Previously few posts we have checked out numerous startup conditions from an entrepreneur’s perspective. On this and the following few posts, we’ll check out how the folks on the opposite facet of the desk, specifically the enterprise capitalists work. It is very important get a perspective of how the opposite facet thinks and works if you wish to construct a mutually helpful relationship.
It is very important acknowledge that the entrepreneur and the VC are on the identical workforce and have a congruence of objectives – specifically 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 publish, allow us to get an understanding of the general VC state of affairs.
VC companies gather cash from traders after which make investments the cash in a lot of rigorously chosen quick rising companies. Within the US, VC companies sometimes are partnership corporations. In India, VC companies comply with a construction extra in frequent with a mutual fund construction (resulting from authorized and tax causes, VC partnership corporations are usually not viable in India.
The VC trade in India has been clamouring for an US type construction for some time now, however that is one other story). That’s, there’s a VC fund into which numerous traders 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 standard traders in VC companies are the pension funds, college endowments, insurance coverage corporations, firms, rich people and so on. In India, typical traders are rich people, developmental & monetary establishments and a few firms. Legal guidelines don’t allow pension cash or insurance coverage cash to be invested.
Universities in India haven’t any actual funds or endowments even when they had been allowed to speculate! It’s subsequently fairly exhausting to lift funds in India for enterprise capital functions. The tax remedies of Indian VC companies additionally act as disincentives. Which is why numerous VC funds working in India are actually off-shore funds – based mostly in locations like Mauritius – with abroad traders thereby making certain working flexibility, tax advantages and velocity.
Distinction this with the VC actions in a small nation like Singapore: A small nation like Singapore, for instance, invests large sums of cash (from a corpus in extra of $100 billion) all around the world in numerous VC actions. These investments that are authorities managed are made preserving in thoughts the financial improvement of Singapore, strategic causes (e.g. new know-how, entry into new markets) and so on. Singapore can also 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 traders in VC companies have been improvement and monetary establishments like ICICI, IDBI, SIDBI, and the like. These VC companies have needed to take care of numerous working constraints and have had problem coping with excessive threat investing as a result of very nature of the construction inside which they needed to function. Indian VC companies should be registered with SEBI (Securities and Change Board of India).
Over the previous few years, India has seen the arrival of a number of Silicon Valley type unbiased 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 usher in worldwide class VC investing types and requirements with deep understanding of know-how, finance and technique. India is predicted 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 are going to check out how a VC fund/agency operates in our subsequent publish.
This text was initially printed in Enterprise Katalyst, India’s first e-zine geared toward entrepreneurs, began by Sanjay Anandaram