INVESTMENTS BY VENTURE CAPITAL FUNDS AND FOREIGN VENTURE CAPITAL FUNDS IN INDIA: A COMPARATIVE STUDY

Pompi Chetia

Abstract


In the year 1996, the government for the first time gave an organisational shape to the needs of the unlisted companies and Greenfield projects in India and the Venture Capital Industry was formalised. Prior to 1996 also World Bank aimed at helping small, innovative firms to obtain innovative resources by building the regulatory and institutional framework for venture capital in India. World Bank, in fact, started venture capital initiative too by providing assistance to Industrial Credit and Investment Corporation of India Ltd. (ICICI), Canara Bank, the State Industrial Development Corporation (SIDC) of Andhra Pradesh (APIDC) and Gujarat (GIIC) for opening up venture funds. Although this initiative by the World Bank was able to give the Indian innovative firms some form of assistance, the criterion to get venture funds as laid down was too restrictive and the regulatory aspect was also too clumsy. It was only after the release of Securities and Exchange Board of India (Venture Capital) Regulation, 1996 and Securities and Exchange Board of India (Foreign Venture Capital) Regulation, 2000 that the venture capital industry took a formal shape in India. It has been twenty years since the formalisation of the venture capital industry here. Unlike the middle nineties and even the early twenties, when foreign investors were too reluctant to invest in Indian projects, today the Indian ventures are not in dearth of foreign funds. In fact, this study finds that, from the later part of the last decade foreign investors have been playing pivotal role in providing financial assistance to Indian unlisted companies. Results from this study also find significance difference in the investment behaviour of foreign and domestic venture funds across the sectors over the study period. It has also been observed by the researcher that in the last nine years, investments from the foreign venture funds have experienced quintessential growth in the country and has even surpassed the domestic funds by a huge margin.

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