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Sector wise Growth of Venture Capital Finance in India
Sector wise Growth of Venture Capital Finance in India
1
Contents 1 INTRODUCTION TO VENTURE CAPITAL FINANCE ................................................................. 2
1.1 Venture Capital Financing ............................................................................................................ 2
1.2 Benefits of VC over other Funding Methods ................................................................................ 4
1.3 A Brief History ............................................................................................................................. 4
1.4 Venture capital financing process ................................................................................................. 6
1.5 What do VCs look for? ................................................................................................................. 7
2 VENTURE CAPITAL IN INDIA AND BUSINESS CONFIDENCE ................................................ 9
2.1 Industry Overview ........................................................................................................................ 9
2.2 Strengths and Challenges of India .............................................................................................. 10
2.3 Growth of Venture Capital Industry ........................................................................................... 11
3 INTRODUCTION TO THE STUDY ................................................................................................ 14
3.1 Background of the Study ............................................................................................................ 14
3.2 Need for the Study ...................................................................................................................... 15
3.3 Objectives of Study ..................................................................................................................... 15
3.4 Scope of Study ............................................................................................................................ 16
4 LITERATURE REVIEW .................................................................................................................. 17
5 RESEARCHMETHODOLOGY ........................................................................................................ 22
5.1 Data Collection ........................................................................................................................... 22
5.2 Research Design .......................................................................................................................... 23
5.3 Limitations of Study ................................................................................................................... 23
6 ANALYSIS AND INTERPRETATION ........................................................................................... 24
6.1 Analysing Growth of Venture Capital Finance in India and Forecasting VC Investments in near
future ................................................................................................................................................. 24
6.2 Analysis of Venture Capital Investments in different sectors of Economy ................................ 27
7 Findings and Conclusion .................................................................................................................... 38
7.1 Findings....................................................................................................................................... 38
7.2 Conclusion ...................................................................................................................................... 39
8 REFERENCES .................................................................................................................................. 40
8.1 Bibliographic References ............................................................................................................ 40
8.2 Web References .......................................................................................................................... 41
Appendix: 1 ........................................................................................................................................... 42
Appendix:2 ............................................................................................................................................ 43
Sector wise Growth of Venture Capital Finance in India
2
1 INTRODUCTION TO VENTURE CAPITAL FINANCE
1.1 Venture Capital Financing
Business requires capital, and getting it at the right time is very important.
There are several alternatives to fund the business. A brief heading to name a
few would be:
• Owner or proprietor’s capital
• Equity partner
• Debt Finance
These can further be branched to many options giving entrepreneur
several options to choose among. In this study the focus would be more on
financing by venture capital which comes under equity financing.
Venture capital is a risk financing in the form of equity or quasi-euity. It
gives the business funds based on their potential and their interest as
perceived by the investor. Funds might be required for seed stage funding,
expansion/development funding or for acquisition financing. Venture capital
is established among developed countries and is developing in third world
countries because of its impact on encouraging entrepreneurial activities
within a nation. Venture Capital firms invest funds on any business with a
professional outlook; they focus on their primary segment which varies
Sector wise Growth of Venture Capital Finance in India
3
among different specializations (e.g. e-commerce, Oil & Gas, Healthcare,
Manufacturing, Health/life sciences, etc.).
'Venture Capital' is an important source of finance for those small and
medium-sized firms which have very few avenues for raising funds.
Although such a business firm may possess a huge potential for earning
large profits in the future and establish itself into a larger enterprise. But the
common investors are generally unwilling to invest their funds in them due
to risk involved in these types of investments. In order to provide financial
support to such entrepreneurial talent and business skills, the concept of
venture capital emerged. In a way, venture capital is a commitment of
capital, or shareholdings, for the formation and setting up of small scale
enterprises at the early stages of their life cycle.
Venture capitalists comprise of professionals of various fields. They
provide funds (known as Venture Capital Fund) to these firms after carefully
scrutinizing the projects. Their main aim is to earn huge returns on their
investments, but their concepts are totally different from the traditional
moneylenders. They know very well that if they may suffer losses in some
project, the others will compensate the same due to high returns. They take
active participation in the management of the company as well as provide the
expertise and qualities of a good banker, technologist, planner and managers.
Thus, the venture capitalist and the entrepreneur literally act as partners.
Sector wise Growth of Venture Capital Finance in India
4
1.2 Benefits of VC over other Funding Methods
Venture capital has a number of advantages over other forms of finance:
It injects long term equity finance which provides a solid capital base
for future growth.
The venture capitalist is a business partner, sharing both the risks and
rewards. Venture capitalists are rewarded by business success and the
capital gain.
The venture capitalist is able to provide practical advice and assistance
to the company based on past experience with other companies which
were in similar situations.
The venture capitalist also has a network of contacts in many areas
that can add value to the company, such as in recruiting key personnel,
providing contacts in international markets, introductions to strategic
partners, and if needed co-investments with other venture capital firms
when additional rounds of financing are required.
1.3 A Brief History
One of the first steps toward a professionally-managed venture capital
industry was the passage of the Small Business Investment Act of 1958. The
1958 Act officially allowed the U.S. Small Business Administration (SBA)
to license private "Small Business Investment Companies" (SBICs) to help
Sector wise Growth of Venture Capital Finance in India
5
the financing and management of the small entrepreneurial businesses in the
United States. It is commonly noted that the first venture-backed startup is
Fairchild Semiconductor (which produced the first commercially practical
integrated circuit), funded in 1959 by what would later become Venrock
Associates.
During the 1960s and 1970s, venture capital firms focused their
investment activity primarily on starting and expanding companies. More
often than not, these companies were exploiting breakthroughs in electronic,
medical, or data-processing technology. As a result, venture capital came to
be almost synonymous with technology finance.
The public successes of the venture capital industry in the 1970s and
early 1980s (e.g., Digital Equipment Corporation, Apple Inc., Genentech)
gave rise to a major proliferation of venture capital investment firms. The
number of firms multiplied, and the capital managed by these firms
increased ten folds over the course of the decade.
Growth in the venture capital industry remained limited throughout the
1980s and the first half of the 1990s.The late 1990s were a boom time for
venture capital. Initial public offerings of stock for technology and other
growth companies were in abundance, and venture firms were reaping large
returns.
Sector wise Growth of Venture Capital Finance in India
6
The NASDAQ crash and technology slump that started in March 2000
shook virtually the entire venture capital industry as valuations for startup
technology companies collapsed. Over the next two years, many venture
firms had been forced to write-off large proportions of their investments, and
many funds were significantly "under water" (the values of the fund's
investments were below the amount of capital invested). The revival of an
Internet-driven environment in 2004 through 2007 helped to revive the
venture capital environment. Currently, Venture Capital Environment is at
all time high leading to emergence of all together new businesses.
Innovations are sprouting at fast speed and VC investments are helping them
for realizing full potential of Entrepreneurs.
1.4 Venture capital financing process
There are typically six stages of venture round financing offered in
Venture Capital that roughly correspond to these stages of a company's
development.
Seed funding: Low level financing needed to prove a new idea, often
provided by angel investors. Crowd funding is also emerging as an
option for seed funding.
Start-up: Early stage firms that need funding for expenses associated
with marketing and product development.
Growth (Series A round): Early sales and manufacturing funds.
Sector wise Growth of Venture Capital Finance in India
7
Second-Round: Working capital for early stage companies that are
selling product, but not yet turning a profit.
Expansion: Also called Mezzanine financing, this is expansion
money for a newly profitable company.
Exit of venture capitalist: Also called bridge financing, 4th round is
intended to finance the "going public" process.
Between the first round and the fourth round, venture-backed companies
may also seek to take venture debt.
1.5 What do VCs look for?
Venture capitalists are higher risk investors and, in accepting these risks,
they desire a higher return on their investment. The venture capitalist manages
the risk/reward ratio by only investing in businesses which fit their investment
criteria and after having completed extensive due diligence.
Venture capitalists have differing operating approaches. These
differences may relate to location of the business, the size of the investment, the
stage of the company, industry specialization, structure of the investment and
involvement of the venture capitalists in the company’s activities.
The venture capital firm will ask prospective investee companies for
information concerning the product or service, the market analysis, how the
Sector wise Growth of Venture Capital Finance in India
8
company operates, the investment required and how it is to be used, financial
projections, and importantly questions about the management team.
All the above questions should be answered in the Business Plan.
Assuming the venture capitalist expresses interest in the investment opportunity,
a good business plan is a pre-requisite.
Sector wise Growth of Venture Capital Finance in India
9
2 VENTURE CAPITAL IN INDIA AND BUSINESS
CONFIDENCE
2.1 Industry Overview
India currently has more than about 400 Venture capital firms. The
Venture Capital industry has shown an exponential upward curve from
investments of about USD 57 billion in 2008 to USD 140 billion in 2013.
Unlike before as observed in the early stages of the industry’s growth the
investments were inclined largely towards the Real Estate and IT sector, but
within 7 years of success stories now in 2016 venture capital firms are now
interested in nearly all sectors.
With developing Indian entrepreneurship standards, government support,
policies and globalization policies there are vast opportunities for private equity
investors to capitalize on. Again the government campaigns like “Startup
India”, “Make in India” and “Digital India” making new path for startups and
thus Venture Capitalist are encouraged to fund new endeavors.
Among cities, companies headquartered in Bangalore and Mumbai were
the favourite among VC investors during 2013 attracting 49 investments each,
followed by Delhi-based companies that accounted for 24 investments and
Chennai-based companies with 21 investments. Gurgaon and Hyderabad
followed with 15 deals and 8 deals respectively.
Sector wise Growth of Venture Capital Finance in India
10
Preferred regions for VC investments are Mumbai, Delhi & NCR, and
Bangalore, followed by Chennai and Hyderabad. Tier-2 cities like Lucknow and
Chandigarh are slowly catching up in attracting VC Investments.
2.2 Strengths and Challenges of India
India is an attractive market with a challenging business environment. Its
appeal lies in its competitive labor costs, lucrative domestic market, and its
skilled workforce. Foreign investors also applaud its strong management and
business education system, as well as its improving telecommunications
infrastructure. However, the country’s weaknesses are its under-developed
infrastructure and a restrictive operative environment.
Key Strengths
Local Labor Costs
Domestic Market
Business and Management Education
Skilled Services Workforce
Telecommunications Infrastructure
Key Challenges
Legislative and administrative environment
Transport and logistics infrastructure
Sector wise Growth of Venture Capital Finance in India
11
Corporate Taxation
Ease of doing business
2.3 Growth of Venture Capital Industry
Up to 1996-The Early Years:
Funds that were mobilized for venture investment were small in value.
The venture capitalists in those times were mostly from a banking
background.
Banks approached the subject of venture funding much likely they
approached debt financing of a project.
The accent was on the asset-side of the balance sheet. And the focus on
innovation and business building was low.
Value creation as a focus had not yet been fully discovered, and exit
strategies were being thought more around the life-term of the fund.
Valuations were low.
No competition between VCs.
Indian entrepreneurs had not yet discovered the venture capital route to
funding and growth and it reflected in the small amounts that were
invested.
There was little or no active participation of venture capitalists in
entrepreneurial activities such as financial structuring, business strategy.
Sector wise Growth of Venture Capital Finance in India
12
Business enhancement through networks.
1997 to 2000-The Rock ‘n’ Roll Years:
The SEBI guidelines of 1996 acted as huge incentive for domestic and
foreign venture capital companies to focus their attention on India.
The range of venture capitalists now spanned incubators, angel investors,
classic venture capitalists and even private equity players. And the lines
between them had begun to blur.
Venture capitalists were instrumental in introducing risk taking too many,
members of the professional class.
2001 Onwards-The Reality Years:
The number of people who had got in to venture capital game was truly
impressive.
In addition to the seasoned players, there were finance and noon finance
professionals of different hues entering the industry and people with little
or no experience running the companies.
Venture capital community is finally recognizing that the evolution and
business is an on-going process. This added to the return of the business
maturation cycle of five to seven years, portends a less frenetic and more
sustained pace of venture activity.
Sector wise Growth of Venture Capital Finance in India
13
Domestic Venture Capital firms have realised the potential of Indian
Entrepreneurs.
Legislative support has seen tremendous reforms.
According to surveys by International agencies like Deloitte, EY; Foreign
Investors attractiveness among India is increasing.
Sector wise Growth of Venture Capital Finance in India
14
3 INTRODUCTION TO THE STUDY
3.1 Background of the Study
Today due to the economic crisis and the change in job market,
Entrepreneurship has gained interest. A number of young people in India today,
plans to setup their own ventures and capitalize this opportunities. In today’s
highly dynamic economic climate with regular technological inventions, few
traditional business models may survive but margin lies more towards more
innovative business ideas. Now, along with conglomerates that fuel economic
growth SMEs and other innovative businesses have gained the momentum
towards contribution in it.
Starting and expanding an enterprise has its own risk and is never easy.
There are number of parameters that contribute to its success or downfall. Some
of these include:
Should one choose Venture Capital or any other mode of finance?
Which sector one should start its venture in?
What array of businesses are points of attraction among Venture
Capitalists?
Sector wise Growth of Venture Capital Finance in India
15
What is possible near future growth in sector of one’s choice? The study
helps in providing answers to these questions by analysing status of Venture
Capital in India, which sectors are on rise, what is the confidence level of Indian
and Foreign investors.
3.2 Need for the Study
The need of study has following facets:
The study has been conducted for gaining the practical knowledge
about Venture Capital Finance in India
There is a limited Academic Literature available regarding Venture
Capital Finance in India.
3.3 Objectives of Study
As we know Venture Capital Finance is no more in the dormant stage in
India. But there is a dearth of academic research on the topic. In order to fill the
gap the study has been undertaken. The main objectives of study are:
To know the current scenario of venture capital finance in India
To predict the future rate of growth of Venture Capital Finance
Sector wise Growth of Venture Capital Finance in India
16
To lookout for market share of different economic sectors in terms
of Venture Capital Investments
To analyse growth of venture capital investment in different sectors
of economy
3.4 Scope of Study
The study is about Venture capital Finance in India. So any kind of
financing other than Venture Capital is out of scope. Also, data of any
country other than India is out of scope of this study.
Only studies of Venture Capital Investments are in scope. Factors
responsible for such investments are out of scope.
Sector wise Growth of Venture Capital Finance in India
17
4 LITERATURE REVIEW
Although there is limited literature available for Venture Capital Finance
in Indian context, there are extensive texts available on Venture capital all over
the world. Following are some insightful work done by different academicians
and researchers in the same line.
I M Panday “The process of developing venture capital in India” -
Technovation, Volume 18, Issue 4, April 1998
This study investigates the process of developing venture capital in a
developing country — India. The discussion documents the experiences of the
largest venture capital firm in India (TDICI) in initiating and developing the
concept of venture capital as well as learning the venture capital business. The
history of modern venture capital in India is of recent origin; it only goes back
to the mid-eighties. In the initial years, venture capital firms (VCFs) in India
encountered a number of problems in developing their businesses. From the in-
depth case study of TDICI, it is found that the firm went through the initial
constraint of not knowing the venture capital business well, and learnt through
experience. It faced problems in raising funds and evaluating prospective
ventures. It initially focused its investment in the high-technology business, but
gradually shifted the focus towards other potentially high-growth, high-
Sector wise Growth of Venture Capital Finance in India
18
profitable businesses, not just high-tech businesses. It is also noticed that TDICI
undertook a number of business development initiatives to popularize the
venture capital business in India. It introduced a simple organisational structure
for facilitating quick decision- making, and developed innovative funding and
financing mechanisms.
Dossani, R. and Kenney “Creating an Environment for Venture Capital in
India”- M. World Development, 30 (2) 227–253 (2002)
The institution of venture capitalism is a difficult one to initiate through
policy intervention, particularly in developing countries with unstable
macroeconomic environments and histories of state involvement in the use of
national capital and in the composition of production. India has all these
constraints. The emergence of a thriving software services industry after 1985
created the raw material that venture capital could finance, thus achieving a
critical precondition for venture capital's growth. It was followed by efforts to
create a venture capital industry. After several setbacks, some success has been
achieved largely due to a slow process of moulding the environment of rules
and permissible institutions. The process was assisted by the role of overseas
Indians in Silicon Valley's success in the 1990s. Yet, in terms of what is needed,
most of the work remains to be done. Inevitably, this will be the result of joint
work by policymakers and practitioners.
Sector wise Growth of Venture Capital Finance in India
19
Asim Mishra “Indian Venture Capitalists (VCs): Investment Evaluation
Criteria” - ICFAI Journal of Applied Finance, Vol. 10, No. 7, pp. 71-93, July
2004
This paper analyses the validity of venture evaluation model in India by
directly comparing the relative importance of evaluation criteria on the funding
decision with the relative importance to factors influencing venture's empirical
performance. In the light of the differences in investment opportunities around
India, and the nature of industrial development in South East Asia in general,
the author anticipated that the investment criteria employed by Venture Capital
Firms (VCFs) in India would differ. A questionnaire was administered to
venture capitalists (regular members of Indian Venture Capital Association) to
determine the criteria they use to decide on funding new ventures. The response
rate was 100%. A list of forty two criteria was developed on previously
developed lists. The criteria fell into six groups: the entrepreneur's personality,
the entrepreneur's experience, characteristics of the product or service,
characteristics of the market, financial consideration and characteristics of
venture management team. Answers were given on a four point rating scales.
The results reveal that criteria adopted by Indian VCs are different from those
adopted by VCs in other countries including US. The results also confirm that
the following.
Sector wise Growth of Venture Capital Finance in India
20
Sayed Ahmed Naqi and Samanthala Hettihewa “Venture capital or private
equity? The Asian experience”- Business Horizons Volume 50, Issue 4, July–
August 2007
Venture capital in Asia has exhibited remarkable growth over the last two
decades. Researchers and practitioners have, however, expressed doubts as to
whether what is being reported as venture capital in Asia can really be classified
as such. Authors of scholarly studies often avoid this debate and, consequently,
fail to caution readers about the applicability of their research findings. Through
an exploration of the history, development, and composition of venture capital
in Asia, this article not only confirms significant differences between Asian and
traditional venture capital, but also finds that venture capital in Asia differs little
from what is commonly called private equity. As such, a need exists within the
venture capital literature to recognize this peculiarity of the Asian venture
capital market. Moreover, venture capitalists considering expansion into Asia
must comprehend the nature of the Asian market in order to avoid
disillusionment and frustrations which may result from inadequate
understanding.
A. Thillai Rajan “Venture capital and efficiency of portfolio companies” -
IIMB Management Review, Volume 22, Issue 4, December 2010
Venture Capital (VC) has emerged as the dominant source of finance for
entrepreneurial and early stage businesses, and the Indian VC industry in
Sector wise Growth of Venture Capital Finance in India
21
particular has clocked the fastest growth rate globally. Academic literature
reveals that VC funded companies show superior performance to non VC
funded companies. However, given that venture capitalists (VCs) select and
fund only the best companies, how much credit can they take for the
performance of the companies they fund? Do the inherent characteristics of the
firm result in superior performance or do VCs contribute to the performance of
the portfolio company after they have entered the firm? A panel that comprised
VCs, an entrepreneur and an academic debated these and other research
questions on the inter-relationships between VC funding and portfolio firm
performance. Most empirical literature indicates that the value addition effect
dominates the selection effect in accounting for the superior performance of VC
funded companies. The panel discussion indicates that the context as well as the
experience of the General Partners in the VC firms can influence the way VCs
contribute to the efficiency of their portfolio companies.
Sector wise Growth of Venture Capital Finance in India
22
5 RESEARCHMETHODOLOGY
Research Methodology is a way to systematically solve the research
problem. In it, step-by-step methods are followed to solve a particular problem.
It refers to a search for knowledge. It can also be defined as a scientific and
systematic search for pertinent information on a specific topic. The study is
carried out around different sources of data regarding Venture Capital Finance
in India. The data is analysed using different functions of Microsoft Office
Excel 2010 and Microsoft Office Word 2010. The main statistical tools used are
Trend and Linear Forecast.
5.1 Data Collection
The study is based on secondary data on Venture Capital Investments.
The data is collected from different publications and online resources including
SEBI’s Handbook of Statistics on Indian Securities Markets
SEBI’s website
Indian Venture Capital Association reports
Bain & Company’s reports
Sector wise Growth of Venture Capital Finance in India
23
Deloitte and E&Y survey results
Trading Economics website
and many other books, publications, reports and articles.
5.2 Research Design
Research Design is the way in which the research is carried out. It works
as a blue print. Research Design is the arrangement of conditions for the
collection and analysis of data in a manner that aims to combine relevance to
the research purpose with economy in procedure.
The Research design for the study is descriptive in nature. The research
is done with analog observations. Predictive analysis is done in order to know
pattern of near future investment patterns.
5.3 Limitations of Study
The Study is based on the data provided by different sources, any
incorrectness or biasness in same might also have been resulted in same for this
study.
Sector wise Growth of Venture Capital Finance in India
24
6 ANALYSIS AND INTERPRETATION
6.1 Analysing Growth of Venture Capital Finance in India and
Forecasting VC Investments in near future
To understand the scenario of venture capital investments in India, firstly
we looked at the Total Investment Details of SEBI Registered Venture Capital
Funds (VCF) and Foreign Venture Capital Investors (FVCI) as of Dec 31 of
each year starting 2007.
Year Total VC Investment (in Rs. Crores)
2007 28260
2008 33939
2009 42059
2010 47859
2011 56868
2012 55542
2013 69520
2014 71061
2015 72849
(Table 1: Cumulative Total Investment Details of SEBI Registered Venture Capital Funds
(VCF) and Foreign Capital Investors (FVCI) as of Dec 31 of each year)
Sector wise Growth of Venture Capital Finance in India
25
With the help MS Word Excel, Growth Rate is determined for given
values from year 2007-2013 and prediction for next two years is made using
following TREND function:
TREND(known_Ys, known_ Xs, New_Xs, constant)
Here, Ys = Known Values of Total Investments
Xs = Year corresponding to known Ys (2007-2015)
New Xs = Year for which Value to be forecasted (2016), (2017)
Constant = None
Following are the Forecasted Values of Total Investment in 2016 and 2017
using TREND function.
Year Forecasted Total VC Investment (in Rs. Crores)
2016 82466.92
2017 88339.03
(Table 2: Forecasted values of Total Investments by Venture Capital Funds as of Dec 31 of
2016and 2017)
When values of Venture Capital Investments in India from 2007 to 2015
and their forecasted values for 2016and 2017 are plotted on a Line Graph,
following curve is obtained.
Sector wise Growth of Venture Capital Finance in India
26
(Fig 1. : Line Graph of Total Venture Capital (VC) investments from year 2007 to 2015 along
with forecasted values for year 2016 and 2017)
Interpretation: Fig. 1 shows the Line Graph of Total Venture Capital (VC)
investments from year 2007 to 2015 along with forecasted values for year 2016
and 2017. The black curve shows Trend curve for same. We can infer that
Venture Capital Investments in India have grown linearly but has the potential
to grow exponentially. If same trend continues, the investments by VC in India
will be increasing in near future. Also, Investments have been slow in one year
dropping from Rs. 56868 crores in 2011 to Rs. 55542 crores in 2012 but they
have gained their momentum back in 2013 by increasing more that 25%.Again
in 2015 the investment had been under the trend line with investment of
Sector wise Growth of Venture Capital Finance in India
27
72849crores. The Value of Investments in 2016 and 2017 is predicted to be near
Rupees 82 and 88 thousand crores respectively.
6.2 Analysis of Venture Capital Investments in different sectors of
Economy
Now we look at the different sectors of Economy details Venture Capital
Investments of SEBI Registered Venture Capital Funds (VCF) and Foreign
Capital Investors (FVCI) as of Dec 31 of each year (FVCFs) .
Year
------------ Sectors of
Economy
2007 2008 2009 2010 2011 2012 2013 2014 2015
IT 2169 2520 2864 3319 4322 4481 5325 5868 6412
Telecom 990 1076 4268 7469 7516 7086 7798 7549 7301
Pharmaceut
icals
1076 1229 1478 1325 1132 1151 1006 874 743
Biotechnology 385 634 461 289 283 278 326 337 348
Media/Entert
ainment
470 906 1434 1006 1124 739 1406 1381 1356
Service
Sector
2475 2976 3529 2677 2973 2809 3697 4180 4664
Industrial
Product
2047 1951 2344 1355 2014 2107 2377 2020 1663
Real Estates 6348 6311 8185 9783 10831 9987 12048 11315 10583
Others 16749 24413 27158 20637 26673 26903 35535 37656 39778
(Table 3: Cumulative Total Investment (in Rs. Crores) Details of SEBI Registered Venture
Capital Funds (VCF) and Foreign Capital Investors (FVCI) as of Dec 31 of each year)
Sector wise Growth of Venture Capital Finance in India
28
Table 3 shows Annual Venture Capital Investments data for different
sectors of economy. Different sectors of economy for which data has been
obtained are Information Technology, Telecommunications, Pharmaceuticals,
Biotechnology, Media/Entertainment, Services Sector, Industrial Products and
Real Estate. Now in order to analyse percent share of Venture Capital
Investment in 2015 for each different sector following pie chart is obtained.
(Fig 2. Total VC Investment Share of different sector of Economy in India)
Sector wise Growth of Venture Capital Finance in India
29
Interpretation In 2015, Real Estate is the biggest sector of Venture Capital
Investments, followed by Telecommunications and Information Technology.
Services Sector stands at 4th position followed by Industrial Products sector and
Media/Entertainment sector. Pharmaceutical and Biotechnology sector has least
share of Venture Capital Funds among 8 sectors.
To understand the scenario of growth in each sector, line graphs have been
obtained using values from Table 3. In each graph, a black coloured trend line is
obtained which shows forecasted linear trend of respective sector.
(Fig 3. Total Venture Capital (VC) investments in Rs.Crores curve from year 2007 to 2015
in Information Technology Sector. It also shows forecasted linear trend line. )
Information Technology (IT) has been high growth factor all these years.
According to Bain India Private Equity report 2014, IT is expected to be one of
the most attractive sectors for PE and VC investments in the next two years.
Sector wise Growth of Venture Capital Finance in India
30
This is evident from rise in investment in this area in 2015. We can infer that IT
is going to be one of the high growth sectors attracting large amount of Venture
Capital in year 2016 and 2017.
(Fig 4. Total Venture Capital (VC) investments (in Rs. Crores) curve from year 2007 to 2015
in Real Estate Sector. It also shows forecasted linear trend line.)
As India is developing country and Real Estate is an utmost important
need of any developing nation. Real Estate sector has always seen reasonable
growth and is still attracting investment. In 2015 this sector has performed
below the line. But looking into the trend line it will be improving in 2016 and
2017 in terms of Venture Capital Investment.
Sector wise Growth of Venture Capital Finance in India
31
(Fig 5: Total Venture Capital (VC) investments in Rs. Crores curve from year 2007 to 2015
in Telecommunication Sector. It also shows forecasted linear trend line. )
Telecommunication sector has seen some of the biggest investments in
2009 and 2010 making it Hot Favorite sector of Venture Capital Investment in
those years. Following bad news of scams and cancelation of 2G licenses the
sector has not attracted much investment from year 2010. Although Forecasted
Linear 7 year trend line projects it as high growth sectors but when we look at
data from last 4 years, Telecommunications has been laggard leading to very
slow growth in upcoming years.
Sector wise Growth of Venture Capital Finance in India
32
(Fig 6: Total Venture Capital (VC) investments in Rs. Crores curve from year
2007 to 2015 in Media and Entertainment Sector. It also shows forecasted linear
trend line. )
Media/Entertainment Sector has seen moderate growth in past years. In
2013, Venture Capitalists have shown significant interest. Again fall is
investment in 2014 and 2015 is noticeable. There were good numbers of deals
in the sector. The sector is further going to show moderate growth depending
upon current factors affecting the sector.
Sector wise Growth of Venture Capital Finance in India
33
(Fig 7: Total Venture Capital (VC) investments in Rs. Crores curve from year
2007 to 2015 in Service Sector. It also shows forecasted linear trend line. )
2009 and 2015 are the only years of high growth for Services Sector.
Because of less inclined forecasted linear trend of the investments in the sector,
there will be moderate growth in venture capital investments in India in
upcoming years.
Sector wise Growth of Venture Capital Finance in India
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(Fig 8: Total Venture Capital (VC) investments in Rs. Crores curve from year 2007 to 2015
in Industrial Product Sector. It also shows forecasted linear trend line. )
Industrial Products sector is a source of high employment opportunities
for less skilled labor. The sector has not seen much growth in terms of venture
capital investments. Because of less inclined forecasted linear trend of the
investments in the sector, there will be slow growth in venture capital
investments in India in upcoming years.
Sector wise Growth of Venture Capital Finance in India
35
(Fig 9: Total Venture Capital (VC) investments in Rs. Crores curve from year 2007 to 2015
in Pharmaceutical Sector. It also shows forecasted linear trend line. )
(Fig 10: Total Venture Capital (VC) investments in Rs. Crores curve from year 2007 to 2015
in Biotechnology Sector. It also shows forecasted linear trend line. )
Sector wise Growth of Venture Capital Finance in India
36
Fig. 9 and Fig. 10 shows Total Venture Capital (VC) investments curve
from year 2007 to 2015 and forecasted linear trend in Pharmaceutical and
Biotechnology Sector. These sectors have been sectors of declining growth
since 2009. There is not much growth expected in 2016 and 2017 from these
sectors.
Interpretation
There are different sectors of Economy in India. Out of all above
mentioned Economic Sectors, few sectors are attracting more Venture Capital
Funds than others. With analysis of each sector we can categorize them by rate
of growth of investments over 9 years.
Information Technology and Real Estate have continuously seen High
Growth and are predicted to do so in coming years. For Entrepreneurs these
sectors can be fruitful to start their venture in.
Telecommunication and Media/Entertainment have been areas of
Moderate Growth and may do better in coming years. For Entrepreneurs these
sectors can be fruitful but they must keep caution while starting their venture in.
Services Sector and Industrial Products Sector are areas of very Slow
Growth in terms of VC investments in these areas. One must have strong know
how of these sectors while starting any business.
Sector wise Growth of Venture Capital Finance in India
37
Pharmaceuticals and Biotechnology are Sectors of Declining Growth in
VC Investments. One may have hurdles in getting investments for ventures in
these sectors.
Sector wise Growth of Venture Capital Finance in India
38
7 Findings and Conclusion
7.1 Findings
There was an exponential increase in Venture capital from 2007 till date.
It is predicted that there will be good amount of Venture Capital
Investments about to occur in 2016 and 2017.
Around Rs. 82466 crores of VC investments will be made in 2016.
2017 will see VC investments of around Rs 88399 Crores.
Real Estate Sector gets maximum share of Total Venture Capital
Investments among different sectors of Economy in 2015, followed by
Telecommunications and Information Technology.
Among different sectors of economy, Information Technology and Real
Estate are sectors with high growth rate of Venture Capital Investment and
is expected to do well in comings years as well.
In terms of Venture Capital investments made Telecommunications and
Media/Entertainment sectors are growing at medium pace.
Telecommunications have seen decline only in recent years, the most
obvious reason for it is the policy paralysis and scams around this sector in
India. Yet due to adoption of 4G technology there is still a possibility for
rise in the trend.
Sector wise Growth of Venture Capital Finance in India
39
Services Sector and Industrial Products Sectors are not attracting much VC
investments and growing very slow.
Sectors of Pharmaceuticals and Biotechnology have been left quite far in
attracting VC investments. They have shown declining trend and there is
less hope from these sectors in upcoming years.
7.2 Conclusion
Venture capital financing has become a part of the popular business in
India. VC investments are growing at an l rate and one who is starting or
expanding his business can look it as a good option of financing its venture.
With our analysis we can infer that there will be an increase in Venture Capital
Investments in 2016 and 2017. In India, Information Technology and Real
Estate are sectors with High Growth in VC Investments whereas
Pharmaceuticals and Biotechnology are sectors with Declining Growth in VC
Investments.
Sector wise Growth of Venture Capital Finance in India
40
8 REFERENCES
8.1 Bibliographic References
Brigham, Eugene F. and Houston, Joel F. 2009. Fundamentals of
Financial Management. s.l. : South-Western Cengage Learning, 2009.
Pandey, Dheeraj and Rajan, Thillai A. 2011.. International Conference
on Technology and Business Management.
2014. INDIA PRIVATE EQUITY REPORT. : Bain & Company and
Indian Venture Capital Association, 2014.
Rajan, Thillai A and Deshmukh, Ashish. Venture Capital and Private
Equity in India: An Analysis of Investments and Exits. IIT Madras
Journal..
Sector wise Growth of Venture Capital Finance in India
41
8.2 Web References
Report of K B Chandrasekhar Committee on Venture Capital, SEBI
http://www.sebi.gov.in/commreport/sebicomm.html
Venture Capital, Business Portal of Government of India
http://business.gov.in/business_financing/venture_capital.php /
Venture Capital for MSMEs, SIDBI Ventures
http://www.sidbiventure.co.in/
Industry wise cumulative Investment Details,
http://www.sebi.gov.in/vc/investdetails.html/
Global venture capital confidence survey,
http://www2.deloitte.com/us/en/pages/technology-media-and-
telecommunications/articles/global-venture-capital-confidence-
survey.html/
Sector wise Growth of Venture Capital Finance in India
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Appendix: 1
Sector wise Growth of Venture Capital Finance in India
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Appendix:2