The venture capital in India is still an emerging concept and is still at an introductory state. For Venture Capital firms to flourish in India, there should be a proper promotion of innovation, enterprise, commercial execution of innovative ideas, entrepreneurial culture etc. India has already entered the era of Information technology and this sector has seen tremendous growth over the years. The “Make in India” campaign has attracted many individuals and companies from all over to invest and build in India.
A development in the Venture Capital environment will fill the gap between the capital requirement of tech-based and knowledge based startups and traditional financing systems. The traditional Indian Venture Capital environment can be dated back to 150 years when agencies provided both finance and skills to projects.
Phases of Venture Capital
The growth and development of venture capital in India has taken in different phases. The need for the venture capital was first noticed by the Bhatt Committee in 1972 under the chairmanship of R.S. Bhatt. This committee identified the problems of new entrepreneurs and technologists in setting up industries.
- In 1975, venture capital financing was introduced in India by all-india financial institutions with the establishment of Risk Capital Foundation (RCF) supported by Industrial Finance Corporation (IFCI).
- In 1976, seed capital scheme was introduced by Industrial Development Bank of India (IDBI).
- In 1984, Industrial Credit and Investment Corporation of India (ICICI) decided to allocate funds for providing assistance to venture capital firms.
- In 1985, the government announced the creation of a Venture Capital Fund and presented it in parliament. The fund created equity capital for pilot projects with potential businesses.
The First Phase 1986-1995
- April 1, 1986, Venture Capital Fund established by the government was operational and administered by IDBI Bank.
- In 1986, ICICI launched a venture capital scheme to encourage new technocrats in the private sector in the emerging field of high-risk technology.
- In August, 1986, ICICI Bank undertook administration of Programme for Advancement of Commercial Technology (PACT)
- In 1987, IDBI started a venture capital fund scheme
- In 1987-1988, Technology Development Fund (TDF) changed the course of Venture Capital in India.Government of India and World Bank joined together for economic liberalisation in India. November 25, 1988, government announced guidelines for the establishment and functioning of venture capital activities.
- In 1993, Indian Venture Capital Association (IVCA) was established headquartered in Bangalore.
- First phase of Venture Capital in india was a developing experience and policy making with some regulatory framework
The Second Phase 1995-1999
Capital Under Management in India increased after 1995. Non-resident Indians (NRIs) invested in Venture Capital Funds. Suggestion from Shri Vishnu Varshney in 1998, resulted in tax privileges , progressive liberalisation in IPO guidelines and institutions.
In 1999, 80% of total venture capital investment were derived overseas firms.Such overseas firms were registered in Mauritius and operated in India to avoid the regulation by Indian government. IVCA refined its terms and framework to facilitate the Venture Capital ecosystem
The Third Phase 2000 and above
- In 1999, various regulations were adjusted and the horizon of investment in venture capital for other financial institutions was broadened. All the banks with permission were allowed to invest 5% of their new fund in venture capital annually.
- Venture capital industry faced liquidity, legal, political, economical and operational problems during the course of action. K.B. Chandrasekhar committee addressed all these issues and submitted a report to SEBI.
- In 2012 A.D., $3.1 B capital was deployed in India and by the end of 2018, this capital investment amounted to $6.4 billion. By the end of 2019, this amount will reach $ 10 billion.
- Similarly, In 2012, the number of Venture Capitalists investment was 458 and by the end of 2019, the number of investments was more than 750.