Venture funding for innovative / technology based business

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Agatha Hawkins
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1 Venture funding for innovative / technology based business 12th TCI Annual Global Conference - Regional Meeting (Tuesday, October 13, 2009) Presentation by R. V. Dilip Kumar, Vice President, SIDBI Venture Capital Ltd. Mumbai, India.

2 Presentation Structure Indian SMEs & ICT sector VC landscape in India Issues in VC funding of SMEs SIDBI Venture Capital Ltd. Funds managed by SIDBI Venture Role played by SIDBI Venture SIDBI Venture s Experience

3 Innovative Business Innovation can lead to New products or services New methods of production, supply and distribution Changes in management or work organization Creation of new patterns of use or consumption Innovate for competitive advantage market share, lower costs, better margins etc SMEs in the tech space are a major source for product development. SMEs face difficulty in raising capital.

entity engaged in production of goods and services involving Investment in

4 Small & Medium Enterprise (SME) SMEs are defined according to Micro, Small & Medium Enterprises Development Act, 2006 SME is broadly defined as an entity engaged in production of goods and services involving Investment in plant & machinery Above Rs.10 mn (USD 0.22 mn) Below Rs.100 mn (USD 2.22 mn)

5 SMEs in India According to Ministry of Micro, Small & Medium Enterprises, Govt of India 13 million SMEs 80% of companies are SMEs SMEs contribute 8% - 9% to GDP Employ over 41 million people

Indian ICT sector & SMEs Indian ICT industry is one of the largest India an important outsourcing destination Started as a captive operation of MNCs SMEs account for

6 Indian ICT sector & SMEs Indian ICT industry is one of the largest India an important outsourcing destination Started as a captive operation of MNCs SMEs account for 80%-85% of all units in this sector Hundreds of engineering colleges a few hundred thousand engineers graduate each year Return of tech savvy Indians from abroad & new start-ups

7 VC landscape in India Started in 1990s with Government support SEBI regulates VC activity Impacted by burst of dot-com bubble 90% of money goes towards late stage Technology is favorite segment for VCs Mix of instruments Equity / Convertible Business Angels in a small way SIDBI key role in VC funding

8 Issues in VC funding of SMEs High return expectations Scalability of business model Less articulate promoter Diluting equity - Fear of losing control Cultural issues Why bring an outsider (VC) into the business Information sharing Will this information go out to others? Corporate governance Board & other regulatory compliances Difficulties in exit

advising and managing Venture Capital funds.

9 SIDBI Venture Capital Ltd. Wholly Owned Subsidiary of SIDBI Established 1n 1999 to carry out business of setting up, advising and managing Venture Capital funds. Professionally managed AMC Currently managing two national level funds, viz. NFSIT & SME Growth Fund Also raising a third fund with target corpus of USD mln (Rs.10 bln) for investing largely in SME sector

Funds managed by SIDBI Venture National Venture Fund for Software and IT Industry (NFSIT) USD 22.22 mln (Rs.

10 Funds managed by SIDBI Venture National Venture Fund for Software and IT Industry (NFSIT) USD mln (Rs.1 bln) from SIDBI, IDBI & Govt Invested in startup and early stage companies from IT / ITES sector Total investments : 31 companies Average investment size : around USD 0.6 mln (Rs.30 mln) SME Growth Fund (SGF) USD mln (Rs.5 bln) corpus fund with a of focused on SMEs in diverse sectors Contribution from SIDBI and leading Public Sector Banks in India Diversified portfolio Average investment size : USD 3 mln (~ Rs.150 mln)

11 Key Strengths of SIDBI Venture Strong Brand Equity and Pedigree Experienced, cohesive and stable team Deep understanding of local culture and business environment Expertise in early and growth stage investments Extensive network and relationships Co-investments with several domestic/international funds Several companies received next round funding from global VC funds such as Sequoia, Clearstone, IDG Ventures etc.

Role played by SIDBI Venture SMEs require high level of handholding Active management participation by SVCL Nominee directors appointed on all

12 Role played by SIDBI Venture SMEs require high level of handholding Active management participation by SVCL Nominee directors appointed on all investee cos. Help create systems, provide advise through industry experts Help in second round fund raising Active involvement and value addition

SIDBI Venture s Experience Hand-holding essential Need for financial discipline, budgeting/costing Participation at management level essential for building up systems SMEs require a little longer

13 SIDBI Venture s Experience Hand-holding essential Need for financial discipline, budgeting/costing Participation at management level essential for building up systems SMEs require a little longer time than expected to achieve maturity Patience required in dealing with startup companies Creation of valuable IP, excellent services & products possible in the SME Profitable exit opportunities are available through strategic sale and M&A

14 Thank You

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