Unit 4 Compatibility Mode

8/3/2019 Unit 4 Compatibility Mode

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Family & Non FamilyEntrepreneur


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Family Business ???? Family Business

Members of the same family are directly involved inmanaging the business

Ownershi control asses from one eneration of a

family to another (succession)


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The family business triangle

Entrepreneurialism is about recognizing, seizing, andexploiting opportunities.

Managerialism is related to administrative procedures and

organizational structures.

Paternalism is about the protection and guardianship of

the family business, and it carries both positive and

negative connotations.


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Family vs. Non-family Businesses

Agency theory- A theory explaining the relationship

between principals, such as a shareholders, and agents,

such as a company's executives.

the principal delegates or hires an agent to perform work.

Agent-managers, are the managers who run a businesswithout having an ownership stake.

Owner-managers, are predisposed to create businessvalue because their motivations are different ...their wealthis generated from the successful growth of the business,not a salary paid to them by the business.


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Facts about Family Businesses More than 90% of all businesses in the United States are family owned,In India

95% are family run business.

177 of Fortune 500 companies (35%) are family owned

Family businesses account for 78 percent of all new jobs created

Family firms generate more than 50% of the business revenue in the USA and

Over a 10 year period

Family-owned firms averaged 21.1% growth per year, while

Non family-owned firms grew at about 12.6% per year

Growth per year averages 30%+ if the founder is still involved

Only about 30% of family businesses get passed to the second generation, 12%-16% make it to the third generation, and only 3% operate at the fourthgeneration and beyond.

From the University of North Carolina Family Business Forum. http://www.unca.edu/fbf/statistics.htmlAccessed June

2006


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Indians facts

Started in 1890 to promote import

substitution & attain economic freedom ,Swasdeshi Movement

Cpncept of promotors still ava. Because

Promotors control in term of share

Lack of strong institutional base


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In the next five years, 30 percent of family-owned firms

will experience a change in leadership due to retirementor semi-retirement

percent o sen or generat on am y us nessshareholders have not completed any estate planningother than writing a will, 80 percent want the business to

stay in the family, and 20 percent are not confident of the

next generations commitment to the business

From the University of North Carolina Family Business Forum. http://www.unca.edu/fbf/statistics.htmlAccessed June

2006


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Competition between Family and Business Interests

Family ConcernsFamily comes firstkeep

family members happy

Family members want a share

of the profits each year

Dont make changes that upsetthe traditional way our familydoes thin s

Business ConcernsThe customer (and business)

comes firstwork long hours

to keep the customer happy

Invest in innovations to createnew goods and services for

new and expanding markets

Get a job in the familycompany and advance yourcareer

Keep the company going so

other family members canhave jobs

Maintain family relationshipsat all costs, and be loyal to

each othertake care of eachother

To operate efficiently, thebusiness must be

professionally managed

Hire only competent workers

and managers

Operate effectively and

generate good profits for

reinvestment and for

dividends


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Advantages of a Family Business

Have greater internal motivation to make the business succeed ---its our family name on the sign!

Willing to make financial sacrifices -- working for very little pay leaving the money in the firm for reinvestment

Willing to share the secrets of how to keep the firm operating

Family managers are more likely to focus on the long-run successof the business and less likely to try to manipulate short-run(quarterly or annual) performance targets, like sales or profits.

More likely to worry about the firms reputation for honesty andethical dealing


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Reduced cost of controls for theft, etc. because familyworkers trust each other and are less likely to stealfrom themselves.

Communicate more effectively through efficientinformal communication and decision-making channels


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Challenges for Family Business

A famous saying about family owned business in Mexico isFather, founder of the company, son rich, and grandson poor

(Padre noble, hijo rico, nieto pobre). The founder works and

builds a business, the son takes it over and is poorly prepared to

manage and make it grow but enjoys the wealth, and the

grandson inherits a dead business and empty bank account. The

issue is sustainability of transgenerational wealth.

Emotions. Family problems like Divorce, separations, health

or financial problems will affect the business Informality. Absence of clear policies and business norms for

family members

Tunnel vision. Lack of outside opinions and diversity on how

to operate the business.

Compensation problems for family members. Dividends,salaries, benefits and compensation for non-participating

family members are not clearly defined and justified.


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Role confusion.

Lack of talent. Hiring family members, notqualified or lack the skills and abilities for the

organization.

Inability to fire them when it is clear they are notworking out.

Succession Planning. Do not have a plan for

handing the power to the next generation, leadingto great political conflicts and divisions.

Paternalistic. Control is centralized and influenced

by tradition instead of good management practices.Predisposed to being more risk averse.


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Overly Conservative. Older family members try to

preserve the status quo and resist change.Especially resistance to ideas and change proposed

by the younger generation.

Communication problems. Provoked by roleconfusion, emotions (envy, fear, anger)

Growth. Problems due to lack of capital and new

investment or resistance to re-investment in thebusiness.

Lack of written strategy. No documented plan or

long term planning.


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Challenges/Disadvantages to the Family Business

Differing family member goals and expectations Jealousy and interference from some annoyed family

members

Predisposed to being more risk averse. Attempt to avoid bringing in outsiders as resources

because they believe that it threatens the security of the

am y. Who's in charge

Should the owner run the business?

Family power struggles and rivalries

Under qualified family members

Balancing business needs and family loyalties


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India's top business families that had been

there, done thatand then lost the plot ormissed a trick.

Right from the Mafatlals to the Kilachands to the

Walchand Hirachand Group in the West, the Shriramsin the North, the Bangurs in the East and the BPL

group in the South, India's corporate landscape is

ttere w t am y us nesses w ose est ays maybe behind them.

Some were broken by the violent trade unionism and

gang wars of Mumbai in the '80s and others by familysplits and competition from global enterprises.

Some made merry in the Licence Permit Raj and then

found the going tough when India opened up itseconom to forei n com etition;


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Resolving Challenges Families must become more business-like

Objectivity and transparency in all dealings

Clear succession plans

Training and development

Family therapy or conflict resolution process

May also involve non-family members


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Stage IPre-Business

Entry of Successor

Child becomes aware of

facets of firm and/or

industry. Orientation of

child by family member is

informal.

Stage IIIntroductory

FunctionalChild works as part-timeemployee. Work becomes

more difficult. Includes

education and work for other

firms.

Stage IIIFunctional

Potential successor begins work

Stage IVAdvanced FunctionalPotential successor assumes

A Model of

Succession in aas u -time emp oyee. Inc u es a

nonmanagerial positions..

manageria position. Inc u es a

management positions prior to

becoming president..

Transfer of Leadership

Successor assumes presidency.Includes period in which the successorbecomes head of company.

Stage VIMature Succession

Successor becomes head of

company.

Stage VEarly Succession

FamilyBusiness


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The Successful EntrepreneurThe Successful Entrepreneur

The Entrepreneurial TraitsThe Entrepreneurial Traits& Psychological Makeup:& Psychological Makeup:

High Need forAchievement

Moderate Risk-Taking

Managerial Skills andManagerial Skills andCompetence in theCompetence in the

following areas:following areas:

Strategy

Cash Flow

urur

SuccessfulSuccessfulEntrepreneurEntrepreneur

Creativity Flexibility

Commitment

Proactive

Intuition

Confidence

Sense of Observation

Management

Strategic Planning

Accounting & Record-Keeping

Marketing

Networking

Delegation of RoutineActivities


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Professional ManagementProfessional Management Family culture is built around an informal

entrepreneurial style of management. Decision making process is centralized

Over de endence on the owner-founder and other

family members

Family and non-family members used to this style will

resist change


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Professional ManagementProfessional Management

Business growth requires a larger,

management talent than any one

family can realistically produce.


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Lack of qualified successor from within the family

Family infighting

Desire to formalize the decision-making process

Reasons to introduce professional

management in Family Business

Reasons to introduce professional

management in Family Business

Lack of management talents in the family

Lack skills in decentralized manner of decision making in the

family business

Family Business is planning to pursue an aggressive growthstrategy

Supervising relatives


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Reasons for

Introducing

Professional

Family infighting

Supervising relativesThe desire to formalize

the decision-making

Lack of a qualified

successor within the

family

Reasons for introducing

Professional Management in the Family Business

anagemen

The desire to complement

family members skills

The family business is

planning to pursue an

aggressive growth strategy

process

Lack of management

talent in the family


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Elements of professionalism Unselfish concern for the welfare of others

Accountability, responsibility & reliability

Excellance

Knowledgeable, skillfulCompetency to handle situation

Decision making skills

Communication competency

Respect to orhers


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Professionalism V/S Family

EntrepreneurParameters Professionalism Family Entrepreneur

Degree of openmindness Receptive to new ideas,

ready to experiment

Lack

New Practices ( quality

certification, participative

management, change in

working styles)

Adopt Lack

Impartial HRM No , even in selection Employ relatives, friends,

caste


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Professionalism V/S Family

EntrepreneurParameters Professionalism Family Entrepreneur

Financial benefit Organisation own

Decision making style Qualitaive , participative &

broader vision

autocratic


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Differences in Views and Expectations ofDifferences in Views and Expectations of

Owner and NonOwner and Non--Family ProfessionalFamily Professional

OwnerOwnerOwnerOwner

Feelings and ThinkingFeelings and Thinking

Feels he is paying highsalary. Expects maximum

ProfessionalProfessionalProfessionalProfessional

Management skills and trainingManagement skills and training

Recognized past performanceand rewarded

time and effort with quickresults

Expect professional tocome in and make

immediate, even dramaticimprovements in the

business

Feels that it is unrealistic toexpect any real changes

immediately and should take

one to two years to make

significant changes


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Professional should bespending a great deal of time

everyday, including


Works under the assumptionthat he can get on top of the

business by putting in a full

Professional should not onlywork on broad areas but

also perform detail work.

.

Professional doesnt thinkdetail work is wise use of

time. He prefers broad-range

thinking and has others to do

the detail work for him.


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Owner is economical withexpenses. Motto is stay out of

debt

Owner feels that ever


Professional feels one mustinvest in development and not

expect immediate return.

expenditure should pay offimmediately


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Ewing Marion Kauffman An American pharmaceuticals magnate and owner

pharmaceutical company

Bedridden for a year at age 11

Kauffman worked as a pharmaceutical salesman until

Formed Marion Laboratories with a $5,000 investment,operating it initially out of the basement of his home


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Ewing Kauffman was the entrepreneur, who started

with few resources, grew his firm into a multibillion-dollar company over four decades, and did so in an

ethical and compassionate manner.

He experienced first hand the rewards of education andentrepreneurship for himself, his family, his work

associates and his communit .

People in the company were called associates, notemployees- offered a profit sharing plan

Mr. K, philosophies rewarding those who produce &

allowing decision making through out the ORG-concepts what is now called intrapreneurship in a

company


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Transitions The Acid Test

Only 5% of Family Businesses in the world are goingconcerns in 3rd Generation - Survey by J P Morgan

rans on nvo ves o managemen an owners p


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Fresh IdeasInnovative thinkinggaze Learning and

Dynamic Positive Change

Entrepreneurship is the way out


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The success stories

Wal-Mart, Ford, Samsung, LG, Motorola

The entrepreneurial trait Involving Employeesand Customers as Shareholders.


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Sustaining Entrepreneurship in Family

Business

A family business are responsible for as much as 71 per centof the market capitalisation in India, according to Gita Piramal.

40% of the country's sales turnover comes from them, as doover 30 per cent of assets.

, ,

family firms die within the first five years.

About 66 per cent of the remainder, die or leave the control of

the founding family during the first generation itself.

Only 17 per cent of those still left, survive up to the thirdgeneration of the founding family.


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To sustain valuation levels in the long run will not be possible

with only organic growth but companies should look outwardsfor other attractive opportunities or in other words through

acquisitions and strategic transformations.

When Reliance Industries was split between the two brothers,

the investors were skeptical of the valuations but marketcapitalization of RIL (Mukesh Ambani) and Anil Dhirubhai

Ambani Group (Anil Ambani) have proved them wrong.

In emerging markets many companies are increasingly

involved in both domestic and cross-border acquisitions but

the major concern for family businesses being dilution of

control restricts many such businesses from being aggressive

on the M & A front.


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Inorganic Growth

Mittal Steel acquired Arcelor in 2006. Prior to that end2005, Mittal family owned 88% of Mittal Steel. Afteracquiring Arcelor the familys shareholding reduced to

44%. The first gain was Mittal-Arcelor became the worlds

leading steel company, larger than its next 3 closest rivalsput together. Secondly, the family stake valued at Euro 14

billion (end of 2005) is Euro 33 billion (end of 2006) a

ncrease.

Dilution of control with respect to equity issuance must beevaluated in the context of overall growth potential of a

company and enhanced valuation of family stake.

Organic Growth


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Organic Growth

Mr. Gyan had started his small business with a cycle shop.

The core business was hinged on giving the cycle on renton hourly basis.

He had three sons naming Vinay, Ajay, and Sanjay.Subsequently Vinay joined his fathers business. However,

he realized that doing this was not sufficient. He started

expanding by entering into the new segment of auto-

rickshaw dealershi . So the business shifted their core to

giving auto-rickshaws on rents on day-to-day basis and toearn commission on auto fares and rent on an hourly basis.

They stopped their cycle business. To help Vinay, Sanjay

the 2nd brother joint the business.


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The sustainability of all these family firms

hinge on the power and influence politics1. Rajan and Anil Nanda (Escorts Heart Institute) are still fighting legal

battles after elder brother Rajan decided to sell majority stake in

EHI to Fortis Healthcare (2005). Anil had moved to court to stall thedeal.

2. Narinder Jeet Kanwar, younger brother of Onkar Singh Kanwar

A ollo T res has a roached com an law board sa in his elder

brother has fraudulently acquired control of the company(November 2007).

3. BPL group chairman, T.P.G. Nambiar has alleged that his son-in-law

Rajeev Chandrasekhar was illegally trying to take control of BPL

Communications in 2004. Therefater they have reached an out-of-court settlement.

4. This year (2007) there was some difference in opinion between Sonu

Mirchandani and Gulu Mirchandani regarding the control of their

company Gurviso.


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Innovations

The family business survived on the right team,consolidation and diversification strategies,

eo le ower and ada tabilit of the

management


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Options for Existing Owners Keep all ownership and

control within the familyand stay involved

Retain ownershi but hire

an outside CEO Sell to employees or a

third party


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WomenEntrepreneur


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She captured the markets around the world

and now she wants to conquer space

Work on formulations that astronauts could carry with themto protect their skin from the ravages of space travel and

slow down the ageing process.

Sent National Aeronautics and Space Administration,

will be used on space expeditions One of the largest manufacturers of herbal products in the

world.

Formulates and markets over 400 products for variousbeauty and health needs and has a strong presence across

the globe, from the USA to Asia.


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Lessons on Entrepreneurship Dedication and relentless hard work have paid

off "It is important to have a dream and to believe

A true entrepreneur is a person who hasindependence of spirit.

"One should be innovative, dynamic andwilling to try every avenue towards success"...


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Dr. Kiran Mazumdar-Shaw, Chairman & Managing Director ofBiocon Ltd.,

Became Indias richest woman in 2004, was educated at theBishop Cotton Girls School and Mount Carmel College in

.

Founded Biocon India with a capital of Rs.10,000 in her garagein 1978

Her application for loans were turned down by banks then on three counts biotechnology was then a new word,

the company lacked assets,

women entrepreneurs were still a rarity.

Today, her company is the bigget biopharmaceutical firm in


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Ekta Kapoor, creative head of Balaji Telefilms

Synonymous with the rage of soap operas in Indian TV, after

her most famous venture Kyunki Saas Bhi Kabhi Bahu Thi

which was aired in 2000 on Star plus. Ekta dominates Indian

.

At the 6th Indian Telly Awards 2006,she bagged the Hall OfFame award for her contributions.


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Neelam Dhawan, Managing Director, Microsoft India,

Graduate from St. Stephens College in 1980,and alsopassed out from Delhis Faculty Of Management

studies in 1982.

She was keen on joining FMCG majors like HindustanLever and Asian Paints, both companies rejected

Dhawan, as they didnot wish to appoint women for

marketing and sales.


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Naina Lal Kidwai, was the first Indian woman to

graduate from Harvard Business School. Fortune magazine listed Kidwai among the worlds

top 50 Corporate Women from 2000 to 2003.

She is the first woman to head the operations of aforeign bank in India. ( HSBC)


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Indu Jain, used to be the Chairman of the Times

Group- The most powerful and largest Media house India

has known. Indu Jain is known by many different

identities such as that of spiritualist, humanist,entrepreneur,an educationalist but most prominently

she played the role of the Chairman of Times Group.


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WOMEN ENTREPRENEURS A woman or a group of women who

initiate,organize and run a business. Women who innovate or adopt a business


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Women Entrepreneurship An enterprise owned and controlled by a women having a

minimum financial interest of 51% of capital and giving at

least 51% of the employment generated by the enterprise towomen. -

empowers women economically increases their economicstrength as well as position in society.

Economically independent.

Strong desire to do something positive

Contributes to the position values of family and social life.

D APJ Abd l K l


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Dr. APJ Abdul Kalam "empowering women is a prerequisite for creating a good

nation, when women are empowered, society with stability is

assured.

Empowerment of women is essential as their thoughts andtheir value systems lead to the development of a good family,

good society and ultimately a good nation."

Pandit Jawaharlal Lal Nehru When women move forward, the family moves, the village

moves and the Nation moves.


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Emergence of Women Entreprener 3 Ks- Kitchen, Kids, Knitting

3 Ps- Powder, Pap pad, Pickles

4 Es- Electricity, Electronics, Energy, Engineering . Indian women had undergone a long way and are becoming

increasin l visible and successful in all s heres

Have shifted from kitchen to higher level of professionalactivities.

Todays women are taking more and more professional andtechnical degrees to cope up with market need and are

flourishing as de signers, interior decorators, exporters,publishers, garment manufacturers

Mahila Grih Udyog 7 ladies started in 1959:


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Mahila Grih Udyog 7 ladies started in 1959:

Lizzat Pappad Lakme Simon Tata

Shipping coorporation Mrs. Sumati Morarji

Exports Ms. Nina Mehrotra

.

Balaji films Ekta Kapoor

KEY CHANGES IN WOMEN ENTREPRENEURS IN LAST FIVE

DECADES


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DECADES

WOMEN ENTREPRENEURS OF THE FIFTIES: Compulsive factors led to the creation of women entrepreneurs.

WOMEN ENTREPRENEURS OF THE SIXTIES: -Women began to aspire but also accepted the social cultural

traditions.

WOMEN ENTREPRENEURS OF THE SEVENTIES: .

aspiration but ambition WOMEN ENTREPRENEURS OF THE EIGHTIES:

Women were educated in highly sophisticated, technological and

professional education. They became equally contributing

partners.

WOMEN ENTREPRENEURS OF THE NINETIES: This was the first time when the concept of best rather than male heir

was talked about.

WOMEN ENTREPRENEURS OF THE


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WOMEN ENTREPRENEURS OF THE

21st Century: The status of women in India has been changing as a result to

mounting industrialization and urbanization and social

legislation.

More and more women are going in for higher education,technical and rofessional education and their ro ortion in the

workforce has also been increased.

Women have shifted from the kitchen, handicrafts and traditionalcottage industries to non-traditional higher levels of activities.

The Government has also laid special weightage on the

requirement for conducting special entrepreneurial trainingprograms for women to enable them to start their own ventures.

Financial institutions and banks have also set up particular cellsto help women entrepreneurs.


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Segments of Women Entrepreneur SelfHelp Group

Well served & mentored by microfinance Grassroots Entrepreneur

r ven y t e nee to augment t e am y s

finances to secure children;s future e.g tailors,flower sellers, STD booth owner

Turnover aspiration of 5 lakh

Mid rung Entrepreneur


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g p

Driven by a need to build reputation, becomeknown & satisfy creative instincts

Garments shops, export business

Turnover of 50 lakhs to 1 croreDonot want to scale too high as they feel that

Upper Crust

Drawn from top most social class

Well educatedTravel agencies, traders in pharaceuticals,

Turnover over 5 crore

Women Entrepreneurs Categories in India


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First Category

Established in big cities Having higher level technical & professional qualifications

Non traditional Items

Sound financial positions

Second Category

Established in cities and towns

Both traditional and non traditional items Undertaking women services-kindergarten, crches, beauty

parlors, health clinic etc

Third Category

Illiterate women Financially week

Involved in family business such as Agriculture, Horticulture,

Animal Husbandry, Dairy, Fisheries, Agro Forestry, Handloom,

Power loom etc.

Why do Women Take-up


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y p

EntrepreneurshipPush Factors

Death of bread winner

Sudden fall in family income

Permanent inadequacy in income of the family

Pull Factors

Womens desire to evaluate their talent

To utilize their free time or education

Need and perception of Womens Liberation, Equity etc.

To gain recognition, importance and social status.

To get economic independence

Role of women as an Entrepreneur


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p

Creative: Innovative ideas with competitive market. Wellplanned : Need to examine the existing situation and to

identify the entrepreneurial opportunities.

Quality to working hard

: Innovative women have furtherability to work hard..

Determination: Women entrepreneurs must have an intention

o u e r reams. ey ave o ma e a ream rans erre

into an idea enterprise Ability and desire to take risk: Willingness to take risk and

ability to the proficiency in planning making forecast estimates

and calculations.

Profit earning capacity: Capability to get maximum returnout of invested capital.

Successful Leading Business


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g

Women in India1. Akhila Srinivasan, Managing Director, Shriram Investments Ltd

2. Chanda Kocchar, Executive Director, ICICI Bank

3. Ekta Kapoor ,Creative Director, Balaji Telefilms

4. Jyoit Naik, President, Lijjat Papad

. - , ,

6. Lalita D Gupte, Joint Managing Director, ICICI Bank7. Naina Lal Kidwai ,Deputy CEO, HSBC

8. Preetha Reddy, Managing Director, Apollo Hospitals

9. Priya Paul, Chairman, Apeejay Park Hotels

10. Rajshree Pathy, Chairman, Rajshree Sugars and Chemicals Ltd

11. Ranjana Kumar ,Chairman, NABARD

2 i j hli di li d id S


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12. Ravina Raj Kohli, Media personality and ex-President, STAR

News

13. Renuka Ramnath, CEO, ICICI Ventures

14. Ritu Kumar ,Fashion Designer

15. Ritu Nanda, CEO, Escolife

16. Shahnaz Hussain, CEO, Shahnaz Herbals

. , ,

18. Simone Tata, Chairman, Trent Ltd

19. Sulajja Firodia Motwani, Joint MD, Kinetic Engineering

20. Tarjani Vakil, former Chairman and Managing Director,

EXIM Bank21. Zia Mody, Senior Partner, AZB & Partners


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Women Entrepreneurss ProblemsArrangement of Finance: -

Finance is said to be the life blood,Two important bases.

Firstly, women do not in general have property on their own namesto use that as collateral securities for obtaining loans/funds from

banks and other financial institutions. Thus their access to externalsources is very limited .

Secondly, obtaining the support of bankers, managing the workingcapital, lack of credit resources are the problems which still remain

in the males domain.

Shortage of raw-materials:-High prices of raw materials, on one hand and getting raw

materials at minimum discount rates are the other.

Cut-throat Competition:-

Lot of the women entrepreneurs have imperfect


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organizational set up to drive in a lot of money forcanvassing and advertisements.

Face severe competition from organized industries.

Face a stiff competition with the men entrepreneurs whoeasily involve in the promotion and development area and

carry out easy marketing of their products with both the

.

Lack of education and prevalent levels of illiteracyamongst women: -

In India, around (40%) of women are still illiterate.

Illiteracy is the root cause of socioeconomic barriers orhurdles.

Due to lack of Knowledge of latest technological change,know-how and education creates problems before women

to set u com etitive enter rises.

Family Conflicts:-


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Conflict of performing of home role as they are notavailable to spend enough time with their families.

Incapability to attend to domestic work, time for education

of children, personal hobbies, and entertainment adds to

their conflicts.

Marketing Problems:-Dominated by males and even women with adequate

experience fail to make a dent.

Have to be at the mercy of middlemen who pocket the hunkof profit.

Women entrepreneurs also find it difficult to capture themarket and make their products popular.

Lack of self-confidence & optimistic attitude amongomen:


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women: - Lack of selfconfidence, determination, physically powerful outlook,

hopefulness etc.

Always panic from committing mistakes

Limited initiative of taking risk and bearing uncertainty in them. High cost of production:

High cost of production undermines the efficiency and adverselyaffects the development of women entrepreneurs.

The installation of new machinery during expansion of the productivecapacity and like similar factor dissuades the women entrepreneur from

venturing in to new area

Problems of labour, human resources, infrastructure, legal formalities,

overload of work, lack of family support, mistrust etc.

STATUS OF WOMEN ENTREPRENEURSHIP IN INDIA


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Status No. of Units

Registered

No. of Women

Entrepreneurs

Percentage

Tamil Nadu 9618 2930 30.36

Uttar pradesh 7980 3180 39.84

Punjab 4791 1618 33.77

Maharastra 4339 1394 32.12

Madhya pradesh 2967 842 28.38

Kerala 5487 2135 38.91

Gujrat 3872 1538 39.72

Karnatka 3822 1026 26.84

Other states & 14576 4185 28.71


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LOAN/ SCHEMES BY SEVERAL COMMERCIAL BANKS FOR THE DEVELOPMENT

OF WOMEN ENTREPRENEURSHIP


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Name of Bank Name of Loan/ Scheme

Vijaya bank V Mangla

State bank of India Stree Shakti Package

Canara Bank Can Mahila

Union Bank of India Viklang Mahila Vikas Yojana

UCO Bank Nari Shakti

Central Bank of India Cent Kalyani

Oriental Bank of commerce Orient Mahila Vikas Yojana

ICICI Bank Womens Account

Yojna Schemes and Programme

Nehru Rojgar Yojna


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Nehru Rojgar Yojna

Jacamar Rojgar Yojna TRYSEM

DWACRA

Technological Training and Awards Stree Shakti Package by SBI

Entrepreneurship Development Institute of India

Tra e Re ate Entrepreneurs ip Assistance an

Development (TREAD) National Institute of Small Business Extension Training

(NSIBET)

Women's University of Mumbai

Federations and associations in promoting

women entrepreneurship


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women entrepreneurship

National alliance of young entrepreneurs ( NAYE )

India council of women entrepreneurs , New Delhi

Self employed women association (SEWA)

Association of women entrepreneurs of Karnatka ( AWEK)

World association of women entrepreneurs (WAWE)

Associated country women of the world (ACWW)

Women Work Participation


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Country Percentage

India (1970-1971) 16 India (1980-1981) 23

India 1 0-1 1 25

India (2000-2001) 36 USA 45

UK 43

Indonesia 40 Sri Lanka 35

Brazil 35

Roadblocks to new businesses


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Roadblocks to new businesses

Lack of business experience

Fierce competition Scarcity of capital

Venture-


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an undertaking involving uncertainty especially arisky or dangerous one

a business enterprise or speculation in which

something is risked in the hope of profit

Venture Capital


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p

A type of private equity capital typically provided by professional,

outside investors to new, growth businesses.

As cash in exchange for shares in the invested company,

High risk, but offer the potential for above-average returns.Long term equity finance with return in the form of capital gain

Private equity, made for the launch, early development or


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expansion of a business.

Provides equity capital to enterprises not quoted at the stockmarket.

The money can be used to develop new products and, , ,

or to improve a companies gearing-up.

Origin


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1946 General Georges Doriot Father of the modern Venture Capital

Industry

Founded the American Research and Development Corporation

whose biggest success was Digital Equipment Corporation atMassachusetts

For 11 yrs, financed 35 companies & gained 35 times of hisinvestment

1977

Arthur Rock & Co. provided venture capital to Apple Computer

Indian Scenario

Started in 1988 with four institutions , ICICI ( Mumbai), GujratIndustrial Development Corporation ( Ahmedabad) , Andhra

Pradesh Industrial Development ( Hyderabad) & Canara Bank (

Bangalore)

Fund from 12 ( 1990)-45 ( 2000)

Role of Venture Capitalist


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p

As business partner

- sharing risk & reward As Mentor

rov ng strateg c, operat ona nanc a a v ce

Contacts networking in field like

Recruiting key personnel

Providing contacts in International market

KEY ELEMENTS OF VENTURE CAPITAL


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Investments in unquoted companies

Is equity capital by nature

Is medium to long-terms targeted at companieswith growth potential

Characteristics


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Long time horizon

Lack of liquidity

High risk

Equity participation

Participation in management

HOW VC OPERATE


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Venture capital companies obtain their funds frominvestors. these are institutional investors, the parentcompanies of the venture capital companies, privateindividuals and other parties.

Provide their investees management skills, contacts andmarket access.

Representation in the board, Act as management consultants and as financial advisors

in certain projects. Get their returns mainly when they sell out their stakes

in the investee companies. often this is done in the

course of an IPO (initial public offering).

Objective of Venture Capital


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Catalyst/fuel ambitions & dreams

Life support to business venture Help in building enterprise vision

Inspire entrepreneurship

FEATURES OF VENTURE CAPITAL


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Nature: Long term investment

Form: Mainly in the form of equity capital.

Normally up to 49% of the total equity capital required for the project.

Borrowers: New entrepreneurs who cannot get such an.

Type of project: High risk, high rewards and long termprojects.

Managenment: Jointly by the entrepreneurs and venture

capitalists, take active part in the management and decision-

making.

New venture: New technology to produce newproducts, in expectations of high gains


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Mode of investment: Basically an equity financingmethod, the investment in relatively new companies when

it is too early to go to the capital market to raise funds.

Objective: is to make a capital gain in equity investment at the time of exit

ong-term capita that is injected to enab e the business to grow

at a rapid pace, mostly from the start-up stage.


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Methods of Venture Financing


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Equity : contribution does not exceed 49 percent of the total equity capital.

Effective control and majority ownership of the firm remains with the

entrepreneur.

Buy shares of an enterprise with an intention to ultimately sell them offto make ca ital ains.

Conditional Loan: Repayable in the form of a royalty after the venture is able to generatesales

No interest is paid on such loans.

In India, VCFs charge royalty ranging between 2 to 15 percent; Actual rate depends on other factors of the venture such as gestation

period, cost-flow patterns, riskiness and other factors of the enterprise.


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Income Note :

Hybrid security which combines the features ofboth conventional loan and conditional loan.

royalty on sales, but at substantially low rates.

Exit Route


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IPO

Trade Sale-sell his stake to strategic buyerhaving a similar/complementry or plan to enter

Promoter Buy ac - at pre eterm ne pr ce

Advantages


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Injects long term equity finance which provides a solid capital

base for future growth.

Venture capitalist is a business partner, sharing both the risksand rewards. Venture capitalists are rewarded by business

success and the capital gain.

The venture capitalist is able to provide practical advice andassistance to the company based on past experience with

other companies which were in similar situations.

The venture capitalist also has a network of contacts in many

areas that can add value to the company


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areas that can add value to the company.

The venture capitalist may be capable of providing additional

rounds of funding should it be required to finance growth.

Venture capitalists are experienced in the process of

preparing a company for an initial public offering (IPO).

Disadvantages


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Long & complex process

Require to draw a detailed business plan &need professional help

Pay ega & account ng ees w et er

successful in securing

Lossening of management control

MARKET SEGMENTS

Seed capital


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Seed capital Start-up capital

Expansion capital ( 1ST & 2ND Phase)

Mezzanine financing ( 3RD Phase) Brid e financin ca ital ( 4th hase)

Rescue capital

Seed capital and start-up capital are providedto finance the early growth phases of acompany


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company.

Seed capital is used to determine weather an idea is

worth further consideration and to transform the ideainto a working business concept.

Self finance, friends & familyFounder(s) only

No product

No customersPrimary risk: R&D


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Expansion capital ( 1ST & 2ND Phase) supports

companies in the growth phase which have already

brought their products to market


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brought their products to market.

Production & marketing

Working capital funds- for early stage companies that are

selling product, but not yet turning a profitPrimary risk:execution

Mezzanine financing ( 3 Phase)

expansion money for a newly profitable company

Bridge financing capital ( 4th phase) -finance theexpenses in the period before the IPO

Risk in each stage

Financial Stage Period (Funds Risk Perception Activity to be


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Financial Stage Period (Funds

locked in years)

Risk Perception Activity to be

financed

Seed Money 7-10 Extreme

For supporting a

concept or ideaor R&D for

product

development

Start Up 5-9 Very HighInitializing

operations or

developing

prototypes

First Stage 3-7 High

Start

commercials

production and

marketing

Financial

Stage

Period (Funds

locked in

years)

Risk

Perception

Activity to be

financed

E d k


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y )

Second Stage 3-5 Sufficiently

high

Expand market

and growing

working

capital need

Market

Third Stage 1-3 Medium

expans on,

acquisition &product

development

for profit

makingcompany

Fourth Stage 1-3 Low Facilitating

public issue

VC investment process


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Deal origination

Screening

Deal structuring

Post investment activity

Exit plan

Deal origination: VC investor creates a pipeline of deals or investment

opportunities that he would consider for investing in.


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pp g

Deal may originate in various ways. referral system,active search system, and intermediaries.

Referral system

by their parent organisaions, trade partners,

industry associations, friends etc.

Active search through networks

trade fairs, conferences, seminars, foreign visits etc.

Intermediaries

Used by venture capitalists in developed countries like USA

Intermediaries who match VCFs and the potentialentrepreneurs.

Screening

Before going for an in-depth analysis, carryt i iti l i f ll j t th b i


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Before going for an in depth analysis, carryout initial screening of all projects on the basis

of some broad criteria.

limit projects to areas in which the venturecapitalist is familiar in terms of technology, or

product, or market scope.

The size of investment

Geographical location and

Stage of financing

Due Diligence

Evaluating an investment proposal.

Evaluate the quality of entrepreneur before appraising theh t i ti f th d t k t t h l


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characteristics of the product, market or technology.

Ask for a business plan to make an assessment of the possiblerisk and return on the venture.

Evaluation: VCFs in India expect the entrepreneur to have:-Integrity, long-term vision, urge to grow, managerial skills,

commercial orientation.

Risk analysis of the proposed projects which includes: Productrisk, Market risk, Technological risk and Entrepreneurial risk.

Final decision is taken in terms of the expected risk-return

trade-off

Deal Structuring:

Negotiate the terms of the deals, that is, the amount,

form and price of the investment.


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p Include the venture capitalist's right to control the

venture company and to change its management if

needed Buyback arrangements, acquisition, making initial

pu c o er ngs s , etc.

Post Investment Activities:

Once the deal has been structured and agreementfinalised, the venture capitalist generally assumes the


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p g y

role of a partner and collaborator.

Gets involved in shaping of the direction of theventure.

If a financial or mana erial crisis occurs the venturecapitalist may intervene, and even install a new

management team.

Exit

Venture may exit in one of the following ways:


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1. Initial Public Offerings (IPOs)

2. Acquisition by another company

3. Purchase of the venture capitalist's shares by thepromoter, or

. urc ase o e ven ure cap a s s s are y an

outsider.


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Venture capital funds

SmallM di


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Medium

Large

Corporate venture funds

Financial service venture rou s

Types of Venture Fund

Small and upstart venture capital fundsare smaller ventureit l i th t tl id d d t t


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capital companies that mostly provide seed and start-up

capital.

Medium venture fundsfinance all stages after seed stage and

Large venture fundsoperate in all business sectors andprovide all types of capital for companies after seed stage. they

often operate internationally and finance deals up to $500

million.

Corporate venture funds

Invest in growing or maturing companies to make

investments in technology or product development.


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World's top drug companies such as GlaxoSmithKline, EliLilly Group has set up a corporate venturing fund to

support to future medical treatments. Prof. Mark Pepys, head of medicine at the Royal Free

,

would develop a treatment for a rare form of

amyloidosis by staying in academia while GSKprovided facilities, funding and performance fees

Financial services venture funds

are venture capital funds set up by financial institutions.

Have access to resources from pensions fund and from theirparent companies.

FORCES AND DRIVERS THAT IMPACT ON THE VC INDUSTRY

FIVE EXTERNAL FORCES


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FIVE EXTERNAL FORCES

THREAT OF NEW

ENTRANTS

POWER OF

SUPPLIERS

COMPETITIVE

RIVALRY POWER OFBUYERS

THREAT OFSUBSTITUES

Competitive rivalry within the industry:

Highly liquid capital markets and a growing number of start-

ups provide sufficient business opportunity for the wholeindustry


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industry.

Threats of New Entrants

Industrys high profits attract new entrants. Despite the money needed, this is not too difficult. if you have

,

company.

With today liquid financial markets it is not the problem toobtain funds.

People working in the industry for several years have the

prerequisites to set up new companies. Large financial and non-financial firms can take some money

and set up a new vc firm as a means of diversification or for

some other reasons.

Power of Supplier Power of suppliers of money is not overly high because of the high

liquidity of todays financial markets.

Very important for the venture capital companies to demonstrate agood track record of high returns to attract funds.


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g g

Power of Buyers Venture capital funds select them carefully and according to their

own preferences to limit potential losses.Threat of Substitute

,consisting of equity combined with management help, contacts, and

guidance.

All in all we see the competition in todays venturecapital industry as moderate. This is mainly due tothe growing industry. It could rapidly change asthe industry matures and the growth slows down.


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DEVELOPMENT OF VENTURE

CAPITAL IN INDIA

The concept of venture capital was formally introduced in

India in 1987 by IDBI.

ICICI started VC activity in the same year


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ICICI started VC activity in the same year

Later on ICICI floated a separate VC company TDICI(Technology Development & Information Company Of IndiaLtd. )

A Case on Technology Development &

Information Company Of India Ltd. TDICI was incorporated in January 1988 with the support of


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p y pp

the ICICI and the UTI. The country's first venture fund

managed by the TDICI called VECAUS ( Venture Capital

Units Scheme) was started with an initial corpus of Rs.20crore and was completely committed to 37 small and medium

en erpr ses. e rs pro ec o e was oan an equ y

to a computer software company called Kale Consultants.

Present Status: At present the TDICI is administering two UTImobilised funds under VECAUS-I and II, totaling Rs.120

crore. the Rs.20 crore invested under the first fund, VECAUS-

I, has already yielded returns totaling Rs. 16 crore to itsinvestors.

Projects financed by the TDICI : MASTEK , a Mumbai based software firm, in which the TDICI invested

Rs.42 lakh in equity in 1989, went public just three years later, inNovember 1992. It showed an annual growth of 70-80 percent in the


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turnover.

TEMPTATION FOODS, located in PUNE, which exports frozen

vegetables and fruits, went public in November 1992. The TDICI investedRs.50 lakh in its equity.

RISHABH INSTRUMENTS of Nasik got Rs.40 lakh from the TDICI. Itmanufactures a range of meters used in power stations in collaboration with

the ABB Metra Watt of Germany. After making cash losses totaling Rs.25

lakh in two bad years, it turned around in 1989 and showed an increase of

over 70 percent in the turnover.

SYNERGY ART FOUNDATION, which runs art galleries in Mumbaiand Chennai and plans to set up in Pune and Delhi too, had received Rs.25

lakh from the TDICI as convertible loans which were converted into equityon march 31, 1994. Most of this money has been used for the company'sinnovative art library scheme at least paintings to corporate clients.

Venture capital funds in India

VCFs in India can be categorized into following


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five groups:

1) Those promoted by the Central Governmentcontrolled develo ment finance institutions. Forexample:

- ICICI Venture Funds Ltd.- IFCI Venture Capital Funds Ltd (IVCF)- SIDBI Venture Capital Ltd (SVCL)

2) Those promoted by State Government controlled

development finance institutions.

For example:


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For example:

- Punjab Infotech Venture Fund

- Gujarat Venture Finance Ltd (GVFL)- Kerala Venture Capital Fund Pvt Ltd.

3) Those promoted by public banks.For example:

- Canbank Venture Capital Fund

- SBI Capital Market Ltd

4)Those promoted by private sector companies.

For example:- Infrastructure Leasing & Financial Services Limited


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g

(IL&FS) Trust Company Ltd

- Infinity Venture India Fund

fund.

For example:

- Walden International Investment Group

- HSBC Private Equity management Mauritius

Ltd

Rules & regulations of VC in India


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AS PER SEBI

,

Rules by SEBI:

VCF are regulated by the SEBI (Venture CapitalFund) Regulations, 1996.


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) g

The following are the various provisions:

A venture capital fund may be set up by a company or atrust, after a certificate of registration is granted by SEBI

on an a lication made to it. On recei t of the certificate of

registration, it shall be binding on the venture capital fund

to abide by the provisions of the SEBI Act, 1992.A VCF may raise money from any investor, Indian, Non-

resident Indian or foreign, provided the money accepted

from any investor is not less than Rs 5 lakhs. The VCF

shall not issue any document or advertisement invitingoffers from the public for subscription of its units

SEBI regulations permit investment by venture capital

funds in equity or equity related instruments of

unlisted companies and also in financially weak andsick industries whose shares are listed or unlisted

At least 80% of the funds should be invested in


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At least 80% of the funds should be invested in

venture capital companies and no other limits are

prescribed.A VCF is not permitted to invest in the equity shares

of any company or institutions providing financial

services.The securities or units issued by a venture capital fund

shall not be listed on any recognized stock exchange

till the expiry of 4 years from the date of issuance .

As per provision of income-tax rules:

Restrict the investment by VCFs only in the equity of

unlisted companies.


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pa .

VCFs are required to hold investment for a minimum

period of 3 years. VCF shall invest only upto 25% of the corpus of the

.

There are sectoral restrictions under the Income Tax

Guidelines which provide that a VCF can make

investment only in specified companies.

How does the Venture Capital work? Venture capital firms typically source the majority of their


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p yp y j y

funding from large investment institutions.

Investment institutions expect very high ROI

VCs invest in companies with high potential where they are

able to exit through either an IPO or a merger/acquisition.

Their primary ROI comes from capital gains although they

also receive some return through dividend.

Venture capital industry wise

segmentation

Percentage


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6.94

7.733.36

9.03

g

IT & ITES

Energy

Manufacturing

11.5

4.32

27.95

4.82

11.43

.Media & Ent.

BFSI

Shipping & logistics

Eng. & Const.

Telecom

Health care

Others

Percentage calculated on the total VC investment-(fig. of 2007)

Top cities attracting venture capital

investmentsCITIES SECTORS


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CITIES SECTORS

MUMBAI Software services, BPO, Media, Computer

graphics, Animations, Finance & Banking

, -

DELHI Software services, Telecom

CHENNAI IT , Telecom

HYDERABAD IT , Pharmaceuticals

PUNE Bio-technology, IT , BPO

Growth of VC/PE in India

45016000


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14234

280

299

387

300

350

400

10000

12000

14000

1160 937591 470

16502200

7500

6390

110

78

56

71

146

170

0

50

100

150

200

250

0

2000

4000

6000

8000

2000 2001 2002 2003 2004 2005 2006 2007 1st half of2008

Value of deals No of deals

Impact of recession on the VC

industry in India The down market virtually closed the IPO market for emerging


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companies.

With less opportunities for getting ROI, investors tend to scale

back, adjust their investment focus and/or get more picky in

funding companies.

The investors that put money into their funds became less

aggressive during recession so it was harder for the VCs to

raise money.

VC/PE funds to take 2 years to regain vigour

Venture capital (VC) and private equity (PE) funds

are likely to take up to two years to regain their


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y p y g

2005-07 level.

With Indias economy bouncing back and the countryon track to achieve an 9 % GDP growth, interest in

the Indian market is re-emerging.

The VC/PE fund inflow into the country in the lastfive and half years has been to the tune of over $44.8

billion with investments flowing into around 13,000

domestic companies.

Future prospects of VC in India

VC can help in the rehabilitation of sick units.


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VC can assist small ancillary units to upgrade their

technologies VCFs can play a significant role in developing

countries in the service sector including

tourism, publishing, health care etc. They can provide financial assistance to people

coming out of universities, technical institutes, etc

thus promoting entrepreneurial spirits

Sehat First is a joint venture between d.o.t.z

Technologies and Acumen Fund Aimed at delivering affordable, quality basic health care &

h i l i h h lf i bl f hi d


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pharmaceutical services through self-sustainable franchised

health centers.Key Focus Areas

To ex and the health care service deliver network

To create entrepreneurial & employment opportunities

Unique Selling Points

Basic health care services

Pharmacy service

Tele-consultancy services (through e-Sehat application)General merchandise store (including health & hygiene

products)

Quality service at affordable price

Unit 4 Compatibility Mode

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