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               Securities and Exchange Board of India

companies.  The rate and fees of the debentures to the SBIC are about 2% above the ten-year U.S. treasury rate.  In addition to this basic cost, SBICs using participating securities must pay 10% of their profits to SBA.

10.3.7Funds for the program are raised by SBA in the capital markets through the sale of debentures guaranteed by SBA and the U.S. government.  In the U.S. budget system, the only required government appropriation is a “credit subsidy” or form of loss reserve, which now is less than 2% of the value of the financings.  This year, an appropriation of $27 million will allow SBA to guarantee $2.3 billion of debt, proceeds of which will be made available to SBICs with private capital of around $1.2 billion, thus making $3.5 billion available for investment in U.S. small businesses.

10.3.8In addition to making 45% of the total number of equity financings made by venture capital firms to U.S. small business last year, with an average investment size well below that of private venture firms, the SBIC program assists new fund managers who are raising their first funds.  The program is achieving its objectives and helping to build the venture capital industry of the future.

10.3.9The SBIC program undoubtedly has relevance for India, and it is possible a structure could be implemented in which Indian venture capital firms registered with SEBI could avail themselves of those funds.

10.4The Bilateral Industrial Research and Development Foundation (BIRD), Israel

10.4.1Israel’s government participates in international cooperation, seeking to match the nation’s technical skills with global markets and to share start-up risks up front with later-stage activities such as marketing.  The most successful of these ventures has been the Bilateral Industrial Research and Development Foundation (BIRD).  Begun in 1977 as an equal partnership with the U.S. government, the BIRD Foundation was seeded with $110 million to fund joint ventures between Israeli and U.S. firms.  BIRD provides 50 percent of a company’s R&D expenses, with equal amounts going to each partner.  Its return comes from the royalties it charges on the company’s revenue.

10.4.2Any pair of companies, one from each country, may jointly apply for BIRD support, if between them they have the capability and infrastructure to define, develop, manufacture, sell and support an innovative product based on industrial R&D.

10.4.3BIRD often plays a proactive role in bringing potential strategic partners together.  In the US, the companies are mostly public or at least bound in that direction and are engaged in the development and manufacture of high technology products.  The potential of these companies to grow is perceived as

Report of K B Chandrasekhar Committee on Venture Capital40

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