Page 239 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services

Notes and therefore investment opportunities. The average deal size in India is significantly lower
than in China or South Korea, for instance, but 8,000 companies are listed on Indian exchanges,
a huge number by any standard, and the rising performance of the stock market since 2004 has
resulted in substantial wealth creation for families with majority stakes in listed companies.
Among non-listed family companies there has been a traditional reluctance to share ownership
and surrender control. However, there are signs that private equity firms are willing to play a
more active advisory role in parallel with their ability to raise growth capital — a prospect that
owners and promoters are starting to find attractive. As well as providing capital and financial
expertise, private equity firms are in a unique position to introduce new disciplines and much
needed structural reforms, for example looking closely at the quality of management teams or
challenging companies to introduce leadership succession plans.

There has been phenomenal growth in the value of private equity investment in India over the
past decade. With an expanding domestic market and additional opportunities brought by
globalisation, the impact of private equity on Indian business is likely to increase further in the
coming years.

16.6 Summary

Venture capital is the capital provided by firms of professionals who invest alongside
management in young, rapidly growing or changing companies that have the potential
for high growth.
Venture capital is a form of equity financing especially designed for funding high risk and
high reward projects.

A Venture Capitalist (VC) may provide the seed capital unproven ideas, products,
technology oriented or start up firms.
The venture capital involves high degrees of risk.

Venture capital financing is an actual or potential equity participation wherein the objective
of venture capitalist is to make capital gain by selling the shares once the firm becomes
profitable.

Venture capital financing is a long term investment. It generally takes a long period to
encash the investment in securities made by the venture capitalists.
Venture capital funds take an active interest in the management of the assisted firms.

Venture capital projects generate employment, and balanced regional growth indirectly
due to setting up of successful new business.
Venture capital firms usually recognise the following two main stages when the investment
could be made in a venture namely Early Stage Financing and Later Stage Financing.
In India the Venture Capital plays a vital role in the development and growth of innovative
entrepreneurships.

16.7 Keywords

Management Buyins (MBIs): Management Buy-ins are funds provided to enable an outside
group of manager(s) to buy an existing company.
Management Buyouts (MBOs): In Management Buyouts (MBOs) venture capital institutions
provide funds to enable the current operating management/investors to acquire an existing
product line/business.

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