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Finance > Venture Capital > Investment
Philosophy
The VC Philosophy
As against Bought out deals (BODs)
, VCs carry out very detailed due diligence and make 2-7 year investments.
The VCs also hand-hold and nurture the companies they invest in besides
helping them reach IPO stage when valuations are favourable. VCFs help
entrepreneurs at four stages: idea generation, start-up, ramp-up and
finally in the exit, which is done through M&As.
According to Indian Venture Capital Association, almost 41% (Rs 5146.40 m) of the total venture ca[pital investment is in start-up projects followed by Rs 4478.60 m in later stage projects and only Rs 82.95 in turnaround projects . Majority have invested in only three stages of investment, indicating that most VCs in India have not started developing niches for investing with regard to the stages of projects.
The main difficulty in early stage funding are related to lack of exit opportunities as probability of an IPO or buy out by of VC stake is less due to lack of understanding for evaluation of the knowledge based companies compared to the companies in the traditional sectors. Some such VCs are: ICICI ventures, Draper, SIDBI and Angels.
Funding
growth or mezzanine funding till pre IPO :
The size of investment is generally less than US$1mn, US$1-5mn, US$5-10mn,
and greater than US$10mn. As most funds are of a private equity kind, size
of investments has been increasing. IT companies generally require funds
of about Rs30-40mn in an early stage which fall outside funding limits of
most funds and that is why the government is promoting schemes to fund
start ups in general, and in IT in particular.
Management
of investee firms
The venture funds add value to the company by active involvement in
running of enterprises in which they invest. This is called "hands
on" or "pro-active" approach. Draper falls in this
category. Incubator funds like e-ventures also have a similar approach
towards their investment. However there can be "hands off"
approach like that of Chase. ICICI Ventures falls in the limited exposure
category.
In general, venture funds who fund seed or start ups have a closer interaction with the companies and advice on strategy, etc while the private equity funds treat their exposure like any other listed investment. This is partially justified, as they tend to invest in more mature stories.