Now at this situation VC comes into the picture. Before going to the deep, we need to know that what VC is?  VC stands for Venture Capitalist, the institution which provides funds for the advancement and development of the upcoming projects in your company. Here the question comes that how much you are going to ask to your venture capitalist for the investment. You need to make them understand about your project, your industry, your product life cycle, existing market capitalization etc.

A VC always looks for the potentiality of the project. They are least bother about the profit. They will evaluate your project on each and every aspect and then decide about the valuation. In mathematical term;

Valuation = market price of the share * total number of shares of your company

Some other factor which should be taken into consideration is brand value, future prospects, market capitalization, EPS etc.

Let us consider that you are average profit making company and you are not satisfied with your current growth. You are more focused to improve the face value of the share. The attitude towards investment will decide that what you will be in future. Your aggressive approach and high risk taking ability can lead you to become more successful and established venture. On the other hand, your conservative approach will keep you as of now. So, it’s better to approach to the venture capital for further advancement or development of the company.

We can better understand this with the help of a example, if VC infuses a sum of amount suppose 90 crore for 15% shares in the company. Then total value of the company will be 90/15% = 600 crore, and your share will be 510 crore. It will increase the face value of the share which indirectly indicates the expected growth of the company.

After the diversification or expansion of the business, the next major objective of the company is to exit of VC or to pay the other obligations of the company. One of the best ways for exit of the VC from the firm is to pay his return within the prescribed period. But generally, the preferred mode of exit is either to sold the company or to go for IPO.

Even if the company decided to go for IPO then also firm should have enough control on interest so that they can repay the interest to their investors. And at the same time they will be all in all of their company.

This is in line with Reliance Venture’s recent rebranding and widening focus on investing in disruptive and sustainable business models with a sector-agnostic philosophy, the company said in a press release issued here today. Kleiner Perkins Caufield & Byers and Sherpalo are co-investors in this round of funding in Reverse Logistics along with Reliance Venture Asset Management. The release did not, however, mention the amount of funding but it is understood that the total investment done by all the investors is between Rs 35-40-crore.

Founded in 2008, Reverse Logistics uses its proprietary technology to help its customers reduce supply-chain costs by over 25%, increase asset recovery by over 100%, improve productivity by over 10%, and get a 100% customer satisfaction while growing profitability exponentially, the release said.

Reliance Venture Asset Management’s CEO, Harshal J Shah, said, “the reverse logistics space is a fairly untapped but promising sector and will revolutionise efficiency levels of the fragmented Indian supply chain.”

“As an opportunistic investor, we see an immense potential in the industry…Reverse Logistics with its expert management backing will clearly contribute to the India growth story and compete with global compatriots and we are excited to partner them,” Shah said.

Reverse logistics refers to the backward supply-chain network where a product moves from the end-consumer to the manufacturer for re-use, disposal or surplus sale purposes with the rationale to increase overall efficiencies. In developed countries, the reverse supply-chain management is outsourced and focused to increase the overall shareholder value.

However, India is still near the bottom when it comes to supply-chain efficiencies. Estimates suggest that 3% of its GDP is lost to supply-chain inefficiencies and low compliance with the government’s e-waste regulations, the release said. Hence, with its growing importance, Indian companies are now looking to manage this network as a strategic and critical business area, the release said, adding that according to market studies, the Indian reverse logistics industry is pegged at $10-15 billion.

July Systems provides mobile Internet solutions which enable media brands to publish, distribute, monetize inventory and personalize services for consumers. KLG Systel provides smart grid and energy management and efficiency solutions to power utilities and end-users. MCX, a leading commodity futures exchange, has permanent recognition from the Government of India for facilitating online trading, clearing and settlement operations for futures market across the country.

Since 1998, Intel Capital has invested over $200 million in Indian technology companies across 10 cities.

“This is a symptom of a bull-market cycle. At such times there is a need to go back to basics. Investors should look at management quality, the sector in which the company is present, its track record, irrespective of who is the banker to the issue, before taking a decision,” said Brijesh Koshal, head-investment banking at Daiwa Capital Markets.

Equity market flows, post a tepid start early this year, gained traction with purchases by foreign institutional investors (FIIs) touching close to $3 billion dollars in March 2010 alone. Portfolio investors have been net buyers to the tune of $3.11 billion year-to-date.

Equity analysts said that the feel-good factor that prevailed in a week dominated by ‘macro’ news flow — inflation rising to 9.9%, S&P upgrading India’s outlook to stable and the Reserve Bank of India raising rates in an inter-policy move — signals higher flows.

According to Prime Database, the issues that have received regulatory approvals and are likely to enter the market soon include AMR Construction(Rs 175 crore), Ankita Knitwear (Rs 25 crore), Aravali Infrastructure (Rs 100 crore), Kabirdas Motors(Rs 62 crore), Mandhana Industries(Rs 135 crore), PCI (Rs 60 crore), Sea TV Network (Rs 50 crore) and Usher Eco Power (Rs 52 crore).

“Apart from the quality of the book, pricing and valuations should play an integral role while subscribing to an issue,” says Nimesh Shah, MD of Fortune Financial. Senior investment bankers are of the view that the market response to some of the mid-sized issues that listed in the past couple of months, has infused an element of optimism in companies in the mid-cap space that have been wanting to raise cash.

In a strange disconnect, while larger issues and PSU issuances saw lukewarm subscriptions, the smaller, mid-sized issues were not only oversubscribed several times but also listed with gains. A grey market premium added to the buoyancy. Issues like ARSS Infrastructure, Infinite Computer Solutions, DB Corp, Jubilant Food Works were among those which were subscribed by more than 25 times.

Private equity firm Sequoia Capital India has exited from its investments in New Delhi-based Times Internet Limited (TIL), according to a report in Medianama. The $7-million investment in Indiatimes was made in late 2005 by WestBridge Capital Partners, which was later acquired by Sequoia in 2006.

Times Internet is the digital venture of media conglomerate Bennett, Coleman and Co. Ltd (BCCL). It provides internet and mobile value-added services. The company has recently expanded its operation adding ecommerce, online advertising, online money remittance services and online classified advertising.

The company has also been exploring opportunities to expand through the inorganic route. In 2008, it acquired 50% stake in US-based Webnotions Books India, which runs online book marketplace called A1Books.co.in.

Some of Sequoia’s other investments in Indian online space include Apnaloan.com Services Pvt Ltd, TutorVista.com, Shadi.com and ticketing site Via.

Research conducted by Netpop Research, Llc, on behalf of Google India, to understand the Internet’s role in the purchase of financial products shows that search engines have become an indispensable tool in the purchase decision process.

As a growing trend, respondents also cited user-generated content (UGC)—specifically consumer ratings/reviews, social networking sites and blogs—as an increasingly important source of information.

Online videos emerged as a new source of information, with around 40% users opting to watch videos on finance-related products/news.

In the first ever investment of its kind by World Bank’s arm IFC, the agency will invest $10 million (around 46 crore) in renewable power company Azure Power to help set up solar plants to generate electricity for Indian villages.

“IFC, a member of the World Bank Group, will provide a $10 million equity investment to an independent solar power company, Azure Power Private Ltd, to help implement new megawatt scale grid-connected solar plants to bolster clean energy output,” International Finance Corporation said in a release.

“Once fully operational, the project will expand capacity to produce over 20,000 megawatt hours of clean energy annually to reach hundred villages in several Indian states, and more than 10,000 tonnes of carbon dioxide emissions will be avoided annually,” it added.

Helion Venture Partners and Foundation Capital, leading venture capital investors in clean technology companies also funded Azure’s solar power initiative in September 2008.

“The support from IFC, Helion, and Foundation Capital is recognition of the potential of megawatt scale solar power generation in India,” Azure Power’s Chief Executive Officer Inderpreet S Wadhwa said.

“It’s the chemistry,” explains Balaji Srinivas of Aureos Capital, trying to pin down the key to investment decision making. VCs repeatedly emphasize the importance of their relationships with the entrepreneurs they back. Indeed, one could almost imagine them using a personal ad to source deals. Especially since a leading venture firm, Canaan Partners, has joined with Bharat Matrimony.

It’s generally understood that venture capitalists invest money in young or expanding companies. But how many know about the large role the VCs promise to play in building the companies? Or the importance of their contributions?

So, when one looks at the more-than-money role of the VC, it’s perhaps not a surprise that ‘chemistry’ between the VC and the entrepreneur is an unlikely key to success.

The vows VC’s make

Talk to the new breed of Venture Capitalists, and you’ll discover that they promise far more involvement than your regular financier would provide.

Says Alok Mittal of Canaan Partners, “We tend to be active investors, we involve ourselves in Board-level issues including strategy, recruitment and fund raising.”

“You have these Ministers in the King’s Cabinet,” Balaji Srinivas of Aureos Capital explained, “My style is more about sitting in the back-ground and enabling people to achieve their dreams.”

The experience a Venture Capitalist brings to the table, combined with his understanding of the industry, his network and solid funding can act as rocket fuel for a young organization.

Asked if she would ever give entrepreneurs the money, walk away and tell them to come back with the cash, Bharati Jacob of Seedfund laughed, “There isn’t a VC who will say that to you! I will agree in print to that. Everybody claims to be a value added investor – more than capital, more than money.”

Promises kept?

From the VC perspective things seem to be working, as Avnish Bajaj outlines Matrix’ involvement in one of their portfolio companies:

“In Four Interactive we invested in two guys and the business plan. And we engaged right from product strategy, hiring and building the team, when do you raise more money and all of that stuff.”

Moving to the other side of the equation, several recently-funded entrepreneurs confirm that their VCs keep fairly close tabs on their companies, either through informal chats, emails or regular meetings. Some, like Phani, co-founder of RedBus, an integrated bus ticketing website, interact with their VCs on a daily basis. RedBus recently received an investment from Bharati’s Seedfund.

All in all, these entrepreneurs agree that VCs live up to their promise of ‘more than money.’ “They see the market differently, and lot of the business issues we discuss are fundamentally about building a company,” claims Sanjay Swamy, CEO, mChek, a company with an innovative mobile payment solution. “We appreciate their perspective.”

Experience Matters

This kind of engagement by VCs marks an evolution in the practice of venture investing in India. Over the past 18 months, a number of top tier overseas firms have entered India, including Matrix Partners, Canaan Partners and Sequoia Capital, bringing talent and a lot more money to the table. These new players join a group of home-grown VCs who have built significant experience over the past 7 – 10 years.

Bharati, formerly at Infinity, has some 10-12 deals under her belt, having evaluated perhaps thousands of companies. Balaji, who was at Carlyle Group before launching Aureos’s India presence, has done 25 – 30 deals in the past 10 years.

Adding a different perspective to the pool, recently more entrepreneurs have turned VC. They bring credibility gained through hands-on experience. Both Alok Mittal of Canaan, co-founder of Jobs Ahead, and Avnish Bajaj of Matrix, founder of Baazee.com, fall into this category.

Kanwaljit Singh emphasized Helion partners’ strong entrepreneurial operating backgrounds. He is very clear about preferring to invest in the spaces where he has experience. “We have the contacts and understanding of those industries,” he says.

Meeting Your Match

Since every VC has his own particular strengths, finding the right match between VC and entrepreneur is important for the ultimate success of the enterprise.

Perhaps surprisingly, given the number of deals each VC declines, the control does not rest entirely in the hands of the venture capitalist. Entrepreneurs are actively choosing their VCs for their particular skill set or industry experience.

Kavita Iyer of Minglebox.com believes she has an advantage in partnering with Sequoia Capital, globally the leading investors in the internet space. “Sequoia has funded the likes of Google, Yahoo and Youtube at very early stages,” states Kavita, “So they have a wealth of understanding in our domain.”

Raghav Kher (Seventymm) too was clear from the outset that he wanted to work with VCs that would help build their business. And he seems happy with the choice, stating that, “Matrix has a lot of connections in India where as DFJ has a lot of connections in Silicon Valley.”

But is the chemistry right?

With both VC and entrepreneur so passionately involved in the enterprise, getting along is just good business sense.

“The most important thing, after all, is if you really like the founders of the company; that you think these people are compatible….it’s just very personal,” Balaji explained.

Kawaljit agrees that the final critical element when deciding to invest in a company rests on “our chemistry with (the team), our comfort with them.”

Till debt do us part

Personal connection is all very well, but money remains the bottom-line – in fact venture capitalists ‘partner’ their portfolio companies in order to promote growth and manage the associated risk. As Kanwaljit explained, “we are responsible to our investors…so in the end it is a financial exercise for everyone around the table.”

Therefore, however personal the relationships, VCs will play hard ball if required to protect their investments. And though Balaji is willing to give the entrepreneur space to a certain extent, he insists on a balance so the entrepreneur “doesn’t go so overboard that he pulls even the existing business down the drain.”

With the view that the end justifies the means, most are willing to do what it takes to ensure success. Avnish puts it succinctly, “If the market opportunity is fabulous and you have a B team, you can always hire an A team.”

Kanwal agrees, “When the business reaches a certain stage of growth, there might be a potential for the company to bring in a different profile of senior management – could be a CEO or COO.”

So when business potential outgrows its founders, it‘s amply clear which horse the VC will back.

Enjoy the ride

All things told, venture capital – for those that fund, as well as those funded – can be a wildly exciting ride. A ride where the ultimate highs don’t just come from the money, but from new ideas. Entrepreneurs live in a world where dreams can come true and if the match is good, VCs can provide just the right help.

As Alok Mittal of Canaan Partners puts it, “We don’t call ourselves venture capitalist as much as venture catalysts, and money is just one of the pieces that go into catalyzing growth”.

Investment banking major Lazard, which was looking to raise an India-dedicated fund, is freezing its private equity plans in India. Lazard’s India private equity chief, Srinivas Baratam, has moved on as the managing director for corporate finance at the firm’s India unit, said a source familiar with the development.

New York-based Lazard started its PE plans in early 2008 by hiring Baratam from UTI Ventures. The firm was looking to raise around Rs 500 crore for investments in mid-sized Indian companies. The firm, which was on the road for nearly two years to raise Lazard India Growth Fund, was unable to garner commitments in a challenging market.

A source familiar with the development told Neytri that Lazard might revive its private equity plans next year. “They are not really closing down. It’s just that given the current market situation, they will raise the fund later, perhaps next year,” said a source.

Currently the PE team has been absorbed by the investment banking business, where it is focusing on transaction advisory. The firm continues to look at deals and pass them onto third parties, said the source.

Despite the revival of the Indian economy, private equity fund raises from global investors remains challenging, especially for new funds. While several Indian fund managers have managed to mop up funds from the domestic market, money from overseas limited partners has been flowing to only experienced general partners.

Fund-raising continued to be challenging with a total of 196 private equity funds focused on emerging markets raising $22.6 billion in 2009, suffering a 66% decline from the record-breaking $66.5 billion raised by 210 funds in 2008, according to Emerging Markets Private Equity Association (EMPEA).

“The fund raising environment is tough, and will continue to be so for the foreseeable future. We see a gradual contraction of number of PE players in the country, a contraction in actual fund sizes and deal sizes that PE works with,” said Praneet Singh, a managing director with Siguler Guff, one of the most active fund-of-funds in India, in a recent interview to Neytri.

International Finance Corporation (IFC), the private investment arm of the World Bank, is investing up to $5 million in Suvidhaa Infoserve Pvt Ltd, a retail services aggregator which offers railway and air ticketing, mobile recharge and bill payment services in urban, semi-urban and rural locations in India.

IFC will make a final call on this investment after its board meeting to be held on April 15, 2010, according to information available on IFC website. A Neytri mail sent to Suvidhaa asking details says, “We have no comments to offer in this regard at this stage.”

Suvidhaa is raising its series B round. It had earlier raised an undisclosed sum from Norwest Venture Partners India (NVP India) & Reliance Technology Ventures in its first round in April-May 2008. The company plans to utilise the fund across product development, marketing and brand building.

Early this year, Paresh Rajde, founder MD and CEO, Suvidhaa, told Neytri that the company was very aggressive on fund raising.

Suvidhaa has created a network of 18,000 outlets comprising mom-and-pop or kirana stores across 450 towns in India. It currently has a strong presence in the north, west and the southern states of India, and a considerable presence in Kolkata and West Bengal.

Rajde claims that the company is growing at almost 1,000-1100% month-on-month, and expects that by the end of 2010, there will be around 25,000 outlets across India.

In a recent development, the government has allowed the company to set up around 70,000 community service centres (CSCs) across 4.2 lakh villages in rural India. Through these CSCs, the Government will extend all government to consumer (G2C) and business to consumer (B2C) services to the people in village level. Apart from bill payments and railway ticketing, the government is also working on adding new services in Suvidhaa, such as issuing birth certificates, death certificates, land records etc.

Suvidha has already opened some CSCs in select locations, and is offering all B2C services available in its platform. Rajde says, G2C services will be added later once the government policies are in place.

The company is targeting profit zone in fiscal 2011-12, and plans to hit the capital market for IPO during 2013-14.

Some recent investments of IFC include Auro Mira Energy Company Private Ltd (AME), Bhilwara Energy Ltd and Azure Power.