ASSIGNMENT-3
Topic: Venture capital and its growth in India
SUBMITTED BY
ADARSH RAVI
MBA 22
BATCH B
Venture capital finance
Venture capital financing is a type of private equity investing specific to earlier-
stage businesses that require capital. In return, the investor receives an equity
stake in the business through the issuance of some type of security instrument.
Venture capital firms have a variety of different securities they use depending
on the nature of the investment. The most common securities are convertible
debt (often called convertible debentures), SAFE notes, and preferred stock.
Working of Venture Capital
Entities offering VC invest in a company until it attains a significant position
and then exits the same. In an ideal scenario, investors infuse capital in a
company for 2 years and earn returns on it for the next 5 years. Expected returns
can be as high as 10x of the invested capital.
Financial venture capital can be offered by
• Venture capital firms,
• Investment banks and other financial institutions,
• High net worth individuals (Angel investors), etc.
Venture Capitalists
Venture capitalists are those people who invest in early-stage companies having
promising futures. A venture capitalist can be a sole investor or a group of
investors who come together through investment firms.
Top 10 Venture Capital Firms in India
• Accel Partners
• Sequoia Capital
• Blume Ventures
• Kalaari Capital
• Nexus Venture
• Helion Venture Partners
• Chiratae Ventures
• Matrix Partners
• Elevation Capital
• Tiger Global Management
Growth Of Venture Capital Financing In India
Venture Capital in India was known since nineties era. It is now that it has
successfully emerged for all the business firms that take up risky projects and
have high growth prospects as well. Venture Capital in India is provided as risk
capital in the forms of shares, seed capital and other similar means.
In 1988, ICICI emerge as a venture capital provider with unit trust of India. And
now, there are a number of venture capital institutes in India. Financial banks
like ICICI have stepped into this and have their own venture capital
subsidiaries. Apart from Indian investors, international companies too have
settled in India as a financial institute providing investments to large business
firms. It is because of foreign investors that financial markets have developed in
India on a large scale. Introduction of western financial philosophies, tight
contracts, focus on profitable projects and active involvement in finance was
contributed by foreign investors only.
The financial investment process has evolved a lot with time in India. Earlier
there were only commercial banks and some financial institutes but now with
venture capital investment institutes, India has grown a lot. Business forms now
focus on expansion because they can get financial support with venture capital.
The scale and quality of the business enterprises have increased in India now.
With international competition, there have been a number of growth oriented
business firms that have invested in venture capital. All the business firms that
deal in information technology, manufacturing products as well as providing
contemporary services can opt for venture capital investment in India The scale
and efficiency of business firms in India have grown. With rising overseas
competition, venture capital may help a range of growth-oriented enterprises.
Businesses in India that deal with computer technology, manufacture products,
or provide contemporary facilities are eligible for venture capital investment.
While its impact varies by region, the venture capital (VC) business is crucial in
encouraging entrepreneurship and innovation.
In India, anybody with a creative company idea with expanding demand, a
competent management team, an ambitious business model, and home-run
potential can apply for investment capital funding.
Examples Of Venture Capital Funding In India
Kohlberg Kravis & Roberts (KKR), one of the world's leading alternative
investment asset managers, has agreed to invest USD150 million (Rs 962 crore)
in Mumbai-based listed polyester producer JBF Industries Ltd. The company
will invest in zero-coupon compulsorily convertible preference shares with
14.5% voting rights in its Singapore-based fully owned subsidiary JBF Global
Pte Ltd. KKR money will assist JBF in completing ongoing initiatives.
As per the report, Consumer tech, SaaS, and fintech were the top three sectors
that accounted for nearly 75% of the VC investments by value in 2020. In 2020
investment of $10 billion was made by venture capital and private equity, out of
which $7.6 billion was directed towards these three sectors.
Venture capital financing in consumer tech
For start-ups, 2020 was a tough year but it proved to be an opportunity in crisis
for the tech based start-ups. Covid-19 has led to an increase in the digital trend
in all the sectors which is reflected in the venture capital money flow. Like,
Byju’s an ed-tech start-up in the month of January, July, and September of 2020
closed the deal of $720 million, followed by Zomato a food-tech start-up.
Shift to online services and transactions have accelerated due to Covid-19.
Study shows that digital maturity of Indian enterprises has increased from 34 %
in 2018 to 55% in 2020. Tech start-ups are growing and the shift can be seen
towards SaaS. Growth can be seen in India at a scale of 8-10 % year on year in
tech-based start-ups. In 2020, 14% of the total investment was done in tech-
based start-ups.
Venture capital financing in fintech companies
The first quarter of 2022 saw 81 deals in the fintech sector, worth a collective
$1.77 Bn. When compared to Q1 2021, the amount increased by 155% and was
45% higher than that in the preceding Q4 2021.
So far in 2022, there have been 160 fintech deals, which has seen fintech
startups raise $3.47 Bn. This figure is bigger than the fintech funding amount in
the entirety of 2020 and is almost 44% of the total funding in 2021.
Out of the 1,219 fintech funding deals from 2014 to June 25, 2022, 676 can be
attributed to the top 30 investors in the space, or more than 55% of the total
funding activity. Marquee investors such as Sequoia, Accel, Tiger Global and Y
Combinator are among the top 30 fintech investors in India, each of which has
participated in 23 deals on an average.
Most of these fintech investors are based out of the US. 14 of the top 30 fintech
investors are from the US, with 12 from India, two from Singapore and one
each from the UK and Germany.
The fears of a funding winter and a global economic slowdown due to the
ongoing Russia-Ukraine war has impacted the fintech startups as much as the
rest of the verticals in the startup ecosystem. Besides, the fintech ecosystem in
India further adding to the troubles.
Venture capital investment in saaS
The funding outlook for 2023 remains muted for the first half of the year as the
hangover of a slow 2022 lingers on. SaaS funding is likely to see a surge after
June 2023 and towards the end of the year when dry powder is forced out of
investors into companies that survived the worst of the slowdown.But while that
is the thinking at the moment given the traditional investment cycles for new
funds, there could be more surprises in store. In short, no one is sure when
things will bounce back.
