We’ve all heard about Venture Capital at one point or another. Venture Capital is a term that most people in the startup world are familiar with. Yet, in the United States of America, Venture Capital was originally introduced during World War II.
Venture Capital in India
- Venture Capital in India
- What is Venture Capital in India?
- Types Venture Capital in India
- Features of Venture Capital in India
- Top 10 Active Venture Capital Firms in India
- Advantages & Disadvantages of Venture Capital in India
- Final Thoughts
- Frequently Asked Questions
Many well-known families, like the Rockefellers, Vanderbilts, and Warburgs, were early investors in a variety of new businesses.
George Doriot, popularly regarded as the “Father of Venture Capital,” was the founder of the American Research and Development Company (ARDC), the first venture capital business. ARDC is notable for investing in successful companies including Holland Venture Partners, Greylock Partners, and Morgan.
In 1986, as the liberalization movement was gaining traction, India was the first country to introduce Venture Capital. By 1988, the Indian government had issued some explicit guidelines for venture capitalists. Initially, however, venture capital in India was limited to huge financial organizations.
Later on, Silicon Valley was flooded with Indian-founded startups, and the world realized that India possessed talent that could contribute significantly to economic growth and development.
During the government budget of 2014-15, the former finance minister, the late Arun Jaitley had announced a start-up fund of around INR 10,000 Crores encouraging the young generation to introduce new businesses in the country.
Since then, start-ups have gained traction as venture capitalists have poured money into burgeoning businesses with high growth potential.
What is Venture Capital in India?
Assume a startup founder has a wonderful idea that has the potential to change the way businesses handle digital payments. However, for any idea to take shape, two things are required: A] Capital and B] Action Both of these are intertwined.
Your business can never come to life without activity and a lot of money, and without money, you will burn out and eventually give up.
So, how much money do you need to start a business of any kind? This is referred to as venture capital. In simple terms, venture capital in India is an investment in a new firm or a start-up that needs money to grow in its early stages.
Venture Capital in India is usually an investment made by wealthy individuals or High Net Worth Individuals (HNIs). Venture Capital investment can also be pooled together by certain financial firms that are known as the Venture Capital Fund.
In India, venture capital is commonly done through a Venture Capital Fund, which is an investment vehicle that handles your money when you invest in small and medium businesses.
Venture Capital in India is regulated by the SEBI is the Securities and Exchange Board of India. consisting of laws established under the SEBI (Venture Capital Funds) Regulations 1996.
These regulations are primarily intended to control the institutions that manage Venture Capital Funds, and they include rules that cover everything from fund registration to steps that must be taken if the institutions default.
Types Venture Capital in India
Venture Capital in India has gained a lot of significance in recent years. Every start-up requires funding when they reach the growth stage and need extra capital to scale up their operations.
In India, venture capitalists have begun to establish their own funds, which are registered with the fund houses or financial organizations that manage the investors’ money.
There are mainly three types of Venture Capital financing which are done in the market:
- Early Stage Financing
Early-stage finance is provided to start-up companies that are just getting started. There are three types of early-stage financing:
- Seed capital is a small sum of money given to a startup’s founder in order to assist the company qualify for a start-up loan.
- Start-up Financing: This type of financing is given to new businesses to help them develop their products and services.
- First-Stage Financing: This type of finance will assist the company in starting off its operations.
- Expansion Financing
The founders will require expansion to move into the second stage after the early-stage business has fully launched. Expansion funding is further broken down into two categories:
- Second and third-stage financing: Once a company has begun operations, it will want funding to grow those operations in order to be viable in the long run. Second and third-stage financing will give further funds for the business to expand.
- Bridge Financing: Bridge Financing is available to companies that require financial assistance to complete their plans for an Initial Public Offering (IPO) and subsequent stock market listing.
- Acquisition/Buyout Financing
Those that do not have access to venture capital in India will need acquisition funding to expand or develop their operations. On the other side, buyout financing is a type of leverage that is necessary when management wants to acquire a product from another company.
Features of Venture Capital in India
The following are the characteristics of Venture Capital:
- Risky Business:
Investing in a venture capital fund is a high-risk proposition. In terms of their idea or operations, not all early-stage start-ups succeed.
As a venture capitalist, you may suffer losses or possibly lose your money in the worst-case situation. Because not every start-up has the potential to be the next Facebook, you need be cautious when making investments.
- Horizon of Long-Term Investment:
Starting a business takes longer than scaling up an existing one. As a result, the venture capitalist must invest his funds over a longer period of time.
If the company does successfully as a private endeavor, it can be listed on the public exchange at a reasonable price. Investors in venture capital funds can easily sell their shares in a public offering.
- Business Participation:
In addition to contributing capital, the Venture Capital in India investor also participates in the startup’s management.
Some investors may participate personally in the early-stage company or hire someone to oversee operations on their behalf. Venture capitalists frequently have experience mentoring numerous start-ups, which can be beneficial when managing early-stage companies.
- Pre-defined Exit:
The venture capitalist knows when they will quit the business even before they make an investment. In India, venture capitalists may exit the business when the company goes public or through buyback plans.
At the end of the day, venture capitalists are more concerned with the amount of capital gains they may get from their investment. As a result, many venture funders plan to depart the business early if it succeeds.
Top 10 Active Venture Capital Firms in India
The top ten active Venture Capital firms in India are as follows:
1. Helion Venture Partners
Helion Venture Partners was founded in 2006 and is a venture capital fund focused on India with over $605 million in assets under management.
The investment is mostly focused on outsourcing, the internet, technology products, retail products, healthcare, and other related industries.
Helion employs an investing strategy in which they invest between $2 million and $10 million in each company with revenues of less than $10 million. MakemyTrip, NetAmbit, TAXI For Sure, and other start-ups have received funding from Helion.
2. Accel Partners
Accel Partner is an American venture capital business that was founded in 1983 and has a global presence in nations such as India, China, and the United Kingdom.
Accel is a well-known venture capital firm that invests in a variety of online and cloud-based businesses. Accel employs an investing strategy in which it invests between $0.5 million and $50 million in its portfolio firms. Flipkart, Book My Show, Myntra, and more start-ups have received Accel funding.
3. Blume Ventures
Blume Ventures was created in 2011 with the goal of providing financial assistance to early-stage startups. Blume Ventures is a popular early-stage venture capital fund known for providing capital as well as mentorship programs to help businesses grow.
Blume invests in seed firms for $0.05 million to $0.3 million, with follow-up investments ranging from $0.5 million to $1.5 million. Audio Compass, Carbon Clean Solutions, Printo, and other start-ups have received funding from Blume.
4. Sequoia Capital India
Sequoia Capital India was created in 2000 with the goal of investing in startups in the seed, expansion, and growth phases.
The fund is well-known for investing in consumer-oriented businesses, technology, healthcare, and financial services.
Sequoia Capital invests between $100,000 and $1 million in seed stage companies, $1 million to $10 million in early stage companies, and $10 million to $100 million in growth stage companies. Sequoia has invested in companies such as Just Dial, Practo, iYogi, and others.
5. Nexus Venture Partners
Nexus Venture Partners is a venture capital firm based in the United States and India that focuses in investing in early-stage firms.
The firm is known for investing in technology-based start-ups focused on Cloud, Big Data Analytics, Security, and other sectors of Energy, Business, and Consumer companies.
Nexus Venture invests approximately $0.5 million to $10 million in the early growth stage and approximately $0.5 million in the seed stage. Snapdeal, ScaleArc, Delhivery, and other start-ups have received funding from Sequoia.
6. Kalaari Capital
This venture capital firm, which was founded in 2006, is one of the most active in 2021. Their major investment portfolio includes more seed and early-stage Internet entrepreneurs and businesses. Apart from providing capital to these firms, Kalaari Capital also provides an experienced and reliable advisory board to help the new entrepreneurs. They’ve backed popular firms like UrbanLadder, Instamojo, and ScoopWhoop.
7. Tiger Global Management
Tiger Global Management, one of the top venture capital firms, has invested in startups across the globe.
They have invested in over 442 companies through seven designated funds. Tiger Global Management was founded in 2001 and is one of the oldest venture capital firms still in operation.
Financial, consumer technology, software, and the internet are their primary investment industries. Urban Company, Ninjacart, Razorpay, and more well-known startups are within their portfolio.
8. India Angel Network
This angel network brings CEOs and successful entrepreneurs from all around the world together. More than 470 investors from 11 countries, including India, are part of the network.
In 2021, they will be active, and India Angel Network has invested in Wow! Momo, Little Black Book, and other titles Their primary investment industries are diverse, and they prize innovative and unusual firms with a lot of promise.
9. Omidyar Network India
This investment firm focuses on socially conscious startups and businesses. As a result, many of the companies in their portfolio try to deliver certain advantages and more social involvement.
It has made a number of charitable investments, including those in education, financial services, new technology, and other areas. The Omidyar Network India, founded in 2004, is one of India’s biggest investment firms, with more than $300 million invested in the Indian ecosystem.
As a result, their primary industries are diverse. WhiteHat Education, ZestMoney, and others are among the companies in which they have invested.
10. SAIF Partners
The SAIF Partners firm, based in Asia, has roughly $4 billion in capital and has invested in a variety of sectors and industries.
They’ve backed well-known firms like Swiggy, Aye Finance, Cleartax, and Capital Float. China, Hong Kong, and India are all home to the investment firm. They’ve made investments in EdTech, entertainment, direct-to-consumer firms, healthtech, and other areas.
Advantages & Disadvantages of Venture Capital in India
|Advantages of Venture Capital in India||Disadvantages of Venture Capital in India|
|Expert Mentors||Reduction in Ownership|
|Opportunity for Expansion||Early Exit|
|Helps with Networking||Long-term Process|
|Zero Monthly Payments||Due Diligence Requirement|
|Additional Fund Raise||Losing Your Business|
Advantages of Venture Capital
- Expert Mentors
One of the most fascinating aspects of Venture Capital in India is that those who invest in your company will also assist you in operating it.
Venture capitalists aren’t amateurs; they’ve spent years investing in a variety of start-ups, which can be beneficial in the long run. Their skilled guidance might help you address challenges more quickly.
- Opportunity for Expansion
Venture capital supplies you with the financing you need to create items or begin operations. You can easily deploy resources or even expand your business with the money.
To qualify for a loan, any bank will demand you to meet their general requirements, as well as provide collateral in the event of default. However, venture capitalists are already taking a risk because they believe the business will succeed in the long run.
- Helps with Networking
Someone in charge of a company is completely focused on its operations, which define the company’s long-term performance.
As a result, they may not be able to devote enough time to networking. Venture capitalists in India, on the other hand, are known for having a strong network that aids the firm in forming new alliances, obtaining new clients, and employing efficient personnel.
- Zero Monthly Payments
In India, venture capitalists are recognized for investing in companies in return for equity and cash profits. If you take out a loan, you may be required to make monthly payments, which could result in a financial outflow.
Your company may require additional revenue to reinvest in its resources at times. As a result, venture capital is the most advantageous kind of investment for startups.
- Additional Fund Raise
Venture capitalists make certain that you may obtain further funds at greater valuations in the future, which will benefit your company.
Venture capital firms not only expose you to other firms that can help you raise extra funding, but they also ensure that they retain the right to contribute additional funds in the future, which can help your startup develop faster.
Disadvantages of Venture Capital
- Reduction in Ownership
In order to raise additional funds for your company, the owners may have to dilute their interest by issuing new shares to investors.
Beyond a certain threshold, the owners may lose control of the company, thus bypassing their decision-making ability.
- Early Exit
Venture capitalists invest in order to profit from their money. Indian venture capital firms may plan for an early exit from the business on occasion.
It may take some time for investors to liquidate their positions if a business takes a lengthy time to grow.
- Long-term Process
Obtaining a venture capital investor is a long-term process that may have you pitching your ideas and attending individual meetings to discuss the business. It is possible that Venture Capital firms in India will take longer to invest in your company because it is a time-consuming procedure.
- Due Diligence Requirement
Venture capital businesses in India perform extensive background investigations before making any investment choices to protect the safety of their investments. It is the most important method that can assist start-ups in addressing and resolving any difficulties that arise during the development stage.
- Losing Your Business
Any founder who is underperforming risks losing their company. If founders are irresponsible about growing shareholder value, running a productive business, or utilizing cash for personal gain, they may be removed from the board of directors.
With the rise of the startup culture, Venture Capital has grown in popularity, particularly in countries like India.
As a result, people have been encouraged to start a business that can generate not only employment but also quick economic growth. With the emergence of new start-ups, venture capital has gained traction in recent years and will continue to do so.
Frequently Asked Questions
Who regulates venture capital in India?
SEBI regulates venture capital in Indian businesses under the SEBI (Venture Capital Funds) Rules 1996.
How to get venture capital in India?
You can approach any venture capital firm in India, which will evaluate your business before investing.
How to invest in Venture Capital in India?
In India, institutions have established up venture capital funds that will invest your money in start-ups on your behalf.
How to impress a VC with a start-up idea?
First, look over their portfolio to see where they put their money. Take part in practice pitch sessions, network with other fundraisers, and learn how to pitch and elevate your idea.
Are venture capital funds worth it?
It is dependent on your business concept and how you intend to scale it. VC money are frequently used to assist a firm expand and improve its operations.
What is the difference between private equity and venture capital?
Venture capital, also known as VC, is a type of private equity. Buyouts, venture capital, and mezzanine investment are some of the additional asset groups covered by private equity.
What is an ‘angel’ investor?
It is usually a high-net-worth investor that invests directly in promising firms in exchange for stock.