An Analysis of Trends of Venture Capital and Private Equity Investments in India

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Abstract

Over the last few years, India has become one of the heading destinations for venture capital and private equity investments. The rapid growth of GDP and liberalisation of the economy helped a lot for the development of venture capital industry in India. In recent years, venture capital and private equity investments have grown at a rapid pace. According to venture economic data, during the period 1990-99, India's ranking was 25 out of 64 countries of the world and various venture capital and private equity funds raised US $ 945.9 million for investments in India. This picture was brighter during the next decade with India's ranking score to 13 out of 90 countries and the funds raised $16,685.5 million for investments in India. By the end of year 2009, India's ranking was 10 out of 77 countries of the world, and it rose to number three slot worldwide in quantum of investments. A lot of variation is noticed in investment trend during the last one decade. This paper makes an attempt to analyse the investment trend of venture capital and private equity investments in India during the last one decade.

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The concept of venture capital and private equity in India is very recent, compared to U.S.A, U.K, Europe and Israel etc, where it has been in existence, since many decades and over the period has helped many businesses to grow and expand. One of the main reasons for this is the regulatory and legal framework in India was not conducive for the development of venture capital industry. Venture capital investment activity started in India in 1973, when a committee on development of small and medium enterprises highlighted the need to foster venture capital as a source of funding new entrepreneurs and technology. A study was undertaken by the World Bank to examine the possibility of developing venture capital in the private sector, based on which government of India took a policy initiative and announced guidelines for venture capital funds in 1988. But these were restricted to setting of venture capital funds by banks or other financial institutions only.

In late 1988, Technical development and Information Corporation of India was setup and within a short period of time, it was followed by Andhra Pradesh and Gujarat states, with the establishment of APIDC VCL and GVLF. The venture capital investment activity was slow till 1996, when SEBI introduced the venture capital fund regulations in order to regulate and promote the activities of Domestic venture capital funds. Subsequently in 2000, SEBI announced "SEBI (Foreign Venture Capital Investors) regulations for regulating and facilitating foreign venture capital and private equity funds, investing in India. With this venture capital investment activity picked up and over the last few years, India has become one of the leading destinations for venture capital and private equity investments. The rapid growth of GDP and liberalisation of regulations contributed for the growth of venture capital investments in India. Venture economic data indicate that during the period 1990-99, India's ranking was 25 out of 64 countries of the world and various venture capital and private equity funds raised $945.9 million for investments in India. But during the next decade 2000-09, India's ranking rose to 13 out of 90 countries and the funds raised $15,073.6 million for VC/PE investments in India. India's growth rate in venture investments is the fastest globally and it rose to occupy No.3 slot worldwide in quantum of investments.

OBJECTIVES OF THIS STUDY

The broad objectives of the study can be cited as under.

(1) To analyse the trends of venture capital and private equity investments in India, during the last one decade.

(2) To examine the flow of investments of different segments of Indian economy.

(3) To evaluate the stage wise flow of investments in India.

(4) To suggest necessary measures for the accelerated flow of investments into India. …