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               Securities and Exchange Board of India

investments by these offshore venture funds.

2.21The net FII investment in Indian markets is around US $10 billion and the flows for the last few years have generally been positive.  With enhanced interest in India as compared to some of the other emerging and Asian markets, given the right environment  good amount of money would flow as venture capital investment.  This is  more so because India has already acquired credibility  particularly in the area of information technology and sectors like media, pharmaceuticals etc.  While the proportion of offshore to local capital which is around 80% foreign and 20% domestic, may remain same for the first few years, the recycling of entrepreneurial wealth and skills within the industry will gradually lead to greater presence of  domestic venture capital industry .

2.22With this background India is rightly poised for a big leap. This can happen by creating the right environment and the mind set to understand global forces and when that happens we would have created not “Silicon Valley” but the “Ind Valley” a phenomena for the world to watch and reckon with .

3.0CRITICAL FACTORS  FOR SUCCESS OF VENTURE CAPITAL INDUSTRY

3.1Getting it right is what this report is concerned about.  The endeavor of the Committee has been to make recommendations that will facilitate, through an enabling regulatory, legal, tax and institutional environment, the creation of a pool of risk capital to finance   start-up enterprises with the underlying objective of helping India achieve:  a) rapid economic growth and  b) integration with the global economy from a position of strength.

3.2While making the recommendations, the Committee felt that the following factors are critical for the success of the VC industry in India:  

The regulatory, tax and legal environment should play an enabling role .  This also underscores  the facilitating and promotional role of regulation.  Internationally, venture funds have evolved in an atmosphere of structural flexibility, fiscal neutrality and operational adaptability. We need to provide regulatory simplicity and structural flexibility on the same lines. There is also the need for a level playing field between domestic and offshore venture capital investors.  This has already been done for the mutual fund industry in India.

Investment, management and exit should provide flexibility to suit the business requirements and should also be driven by global trends. Venture capital investments have typically come from high net worth individuals who have risk taking capacity.  Since high risk is involved in venture financing, venture investors globally seek investment and exit on very flexible terms which provides them with certain levels of protection.   Such exit should be possible through IPOs and mergers/acquisitions on a

Report of K B Chandrasekhar Committee on Venture Capital16

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