Important sources of venture capital Financing:
SSIs are required increasingly to operate in open, relatively unprotected markets, often with inadequate policy support intervention. These industries face a number of challenges including difficulty in availability of credit information access, higher risk perceptions, high cost of credit, adverse economies of scale, high transaction costs for raising equity capital etc. On the other, SSIs are the prime drivers of the economy. It is recognized that small industries are hampered in their efforts at accessing traditional sources of institutional funding.
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If any entrepreneur seeks to finance his project/industry through venture capital, he has the following institutions available to him for providing finance.
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(i) Venture capital funds sponsored by All India financial institutions word their subsidiaries e.g. venture capital scheme of IDBI, ICICI.
(ii) Venture capital funds sponsored by state level financial institutions e.g. Gujarat Venture Finance Limited (GVFL).
(iii) Venture capital funds sponsored by public sector banks or their subsidiaries e.g. Confine venture Fund.
(iv) Venture capital funds set up by private sector institutions, Indian or 1 Foreign e.g. Indus venture capital Fund, Twentieth Century Finance Company (TCFC), Infrastructural Leasing and Financial Services Limited.
Sources of venture capital
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Following are various sources of venture capital :
1. The EXIM Bank. Export-Import Bank of India, set up in 1982, for the purpose of financing, facilitating and promoting international trade of India is the principal institution in the country for co-ordinating working of institutions engaged in financing exports and imports.
EXIM Bank has made an entry into venture capital finance by investing in venture capital Fund which is the India Technology venture Unit Scheme promoted by Unit Trust of India (UTI). The objective of the fund is investment in technology sectors like
(i) Information technology,
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(ii) Internet
(iii) Media and entertainment
(iv) Telecommunications
(v) Biotechnology
(vi) Pharmaceuticals and (vii) Health care
EXIM Bank finances capital expenditure for setting up software development facilities as also working capital, equity investment in overseas ventures, direct equity participation in Indian ventures overseas, export product development etc.
2. IDBI’s venture Fund. IDBI’s venture capital Fund (VCF) was started in 1986 with an initial capital of Rs. 10 crore and is a part of technology department of IDBI. It assists high technology, small and medium-sized projects requiring funds between Rs. 0.5 to Rs. 25 million (Rs. 2.5 crore). It is meant primarily to assist projects which promote commercial applications for indigenously developed technology or which adopt imported technology for wider applications. The entrepreneur’s project must employ technology that is new and untested in Indian conditions. Financial assistance is provided right from pilot stage and covers almost upto 90 percent of total cost with promoter’s stake to be at least 10 per cent for ventures below Rs. 50 lakhs and 15 per cent for these above Rs. 50 lakhs. The assistance is provided in the form of unsecured loans involving minimum legal formalities. IDBI sanctions funds in various fields like electronics, food products, medical equipment, biotechnology, chemicals, computer software etc.
3. ICICI’s venture Fund. Industrial Credit and Investment Corporation of India (ICICI) launched a venture capital scheme in 1986 to encourage new technocrats in the private sector in new fields of technology with inherent risk. It provided finances for the development and commercialization of viable indigenous technologies. Under this scheme, ICICI assists projects, with initial investment not exceeding Rs. 2 crores in the form of equity or conditional loan with flexible charges and repayment period or conventional loans. Two new schemes were launched by ICICI.
(i) India Fund
(ii) Venture capital Fund (VCF).
In 1988, ICICI floated a new company known as “The Technology Development and Information Company of India Limited” (TDICI) to design a separate scheme for financing technology in India.
ICICI also established with UTI in 1988, a venture capital fund with Rs. 20 crores subscribed equally by ICICI and UTI to set up technological ventures which have potential for fast growth. In January 1990, ICICI and UTI have jointly launched their second VF for Rs. 100 crores.
4. Technology Development and Information Company of India Limited (TDICI). TDICI is the venture capital fund in India created by government and operated through IDBI. This is also the largest venture capital firm in India. It provides assistance to industries directly or through venture funds which are managed by it for other institutions and venture funds out of its own resources.
TDICI accepts and evaluates the promoter’s business plan by knowing his management team, nature of his product, market conditions for his product, competition, his investment requirement etc. TDICI goes through the entrepreneur’s business plan, if it finds the plan to be good, and the promoter is clear about his business he gets, his work is almost done, otherwise his project is dropped. TDICI also ventures two capital funds of UTI.
TDICI’s first venture capital fund of Rs. 200 million was subscribed equally by ICICI and UTI. Its second venture fund of Rs. 1000 million has been contributed by UTI, ICICI, other financial institutions, banks, World Bank small, medium and large industrial companies hi India.
5. IFCI’s venture capital. IFCI sponsored in 1975 Risk capital Foundation (RCF), which has since been converted into a company known as Risk capital and Technology Finance Corporation Limited (RCTFC) in January 1988. RCTFC provides finance for high- tech projects in the form of venture capital for technology upgradation and development. It also assists these units which have proved to be innovative and possess the requisite technological and managerial strengths. RCTC’s assistance is available in the form of short-term conventional loan or interest free conditional loans allowing profit and risk-sharing with project sponsors, or equity participation.
6. Gujrat venture Finance Limited (GVFL). Under venture capital funds sponsored by state level financial institutions is GVFL promoted in July 1990 to provide venture capital for the commercialization of new technological developments and innovative products. It shares risk of entrepreneurs by providing financial assistance in the form of equity and quasi equity.
7. Punjab Infotech venture Fund (PIVF) is a Rs. 200 million, 10 year, close-ended venture capital Fund conceptualized and funded by the Punjab State Industrial Development Corporation (PSIDC), Punjab State Financial Corporation (PFC), Punjab State Electronics Development & Production Corporation Limited (PSED&PC) and Small Industries Development Bank of India (SIDEI).
PIVF is dedicated to investing in companies in the Information Technology Sector within the State of Punjab. The Fund’s investments in companies will be through the route of equity and quasi equity instruments. The Fund will seek to achieve its returns through dividends and capital gains at the tune of divestment through an initial public offering or a negotiated sale of its holding.
The Fund is being managed by Punjab venture capital Limited, an asset management company, promoted by the PSIDC acting as the nodal agency of the Government of Punjab.