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Transcript

Hello friends in our last class we discussed about the Johri’s window. Wherein we made deliberate attempt to understand about oneself and its importance and how it is important to be in relation to a group and how important you are as a part of a group and how you can establish the relationship within the groups. So these are the 3 things that we try to understand with the help of the Johri’s window and how you can reduce the blind area but you can be familiar to the groups and you can be part of various other groups. In this class we will be discussing about Venture Capital.

What exactly this venture capital is?

The moment you think that I want to be an entrepreneur the first and foremost requirement to be an entrepreneur is an innovative idea. Yes, you have that innovative idea also and the immediate next question that you are going to come across is from where I can have the financing for my idea to make it a reality. This is the question which is in the minds of good number of budding entrepreneurs. The moment they come to know that it is very difficult to arrange for the finance they going to drop the idea of being an entrepreneur. This is what happening in different parts of the country also. So this concept of venture capital is focusing on such budding entrepreneurs or the potential entrepreneurs who are having the potential ideas but they are not having appropriate sources of finance to support their ideas. And that is how the concept of venture capital came into existence. I am sure all of you are aware the story behind the Infosys. Narayan Murthy in early 80’s when he was proposing to develop the computer based solutions for the problems what we are facing in our day to day life. The late 70’s and the early 80’s the entire society was not even much aware of the concept of the instrument known as computer itself. And when he said I will developed good number of solutions to the existing problems people started laughing at him. For which he was in need of certain amount of capital it was not much. The amount was only 10,000 but in those days that 10,000 may be equilivalent to around 10 lakhs as we in todays term that we can say. He was finding it difficult to arrange that particular finance and somehow just by selling or mortgaging the gold of his wife so on and so forth he could manage that amount and ultimately he enters into the profession and the story continues and today the scenario is something different. So when the entrepreneurs are going to struggle with such simple difficulties after having the potential ideas in their mind now the concepts like venture capital is there to support your idea but the basic thing is you should possess that innovative idea. So, that’s the basic idea here. So, the concept of venture capital as defined by the SEBI (Security and exchange board of India) as established in the form of a company or trust which raises money through the loans, donations, issue of securities or units as the case may be and make or proposes to make investments in accordance with the regulations on the budding entrepreneurs or the ideas of these entrepreneurs. So maybe they are collecting it from various sources but when it comes to the investment on ideas so that is the concept we are identifying as venture capital.

The next issue that emerges is why venture capital?

Basically, venture capital is to commercialise research and scientific knowledge in the fastest mode. Because the research is coming out with good numbers of innovations that innovative ideas should reach the community at the fastest mode. So, that what is the idea behind venture capital. So, that you can have your profit margins very high. As you reach the customers very very early the risk is very high. Provide the risk finance because when we talk of entrepreneurship risk is associated through various games we have understood the concept of risk and how we can manage the risk also. Then the next issue is how we can management expertise to first generation entrepreneurs. For providing support for the budding entrepreneurs or the first generation entrepreneurs who are not at all having any idea so by providing such capital support so we are trying to promote them. Then, to tap the potential of intellectual properties (IP) because the new idea if it is registered under IP maybe as patent or maybe as a copyright or maybe as a trademark so, then you are going to realize in the form of royalty huge amounts that you can earn from them which is your intellectual property wherein the venture capital can support so we trying to support them. Then the promotion of innovation and entrepreneurship that’s what is the crux of the discussion what we are having right now. The potential of Indian venture capital industry is because now it has taken the shape of an industry also venture capitalists because there is many people who with huge amount of finance they are ready to finance such ideas. They have identified certain potentials as India is having the second largest English speaking scientific and technical manpower in the world. This is the biggest potential what the country has. So that we can have the huge amount of investment as far as the entrepreneurship development is considered. Then the country is having some of the best globally recognized institutions of Indian Institute of Management as well the technical institutions like (IITs). Wherein the cream on the cream is coming up with lots of innovative ideas wherein we can invest the venture capital. India is graduating around 2lakhs engineers, over 40,000 managers, about 35,000 Agricultural graduates every year in the form of the quality human capital. These particular huge numbers of students who are coming from the academic institutions are having good number of enormous innovative ideas but how to tap these ideas is the biggest issue wherein venture capital is trying to make a dent into this particular scenario. Coming to the different types of the venture capitalist in which the first venture capital list that we are going to discuss is the Angel Investors. Basically, the Angel Investors are the wealthy individuals who are having huge amount of money with them and they want to support the budding entrepreneurs. Often with a technological industry background in position to judge highrisk investments so that they can invest their on them. So when we go through good numbers of case studies related to successful entrepreneurs. The Angel investors of the most successful entrepreneurs are coming from their own family backgrounds, maybe their counterparts, maybe their grandparents, or in some cases maybe their parents or friends and relatives who are acting as angel investors, wealthy individuals from their own society are supporting their ideas. The motivation behind these angel investors is the dramatic return on investment via exit or liquidity event. Because they have identified the potential of that idea of that particular entrepreneur and they are sure that the moment this idea becomes the reality they are going to give us a huge amount of output where I can give back my investment and interest in technology and industry so that is another motivation to support the entrepreneurship as an angel investor.

The second type of venture capitalist that we come across is the financial VCs. Which is the most common type of venture capitalist that we come across. So there are good number of firms. The classification also that we will be discussing in next subsequent slides. So investment firms there is the capital from various institutions and individuals and they make a huge amount and they are investing on innovative ideas. Often organized as formal VC funds, with limits on size, lifetime and exits. The motivation behind the financial venture capital is it is purely financial because it is a just type relationship between give and take type of relationship and they want to maximize their returns on the investment. The third category is Strategic VCs so wherein it is a typically a small division of a large company and that company itself is having small unit to support such innovative ideas. The big business organizations like Intel, Cisco, Siemens, AT&T and there are many such corporate organizations they are having small amounts to fund the ideas of their own employees or from any corners as a venture capitalist.

The advantages of this venture capital include: a solid capital base for the future growth. The venture capitalist is a business partner, sharing both the risks as well as rewards. It’s not that he is only providing you the money he is providing you the support also by sharing the risk as well rewards and he will get share also. Then he provides the practical advice and assistance to the company based on the past experiences because he has his own experience that he can share with the company. Then he will help in network of contacts in many area that can add value to the company because of his own past experiences and he may provide additional rounds of funding if it is needed and they can also facilitate the trade sales also. Coming to the classification of this VCs the first category is organized by the Central Government which are under the control of the government the first one is the IFCI venture capital funds and SIDBI venure capital which was established by back in 1987 small industrial development bank of India venture capitalist limited.

The second category is promoted by the State governments wherein the institutions like Punjab Infotech venture, Gujarat venture finance ltd, Kerala venture capital fund pvt. Ltd. are some of the examples and the third category is to promoted by the public sector banks like Canarabank, SBI, they are also supporting the concept of venture capital. Those promoted by the private sector also, I have already explained about this IL&FS Trust Company Ltd, Infinity venture which is very popular in Indian context they are also providing the venture capitalist support. So there are some overseas venture capital funds Known as Walden International Investment group, HSBC Private company management maturities Mauritius ltd etc etc.

So with this we can say that venture capital is supporting the innovative entrepreneurs, the budding ideas, so that they can emerge as the successful entrepreneurs and they should not suffer just because they lack the financial support to be a successful entrepreneur. With this we are closing today’s discussion and in the next class we will be discussing the corporate social responsibility.

Thank You