Financial Systems, Corporate Investment in Innovation, and Venture Capital

Financial Systems, Corporate Investment in Innovation, and Venture Capital

Edited by Anthony Bartzokas and Sunil Mani

This book examines the role of venture capital institutions in financing technology-based ventures both in developed and developing countries. It also explores that part of venture capital activity which is hitherto vastly under-researched; namely the ability of venture capital institutions to render a whole host of value-added support functions. These include setting up management teams and designing strategic plans for fledgling enterprises. The latter issue is operationalized through a series of carefully chosen case studies.

Chapter 8: Venture capital and innovation: the Indian experience

B. Bowonder and Sunil Mani

Subjects: economics and finance, economics of innovation, financial economics and regulation, innovation and technology, economics of innovation


B. Bowonder and Sunil Mani INTRODUCTION The purpose of the chapter is to understand the value-adding support functions which venture capital companies, render to their investee companies, especially in the Indian context. As seen in the earlier chapter by Mani and Bartzokas, the VC industry in India has exhibited significant growth during the 1990s. In fact one sees a coevolution between the growth of VC and the growth of the IT industry in the country. This chapter is structured into three broad sections. The first section traces the growth of the VC industry in the country, while in the second section we discuss detailed cases of 11 investee firms. Finally in the last section, we summarize the main insights obtained from these case studies. THE INDIAN VC INDUSTRY The government took a major initiative in establishing a VC industry in India towards the latter half of the 1980s. Its genesis and subsequent growth up to the mid-1990s are discussed in Mani (1997). The initial growth of the industry was regulated by the VC guidelines of 1988 which, as noted in Mani (1994), were an important document in the sense that it clearly laid out the scope of venture financing in the country in terms of specifying (a) stage of financing, (b) instrument of financing, and (c) industry of financing. The ideal type of venture financing envisaged was equity financing at the early stage of technology-based enterprises. There are currently three1 separate government regulatory policies, namely the Securities and Exchange...

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