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Previously few posts we have checked out varied startup conditions from an entrepreneur’s perspective. On this and the following few posts, we’ll check out how the folks on the opposite aspect of the desk, particularly the enterprise capitalists work. It is very important get a perspective of how the opposite aspect thinks and works if you wish to construct a mutually useful relationship.
It is very important acknowledge that the entrepreneur and the VC are on the identical staff and have a congruence of targets – particularly the constructing of a profitable firm. All of the occurs earlier than funding. As in all partnerships, if the connection between the VC and the entrepreneur is considered with suspicion and in an antagonistic method, the VC-entrepreneur tussles within the board-room will kill the corporate. Having mentioned that, tell us take a peek behind the curtains at how VC companies function. On this put up, allow us to get an understanding of the general VC state of affairs.
VC companies acquire cash from buyers after which make investments the cash in quite a lot of rigorously chosen quick rising companies. Within the US, VC companies sometimes are partnership corporations. In India, VC companies observe a construction extra in widespread with a mutual fund construction (as a result of authorized and tax causes, VC partnership corporations are usually not viable in India.
The VC trade in India has been clamouring for an US fashion construction for some time now, however that is one other story). That’s, there’s a VC fund into which varied buyers make investments and there is an Funding Administration firm (generally known as an Asset Administration Firm or AMC) which manages the investments of the fund.
Within the US, the everyday buyers in VC companies are the pension funds, college endowments, insurance coverage corporations, companies, rich people and so forth. In India, typical buyers are rich people, developmental & monetary establishments and a few companies. Legal guidelines don’t allow pension cash or insurance coverage cash to be invested.
Universities in India don’t have any actual funds or endowments even when they had been allowed to take a position! It’s due to this fact fairly onerous to lift funds in India for enterprise capital functions. The tax remedies of Indian VC companies additionally act as disincentives. Which is why a lot of VC funds working in India are actually off-shore funds – based mostly in locations like Mauritius – with abroad buyers thereby guaranteeing working flexibility, tax advantages and pace.
Distinction this with the VC actions in a small nation like Singapore: A small nation like Singapore, for instance, invests big sums of cash (from a corpus in extra of $100 billion) all around the world in varied VC actions. These investments that are authorities managed are made maintaining in thoughts the financial growth of Singapore, strategic causes (e.g. new know-how, entry into new markets) and so forth. Singapore can be the supply of capital for a lot of of Silicon Valley’s marquee VC companies. There is a lesson for India someplace!
In India, conventional buyers in VC companies have been growth and monetary establishments like ICICI, IDBI, SIDBI, and the like. These VC companies have needed to take care of varied working constraints and have had issue coping with excessive danger investing as a result of very nature of the construction inside which they needed to function. Indian VC companies need to be registered with SEBI (Securities and Change Board of India).
Over the previous couple of years, India has seen the arrival of a number of Silicon Valley fashion impartial non-public VC companies like Draper (which pioneered this motion in 1995), Walden, Chrysalis, and Infinity Capital. Many extra are within the pipeline and can herald worldwide class VC investing types and requirements with deep understanding of know-how, finance and technique. India is anticipated to draw about $10B in VC funds by 2008. It attracted about $300m in 1999.
With this backdrop on the VC state of affairs, we’ll check out how a VC fund/agency operates in our subsequent put up.
This text was initially revealed in Enterprise Katalyst, India’s first e-zine aimed toward entrepreneurs, began by Sanjay Anandaram
