In India, the emergence
of venture capital companies is a relatively new phenomenon. Until 1985,
individual investors and Development Finance Institutions (DFIs) have played
the role of venture capitalists in the absence of an organised venture capital
industry. During that time entrepreneurs have largely depended on private
placements, public offerings and lending by financial institutions. The venture
capital phenomenon has arrived at a take-off stage in India with the easy
availability of risk capital in all forms. In the earlier stage, it was easy to
raise only growth capital but financing of ideas or seed capital is now
available after the introduction of venture capital phenomenon. The number of
players offering growth capital and the number of investors is rising rapidly.
In India, the concept of
venture capital was initiated by the Industrial Finance Corporation of India
(IFCI) when it established the Risk Capital Foundation (RCF) to provide seed
capital to small and risky projects. However, the concept of venture capital
financing first time got statutory recognition in the fiscal budget for the
year 1986 to 1987.
The venture capital
companies operating at present in India can be divided into four categories
based on their mode of promotion. Let us read about each mode.
Promoted by All-India
Development Financial Institution (IDFI)
The ICICI provided the
required impetus to venture capital activities in India. In 1986 it started
providing venture capital finance. In 1998, it promoted with the Unit Trust of
India (UTI) and Technology Development and Information Company of India (TDICI)
as the first venture capital company registered under the Companies Act, 1956.
The risk capital
foundation established by the IFCI in 1975 was converted to Risk Capital and
Technology Finance Company (RCTC). The RCTC was established as a subsidiary
company of IFCI to provide assistance in form of conventional loans and to give
financial support to high technology projects.
Promoted by state level
finance institution
In India, the state
level financial institutions in some states like Gujarat, Uttar Pradesh have
done an excellent job by providing venture capital finance to small scale
enterprises.
Promoted by commercial
banks
Venture capital funds
have been established by their corresponding commercial banks to undertake
venture capital financing activity. Examples of these funds are Canbank venture
capital fund, State bank venture capital fund, and Grindlays bank.
Private venture capital
funds
In India, several
venture capital funds have been established to provide funding to various small
scale enterprises. Examples of these funds established in India are 20th
Century Venture Capital Corporation and Indus venture capital fund.
