, political
instability, which adds to the risk premia, thus suppressing valuations. Linked
to valuation is the stake, which the fund takes. In India, entrepreneurs are still
uncomfortable with the venture capital "taking control" in a seed stage
project.

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EXIT

Without exit, gains cannot be booked. Exit may be in the form of a strategic
sale or/and IPO. Taxation issues come up at the time. Any fund would discuss
all exit options before closing a deal. Sometimes, the fund insists on a buy back
clause to ensure an exit.

PORTFOLIO BALANCING

Most venture funds try and achieve portfolio balancing as they invest in
different stages of the company life cycle. For example, a venture capital has
invested in a portfolio of companies predominantly at seed stage; they will
focus on expansion stage projects for future investments to balance the
investment portfolio. This would enable them to have a phased exit. In
summary, venture capital funds go through a certain due diligence to finalize
the deal. This includes evaluation of the management team, strategy,
execution and commercialization plans. This is supplemented by legal and
accounting due diligence, typically carried out by an external agency. In India,
the entire process takes about 6 months. Entrepreneurs are advised to keep
that in mind before looking to raise funds. The actual cash inflow might get
delayed because of regulatory issues. It is interesting to note that in USA, at
times angels write checks across the table.

FINANCING OPTIONS IN GENERAL

The possibility of raising a substantial part of project finances in India through

both equity and debt instruments are among the key advantages of investing
in India.

The Indian banking system has shown remarkable growth over the last two
decades. The rapid growth and increasing complexity of the financial markets,
especially the capital market have brought about measures for further
development and improvement in the working of these markets. Banks and
development financial institutions led by ICICI, IDBI and IFCI were providers of
term loans for funding projects. The options were limited to conventional
businesses, i.e. manufacturing centric. Services sector was ignored because of
the "collateral" issue.
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THE VENTURE CAPITAL PROCESS

The Venture Capital Investment Process:
The venture capital activity is a sequential process involving the
following six steps.

- Deal origination
- Screening
- Due diligence Evaluation
- Deal structuring
- Post-investment activity
- Exit

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PLAYERS IN VENTURE CAPITAL INDUSTRY

VENTURE CAPITAL INDUSTRY LIFE CYCLE IN INDIA

From the industry life cycle we can know in which stage venture capital are
standing. On the basis of this management can make future strategies of their
business.

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GROWTH OF VENTURE CAPITAL IN INDIA

PROBLEMS OF VENTURE CAPITAL IN INDIA

One can ask why venture funding is so successful in USA and faced a number of
problems in India. The biggest problem was a mindset change from "collateral
funding" to high risk high return funding. Most of the pioneers in the industry
were people with credit background and exposure to manufacturing industries.
Exposure to fast growing intellectual property business and services sector was
almost zero. All these combined to a slow start to the industry. The other
issues that led to such a situation include:

 License Raj And The IPO Boom

Till early 90s, under the license raj regime, only commodity centric businesses
thrived in a deficit situation. To fund a cement plant, venture capital is not
needed. What was needed was ability to get a license and then get the project
funded by the banks and DFIs. In most cases, the promoters were well-
established industrial houses, with no apparent need for funds. Most of these
entities were capable of raising funds from conventional sources, including
term loans from institutions and equity markets.

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 Scalability

The Indian software segment has recorded an impressive growth over the last
few years and earns large revenues from its export earnings, yet our share in
the global market is less than 1 per cent. Within the software industry, the
value chain ranges from body shopping at the bottom to strategic consulting at
the top. Higher value addition and profitability as well as significant market
presence take place at the higher end of the value chain. If the industry has to
grow further and survive the flux it would only be through innovation. For any
venture idea to succeed there should be a product that has a growing market
with a scalable business model. The IT industry (which is most suited for
venture funding because of its "ideas" nature) in India till recently had a
service centric business model. Products developed for Indian markets lack
scale.

 Mindsets

Venture capital as an activity was virtually non-existent in India. Most venture

capital companies want to provide capital on a secured debt basis, to
established businesses with profitable operating histories. Most of the venture
capital units were offshoots of financial institutions and banks and the lending
mindset continued. True venture capital is capital that is used to help launch
products and ideas of tomorrow. Abroad, this problem is solved by the
presence of `angel investors’. They are typically wealthy individuals who not
only provide venture finance but also help entrepreneurs to shape their
business and make their venture successful.

 Returns, Taxes and Regulations

There is a multiplicity of regulators like SEBI and RBI. Domestic venture funds
are set up under the Indian Trusts Act of 1882 as per SEBI guidelines, while
offshore funds routed through Mauritius follow RBI guidelines. Abroad, such
funds are made under the Limited Partnership Act, which brings advantages in
terms of taxation. The government must allow pension funds and insurance
companies to invest in venture capitals as in USA where corporate
contributions to venture funds are large.

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 Exit

The exit routes available to the venture capitalists were restricted to the IPO
route. Before deregulation, pricing was dependent on the erstwhile CCI
regulations. In general, all issues were under priced. Even now SEBI guidelines
make it difficult for pricing issues for an easy exit. Given the failure of the
OTCEI and the revised guidelines, small companies could not hope for a BSE/
NSE listing. Given the dull market for mergers and acquisitions, strategic sale
was also not available.

 Valuation

The recent phenomenon is valuation mismatches. Thanks to the software

boom, most promoters have sky high valuation expectations. Given this, it is
difficult for deals to reach financial closure as promoters do not agree to a
valuation. This coupled with the fancy for software stocks in the bourses
means that most companies are preponing their IPOs. Consequently, the
number and quality of deals available to the venture funds gets reduced.

 Limitations on structuring of Venture Capital Funds(VCFs)

VCFs in India are structured in the form of a company or trust fund and are
required to follow a three-tier mechanism-investors, trustee company and
AMC. A proper tax-efficient vehicle in the form of ‘Limited Liability Partnership
Act’ which is popular in USA, is not made applicable for structuring of VCFs in
India. In this form of structuring, investors’ liability towards the fund is limited
to the extent of his contribution in the fund and also formalities in structuring
of fund are simpler.

 Problem in raising of funds

In USA primary sources of funds are insurance companies, pensions funds,

corporate bodies etc; while in Indian domestic financial institutions,
multilateral agencies and state government undertakings are the main sources
of funds for VCFs. Allowing pension funds, insurance companies to invest in the

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VCFs would enlarge the possibility of setting up of domestic VCFs. Further, if

mutual funds are allowed to invest upto 5 percent of their corpus in VCFs by
SEBI, it may lead to increased availability of fund for VCFs.

 Lack of Inventive to Investors

Presently, high net worth individuals and corporates are not provided with any
investments in VCFs. The problem of raising funds from these sources further
gets aggravated with the differential tax treatment applicable to VCFs and
mutual funds. While the income of the Mutual Funds is totally tax exempted
under Section 10(23D) of the Income Tax Act income of domestic VCFs which
provide assistance to small and medium enterprise is not totally exempted
from tax. In absence of any inventive, it is extremely difficult for domestic VCFs
to raise money from this investor group that has a good potential.

 Absence of ‘angel investors’

In Silicon Valley, which is a nurturing ground for venture funds financed IT

companies, initial/seed stage financing is provided by the angel investors till
the company becomes eligible for venture funding. There after, Venture
capitalist through financial support and value-added inputs enables the
company to achieve better growth rate and facilitate its listing on stock
exchanges. Private equity investors typically invest at expansion/ later stages
of growth of the company with large investments. In contrast to this
phenomenon, Indian industry is marked by an absence of angel investors.

 Limitations of investment instruments

As per the section 10(23FA) of the Income Tax Act, income from investments
only in equity instruments of venture capital undertakings is eligible for tax
exemption; whereas SEBI regulations allow investments in the form of equity
shares or equity related securities issued by company whose shares are not
listed on stock exchange. As VCFs normally structure the investments in
venture capital undertakings by way of equity and convertible instruments

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such as Optionally/ Fully Convertible Debentures, Redeemable Preference

shares etc., they need tax breaks on the income from equity linked
instruments.
Harmonization of SEBI regulations and income tax rules of CBDT would
provide much required flexibility to VBCFs in structuring the investment
instruments and also availing of the tax breaks. Thus investments by VCFs by
instruments other than equity can also be qualified for Tax exemption.

 Domestic VCFs vis-à-vis Offshore Funds

The domestic VCFs operations in the country are governed by the regulations
as prescribed by SEBI and investment restrictions as placed by CBDT for
availing of the tax benefits. They pay maximum marginal tax 35percent in
respect of non exempt income such as interest through Debentures etc., while
off-shore Funds which are structured in tax havens such as Mauritius are able
to overcome the investment restriction of SEBI and also get exemption from
Income Tax under Tax Avoidance Treaties. This denies a level playing field for
the domestic investors for carrying out the similar activity in the country .

VENTURE CAPITAL FUNDS IN INDIA

CONTRIBUTION TO "Venture Capital Funds"

Contributors 1998

  %
Rs. Million
Foreign Institutional Investors 15,178.05 50.79

All Indian Financial Institute 7,727.47 25.86

Multilateral Dev. Agencies 2,298.63 7.69

Other Banks 1,709.76 5.72

Other Public 725.32 2.43

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Private Sector 623.61 2.09

Public Sector 442.14 1.48

Nationalized Banks 433.67 1.45

Non-Residents Indians 313.39 1.05

Insurance Companies 62.50 0.21

Mutual Funds 4.50 0.01

Total 29,884.04 100.00

Investment by Industry
Contributors 1998
  %
Rs. Million
Industrial Products and 2,956.67 219
Machinery
Computer Software 2,508,87 100
Service
Consumer Related 1,381.49 52

Medical 817.48 47

Computer Hardware 735.41 30

System
Food and Food Processing 718.56 50

Tel. and Data 417.89 18

Communication
Biotechnology 448.77 27

Other Electronics 426.06 40

Energy Related 229.56 18

Others 1,865.09 127

Total 12,559.85 728

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REGULATORY ISSUES
There are a number of rules and regulation for venture capital and these would
broadly come under either of the following heads:

 The Indian Trust Act, 1882 or the Company Act, 1956 depending on
whether the fund is set up as a trust or a company. (In the US, a venture
capital firm is normally set up as a limited liability partnership)

 The Foreign Investment Promotion Board (FIPB) and the Reserve Bank
of India (RBI) in case of an offshore fund. These funds have to secure the
permission of the FIPB while setting up in India and need a clearance
from the RBI for any repatriation of income.

 The Central Board of Direct Taxation (CBDT) governs the issues

pertaining to income tax on the proceeds from venture capital funding
activity. The long term capital gains tax is at around 10% in India and the
relevant clauses to venture capital may be found in Section 10
(subsection 23).

 The Securities and Exchange Board of India has come out with a set of
guidelines attached in the annexure.

In addition to the above there are a number of arms of the Government of

India – Ministry of Finance that may have to be approached in certain
situations. Also intervention allied agencies like the Department of Electronics,
the National Association of Software and Computers (NASSCOM) and various
taskforces and standing committees is not uncommon.

Probably this explains why most of the funds prefer to take the easy way out
by listing as offshore funds operating out of tax havens like Mauritius (where
the Avoidance of Double Taxation Treaty, incomes may be freely repatriated).

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SEBI GUIDELINES FOR VENTURE CAPITAL

PRELIMINARY

Short title and commencement

(1) These regulations may be called the Securities and Exchange Board of India
(Venture Capital Funds) Regulations, 1996.

(2) They shall come into force on the date of their publication in the Official
Gazette.

Definitions

In these regulations, unless the context otherwise requires, -

(a) "Act" means the Securities and Exchange Board of India Act, 1992 ;

(b) "certificate" means a certificate of registration granted by the Board ;

(c) "company" means a company incorporated under the Companies Act,

1956 ;

(d) "economic offence" means an offence to which the Economic Offences

Act, 1974 applies for the time being;

(e) "enquiry officer" means an enquiry officer appointed by the Board,

(f) "Form" means any of the forms set out in the First Schedule;

(g) "Government of India Guidelines" means the guidelines dated September

20, 1995 issued by the Government of India for Overseas Venture Capital
Investments in India as amended from time to time;

(h) "inspecting officer" means an inspecting officer appointed by the Board ;

(i) "Schedule" means a schedule annexed to these regulations;

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(j) "sick industrial company" has the same meaning as is assigned to Sick
Industrial Companies Act, 1985;

(k) "trust" means a trust established under the Indian Trusts Act, 1882

(l) "units" means the interest of the investors in a scheme of a venture

capital fund set up as a trust, which consist of each unit representing one
undivided share in the assets of the scheme;

FINDINGS
During the preparation of my report I have analyzed many things which are
following:-

 A number of people in India feel that financial institution are not only
conservatives but they also have a bias for foreign technology & they do not
trust on the abilities of entrepreneurs.

 Some venture fails due to few exit options. Teams are ignorant of
international standards. The team usually a two or three man team. It does
not possess the required depth in top management. The team is often
found to have technical skills but does not possess the overall organization
building skills team is often short sited.

 Venture capitalists in India consider the entrepreneur’s integrity &urge to

grow as the most critical aspect or venture evaluation.

SUGGESTIONS

1. The investment should be in turnaround stage. Since there are many sick
industries in India and the number is growing each year, the venture
capitalists that have specialized knowledge in management can help sick
industries. It would also be highly profitable if the venture capitalist replace
management either good ones in the sick industries.

2. It is recommended that the venture capitalists should retain their basic

feature that is tasking high risk. The present situation may compel venture

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capitalists to opt for less risky opportunities but is against the spirit of
venture capitalism. The established fact is big gains are possible in high risk
projects.

3. There should be a greater role for the venture capitalists in the promotion
of entrepreneurship. The Venture capitalists should promote entrepreneur
forums, clubs and institutions of learning to enhance the quality of
entrepreneurship.

CONCLUSION

Venture capital can play a more innovation and development role in a

developing country like India. It could help the rehabilitation of sick unit
through people with ideas and turnaround management skill. A large number
of small enterprises in India because sick unit even before the commencement
of production of production. Venture capitalist could also be in line with the
developments taking place in their parent companies.

Yet another area where can play a significant role in developing countries is the
service sector including tourism, publishing, healthcare etc. they could also
provide financial assistance to people coming out of the universities, technical
institutes etc. who wish to start their own venture with or without high-tech
content, but involving high risk. This would encourage the entrepreneurial
spirit. It is not only initial funding which is need from the venture capitalists,
but they should also simultaneously provide management and marketing
expertise-a real critical aspect of venture capitalists, but they also
simultaneously provide management and marketing expertise-a real critical
aspect of venture capital in developing countries. Which can improve their
effectiveness by setting up venture capital cell in R&D and other scientific
generation, providing syndicated or consortium financing and acing as business
incubators.

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BIBLIOGRAPHY

1.JOURNALS

 APPLIED FINANCE VENTURE STAGE INVESTMENT PREFERENCE IN

INDIA, VINAY KUMAR, MAY 2004.

 ICFAI JOURNAL OF APPLIED FINANCE MAY- JUNE

 VIKALPA VOLULMLE 28, APRI L- JUNE 2003

 ICFAI JOURNAL OF APPLIED FINANCE, JULY- AUG.

2. BOOKS

 I.M. Panday- venture capital development process in India

 I. M. Panday- venture capital the Indian experience,

3. VARIOUS NEWS PAPERS

4. INTERNET

 www.indiainfoline.com

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 www.vcapital.com

 www.investopedia.com

 www.vcinstitute.com

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