Module 3
Module 3
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
Module-3
Definition:
Business angels, also known as angel investors, are individuals who provide
financial backing for small startups or entrepreneurs, typically in exchange for ownership
equity in the company. They often play a crucial role in the early stages of a business
when traditional sources of funding may be difficult to obtain.
In India, there are several examples of successful business angels who have made
significant contributions to the startup ecosystem. One prominent example is Ratan
Tata, the former chairman of Tata Sons, who has invested in various Indian startups
including Ola, Paytm, and Snapdeal through his investment firm RNT Associates.
Another example is Kunal Bahl and Rohit Bansal, the founders of Snapdeal, who have
also become angel investors themselves, funding several early-stage startups in India.
These business angels not only provide capital but also mentorship, industry connections,
and valuable business advice to help startups grow and succeed. Their contributions are
vital for fostering innovation and entrepreneurship in India's rapidly evolving startup
landscape.
Angels Business Characteristics
Business angels, also known as angel investors, exhibit certain characteristics that set
them apart from other types of investors. Here are some key characteristics of angel
investors:
1. High Net worth Individuals: Angels are typically high net worth individuals who
have surplus capital that they are looking to invest in promising startups.
2. Risk Tolerance: They have a higher risk tolerance compared to traditional investors
and are willing to invest in early-stage startups that may have a higher risk of failure.
3. Industry Experience: Many angels have significant experience in a particular industry
and often invest in startups operating in that industry. They may also provide valuable
industry-specific expertise and mentorship to the startups they invest in.
4. Hands-On Involvement: Angels are often more hands-on than other types of
investors. They may take an active role in advising the startup, making introductions to
potential customers or partners, and helping with strategic decision-making.
5. Long-Term Perspective: While angels are looking for a return on their investment,
they often have a longer-term perspective compared to venture capitalists, who may be
more focused on shorter-term gains.
6. Diverse Portfolio: Angels typically invest in a portfolio of startups rather than putting
all their eggs in one basket. This helps them spread their risk and increases the chances of
a successful investment.
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Visvesvaraya Technological University,
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
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Visvesvaraya Technological University,
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
Venture Capital
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Visvesvaraya Technological University,
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
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Visvesvaraya Technological University,
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
10. Post-Investment Relationship: After securing funding, maintain a strong
relationship with your investors. Keep them informed of your progress, seek their advice
and guidance when needed, and work collaboratively to achieve your business goals.
Securing venture capital can be a challenging and time-consuming process, but with a
strong business plan, a compelling pitch, and the right connections, you can increase your
chances of success.
Venture capital can offer significant advantages to start-ups and growing companies, but
it also comes with certain disadvantages. Here's an overview of both:
Advantages:
1. Access to Capital: Venture capital provides access to significant funding that may not
be available through traditional sources like bank loans or personal savings.
3. Network Expansion: Venture capitalists often have extensive networks that can help
companies access new markets, customers, partners, and talent.
4. Validation: Securing venture capital funding can validate a company's business model
and potential, making it easier to attract additional investors, customers, and employees.
5. Flexibility: Venture capital funding is typically more flexible than traditional debt
financing. It does not require regular interest payments or collateral, and repayment is
often tied to the company's success.
Disadvantages:
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Visvesvaraya Technological University,
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
4. Risk of Failure: Venture capital is high-risk, high-reward. If the company fails to
meet expectations or achieve a successful exit, the founders and investors may lose their
investment.
5. Time and Effort: Securing venture capital funding can be a time-consuming and
demanding process. Entrepreneurs must dedicate significant time and effort to pitching
investors, conducting due diligence, and negotiating terms.
Overall, venture capital can be a powerful tool for fuelling growth and innovation, but
entrepreneurs should carefully weigh the advantages and disadvantages before seeking
funding.
Initial public offering
An Initial Public Offering (IPO) is the process by which a private company becomes
publicly traded by offering its shares to the public for the first time. This is often done to
raise capital for growth, expansion, or to allow early investors and employees to monetize
their investment.
During an IPO, the company works with investment banks to determine the offering price
and the number of shares to be issued. The company also undergoes a thorough
regulatory review process to ensure compliance with securities laws and regulations.
Once the IPO is complete, the company's shares are traded on a stock exchange, and the
company becomes subject to public reporting requirements, including regular financial
disclosures.
How IPO works
An Initial Public Offering (IPO) is a complex process that involves several key steps:
1. Preparation: The company decides to go public and starts preparing for the IPO
process. This includes selecting investment banks (underwriters) to manage the offering,
conducting financial audits, preparing legal documents, and developing a marketing
strategy.
2. Due Diligence: The company undergoes a thorough due diligence process, where
underwriters, lawyers, and accountants review its financial statements, business
operations, management team, and legal compliance to ensure everything is in order for
the IPO.
3. SEC Registration: The company files a registration statement with the Securities and
Exchange Commission (SEC), which includes detailed information about the company
and the offering. The SEC reviews the registration statement to ensure compliance with
securities laws and regulations.
4. Roadshow: The company, along with its underwriters, conducts a roadshow to market
the IPO to potential investors. During the roadshow, the company presents its business
model, financial performance, and growth prospects to attract investor interest.
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Visvesvaraya Technological University,
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
5. Pricing: Based on investor demand and market conditions, the underwriters determine
the final offering price and the number of shares to be issued. The offering price is
usually set at a level that maximizes proceeds for the company while ensuring sufficient
demand from investors.
6. Allocation: The underwriters allocate shares to institutional investors, retail investors,
and other clients. The allocation process is typically based on factors such as investor
demand, size of the investment, and relationship with the underwriters.
7. Trading: The company's shares are listed on a stock exchange, and trading begins.
The stock price is determined by supply and demand in the market, and it may fluctuate
significantly in the early days of trading.
8. Post-IPO Compliance: After the IPO, the company becomes subject to ongoing
reporting and compliance requirements, including regular financial reporting, disclosure
of material events, and compliance with securities laws and regulations.
Overall, an IPO is a complex and rigorous process that requires careful planning,
preparation, and execution to ensure a successful transition to becoming a publicly traded
company.
Steps to an IPO's
The process of taking a company public through an Initial Public Offering (IPO) involves
several key steps. While the specifics can vary depending on the company and its
circumstances, here is a general outline of the steps involved in an IPO:
1. Preparation and Planning:
- Select underwriters: Choose investment banks to manage the IPO process.
- Internal preparation: Ensure financial statements are in order, corporate governance is
strong, and all legal and regulatory requirements are met.
- Evaluate readiness: Assess the company's financial position, market conditions, and
overall readiness for going public.
2. Due Diligence and SEC Filings:
- Conduct thorough due diligence: Review all aspects of the company's business,
operations, finances, and legal compliance.
- Prepare registration statement: Draft the S-1 registration statement, which includes
detailed information about the company, its business, financials, risks, and the proposed
offering.
3. SEC Review and Approval:
- Submit the registration statement to the Securities and Exchange Commission (SEC)
for review.
- Respond to SEC comments: Address any comments or concerns raised by the SEC
during the review process.
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Visvesvaraya Technological University,
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
- Obtain SEC clearance: Receive approval from the SEC to proceed with the IPO.
4. Roadshow and Investor Marketing:
- Conduct a roadshow: Present the company to potential investors, including
institutional investors, analysts, and the media.
- Generate investor interest: Showcase the company's business model, financial
performance, and growth prospects to attract investor interest.
5. Pricing and Allocation:
- Determine the offering price: Based on investor feedback and market conditions, set
the final price at which shares will be offered.
- Allocate shares: Allocate shares to institutional investors, retail investors, and other
clients based on demand and other factors.
6. Closing and Listing:
- Price the offering: Determine the final offering price and the number of shares to be
sold.
- Close the offering: Complete the sale of shares to investors.
- List on the stock exchange: List the company's shares on a stock exchange for trading.
7. Post-IPO Compliance and Reporting:
- Meet ongoing reporting requirements: Comply with regular financial reporting and
disclosure requirements.
- Maintain compliance: Adhere to securities laws and regulations, including those
related to corporate governance and financial reporting.
8. Stabilization and Transition:
- Stabilize stock price: Manage the stock price in the days following the IPO to prevent
excessive volatility.
- Transition to public company: Adjust to the requirements and responsibilities of being
a publicly traded company.
Throughout the IPO process, the company and its advisors must navigate various
challenges and considerations to ensure a successful and smooth transition to public
ownership.
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Visvesvaraya Technological University,
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
2. Financial Support: The government offers financial support through various schemes
and programs. This includes providing loans at subsidized rates, seed funding, and
venture capital support for startups.
3. Skill Development: To nurture entrepreneurship, the government focuses on skill
development through various training programs, workshops, and mentorship initiatives.
There are two main national level financial institutions which provide loans to the
entrepreneurs and these are:
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Visvesvaraya Technological University,
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
Industrial Development Bank of India (IDBI): Industrial Development
Bank of India aims to create a principal institution for long term finance, to provide
administrative and technical support to the industries, to coordinate the institutions which
are working in this field for planned development of industrial sector and to conduct
research and development activities for the benefit of industrial sector.
Industrial Finance Corporation of India (IFCI): The government
established The Industrial Finance Corporation of India (IFCI) on July 1, 1948, as the
first Development Financial Institution in India to deal with the long-term finance needs
of the industrial sector. The newly-established DFI were given low-cost funds through
the central bank’s Statutory Liquidity Ratio (SLR) which in turn enabled it to give
advances and loans to the borrowers of corporate sector at concessional rates.
There are 18 State Financial Corporations (SFCs) in the country and these are:
1. Andhra Pradesh State Financial Corporation (APSFC)
2. Himachal Pradesh Financial Corporation (HPFC)
3. Madhya Pradesh Financial Corporation (MPFC)
4. North Eastern Development Financial Corporation (NEDFC)
5. Rajasthan Financial Corporation (RFC)
6. Tamil Nadu Industrial Investment Corporation Limited
7. Uttar Pradesh Financial Corporation (UPFC)
8. Delhi Financial Corporation (DFC)
9. Gujarat State Financial Corporation (GSFC)
10. The Economic Development Corporation of Goa (EDC)
11. Haryana Financial Corporation (HFC)
12. Jammu & Kashmir State Financial Corporation (JKSFC)
13. Karnatka State Financial Corporation (KSFC)
14. Kerala Financial Corporation (KFC)
15. Maharashtra State Financial Corporation (MSFC)
16. Orissa State Financial Corporation (OSFC)
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Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
17. Punjab Financial Corporation (PFC)
18. West Bengal Financial Corporation (WBFC)
State Industrial Development Corporation (SIDC): The SIDCs came on
the scene much after the SFCs. Besides giving finances, these types of institutions
perform a variety of functions, viz. licenses for industrial units, arranging for land, power,
roads, sponsoring the establishment of such units, especially in backward areas, etc. It
also provides working capital margin to the entrepreneurs as term loan.
5. Government Schemes
The government schemes available for the industrial development of a state may be
categorized as making available infrastructure at concessional or reduced rates and
providing cash subsidy and incentives which amounts financial gains to the entrepreneur.
These schemes are as follows:
Loans and subsidies at very attractive rates of interest.
Electric power supply at a reduced tariff.
Land at subsidized prices or industrial sheds to set up small scale industrial
units.
Various tax concessions for a number of years. These may include exemption
from sales tax, etc. for a set period of time.
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Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
(iii) Sales tax concessions/deferment: New industrial units were given sales
exemption to the extent of twice the amount of investment made in the industrial units set
up in the state. There used to be a scheme which exempts sales tax payment/remittance
by the unit for a period of three years.
(iv) Interest Subsidy: The government extends interest subsidy on the loan extended
to certain class of entrepreneurs such as women entrepreneurs, ex-servicemen etc. the
interest subsidy is in terms of a percent or less. There are schemes which
require lesser contribution from women entrepreneurs in the equity contribution.
(v) Export Subsidy: Government charges reduced interest rates for the funds
involved in exports to promote export and to make the export price competitive in the
market.
(vi) Funding the educational and industrial tours: The government extends
subsidy and assistance to entrepreneurs to undertake tour both within the country and
abroad for visiting/participating in exhibitions.
(vii) Income tax benefits: Income Tax Act, 1961 under section 80 J, new industrial
undertakings including small-scale industries (SSI), are exempted from the payment
of income-tax on their profits which is subject to a maximum of 6 per cent per annum of
their capital employed. The exemption in tax payment is allowed for the period of five
years from the date of commencement of production. In order to avail this exemption
facility, a small-scale industry has to satisfy the following two conditions;
The unit should not have been formed by the reconstitution or splitting of an
existing unit.
The unit should employ ten or more workers in a manufacturing process with
power, or at least twenty workers without power.
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Visvesvaraya Technological University,
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
manufacturing small enterprises. The rehabilitation allowance is given to only those small
businesses that had suffered because of the following reasons:
Action taken in combating an enemy or action by an enemy.
Cyclone, Flood, earthquake or other natural upheavals.
Civil disturbance or riot, explosion or accident fire.
The rehabilitation allowance should be utilized within three years of the unit’s re-
establishment reconstruction of revival for the business purposes only. This allowance is
allowed to the industrial undertaking equal to 60 per cent of the amount of the deduction
allowable to the enterprise.
(xi) Investment Allowance: In 1976 the investment allowance was introduced in order
to replace the initial depreciation allowance. This allowance is allowed at the rate of 25
per cent of the cost of acquisition of new plant or machinery installed as per section 31A
of the Income-tax Act, 1961. Actually the investment allowance has been made available
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Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
for the things or the articles except certain items of low priority initially, but, according to
the 11th schedule of the Income Tax Act 1961, a special dispensation has been provided
for the plant and machinery installed in small-scale industries. The important condition
for claiming the investment allowance that the small scale industrial unit has put to use
machinery or plant either in the immediate following year or in the year of installation,
falling which the benefit will be forfeited.
The schemes of the government mentioned above are illustrative only. There are
various schemes which would exempt industrial units from power cut, development
loans given at very nominal rate of interest etc.
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Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
designed to support startups, small and medium enterprises (SMEs), and other businesses
across various sectors. Here's an introduction to some of the key incentives available:
1. Central Government Incentives:
Startup India Scheme: Launched to promote startups, this scheme offers various
benefits such as tax exemptions, self-certification compliance, and funding support
through the Startup India Fund.
MUDRA Loan Scheme: This scheme offers loans up to Rs. 10 lakh to micro-
enterprises in the non-farm sector, helping them to start or expand their business.
Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE): It
provides collateral-free credit to micro and small enterprises.
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Visvesvaraya Technological University,
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
Technology Upgradation Fund Scheme (TUFS): This scheme provides financial
assistance for upgrading technology in certain sectors.
These are just a few examples of the incentives, subsidies, and grants available to Indian
entrepreneurs from both the central and state governments.
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Visvesvaraya Technological University,
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
10. Export Development Fund (EDF): EDF provides financial assistance to exporters
for export promotion activities.
These schemes and grants are subject to periodic changes and updates, so it's advisable to
check the latest information on the website of the Directorate General of Foreign Trade
(DGFT) or the Ministry of Commerce and Industry, Government of India.
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Visvesvaraya Technological University,
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
2. Credit Guarantee: SIDBI operates the Credit Guarantee Fund Trust for Micro and
Small Enterprises (CGTMSE), which provides credit guarantees to banks and financial
institutions to encourage them to extend collateral-free loans to MSMEs.
3. Venture Capital: SIDBI promotes entrepreneurship by providing venture capital to
startups and small businesses through its subsidiary, the Small Industries Development
Bank of India Venture Capital Ltd. (SIDBI Ventures).
4. Microfinance: SIDBI supports microfinance institutions (MFIs) and self-help groups
(SHGs) by providing them with financial assistance to reach out to micro-entrepreneurs
and small businesses in rural and semi-urban areas.
5. Promotional Activities: SIDBI undertakes various promotional activities such as
organizing workshops, seminars, and training programs to enhance the skills and
capabilities of MSMEs. It also collaborates with other institutions to promote MSME
development.
6. Development Initiatives: SIDBI supports MSMEs through various development
initiatives such as cluster development, technology upgradation, and modernization of
existing units.
7. Digital Initiatives: SIDBI has launched digital initiatives to provide online platforms
for MSMEs to access financial services, information, and networking opportunities.
Overall, SIDBI plays a crucial role in the development of the MSME sector in India by
providing financial and non-financial support to promote entrepreneurship and economic
growth.
Small Industries Development Corporations (SIDCO)
Small Industries Development Corporations (SIDCOs) play a crucial role in supporting
the growth and development of small-scale industries in India. Here's a brief overview of
SIDCs and their operations:
1. Establishment: SIDCOs were established by the respective state governments in India
to promote, aid, and foster the growth of small-scale industries. They were set up under
the provisions of the State Financial Corporations (SFCs) Act, 1951.
2. Financial Assistance: SIDCOs provide financial assistance to small-scale industries in
the form of term loans, working capital loans, and other financial products. They also
help in obtaining credit from banks and financial institutions.
3. Promotional Activities: Apart from financial assistance, SIDCOs also engage in
various promotional activities such as conducting market surveys, organizing exhibitions,
providing technical and managerial assistance, and facilitating the procurement of raw
materials and machinery.
4. Entrepreneurial Development: SIDCOs play a crucial role in the development of
entrepreneurial skills among individuals interested in starting small-scale industries. They
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Visvesvaraya Technological University,
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
conduct training programs, workshops, and seminars to educate entrepreneurs about
various aspects of business management.
5. Project Evaluation: SIDCOs evaluate project proposals submitted by entrepreneurs to
determine their feasibility and viability. They assess factors such as market demand,
technical feasibility, financial viability, and managerial capabilities before sanctioning
loans.
6. Rehabilitation of Sick Units: SIDCOs also undertake the rehabilitation of sick small-
scale industries by providing financial and technical assistance to revive their operations
and make them viable again.
7. Coordination with Government Agencies: SIDCOs work closely with various
government agencies, financial institutions, and industry associations to formulate
policies and programs for the growth and development of small-scale industries.
Overall, SIDCOs play a crucial role in fostering the growth of small-scale industries,
which are considered the backbone of the Indian economy due to their contribution to
employment generation, income generation, and rural development.
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Visvesvaraya Technological University,
Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
7. Facilitating MSME Registration: DICs facilitate the registration of Micro, Small,
and Medium Enterprises (MSMEs) and help them avail the benefits under the MSME
Act.
8. Monitoring and Evaluation: DICs monitor the performance of small-scale industries
in their respective districts and evaluate the impact of government policies and programs
on the sector.
Overall, DICs play a crucial role in the development of small-scale industries by
providing a range of support services and facilitating their growth and sustainability.
Single window in entrepreneurship development
A "single window" approach typically refers to a centralized platform or system that
facilitates the delivery of various support services to entrepreneurs. This approach aims to
simplify the process of accessing resources and assistance, thereby enabling
entrepreneurs to focus more on developing their businesses.
Here are some key aspects of how the single window operates in entrepreneurship
development:
1. Centralized Access: The single window serves as a central point of access for
entrepreneurs to access a wide range of services, including information, training,
mentoring, funding, networking opportunities, and regulatory support.
2. Streamlined Processes: It streamlines the process of accessing support by reducing
paperwork, eliminating redundant procedures, and providing clear guidelines on how to
access different services.
3. Customized Support: The single window provides tailored support based on the
specific needs of each entrepreneur, helping them to identify and access the resources that
are most relevant to their business.
4. Coordination and Collaboration: It facilitates coordination and collaboration among
various stakeholders involved in entrepreneurship development, such as government
agencies, industry associations, academic institutions, and private sector organizations.
5. Monitoring and Evaluation: The single window may also include mechanisms for
monitoring and evaluating the impact of support services on the growth and success of
entrepreneurs, helping to improve the effectiveness of the overall ecosystem.
Overall, the single window approach in entrepreneurship development aims to create a
more efficient and supportive environment for entrepreneurs, enabling them to overcome
barriers and achieve their full potential.
Industrial Policy from Government of India
The Government of India has periodically issued industrial policies to guide the country's
industrial development. Here is a brief overview of some key industrial policies:
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Belagavi
Centre for Distance and Online Education
(CDOE), Mysuru
1. Industrial Policy Resolution, 1948: This was the first comprehensive statement of
industrial development objectives by the Government of India. It emphasized the role of
the state in industrial development.
2. Industrial Policy Resolution, 1956: This resolution emphasized the role of the public
sector in industrial development and laid the foundation for the mixed economy model in
India.
3. New Industrial Policy, 1991: This policy marked a significant shift in India's
economic policies, moving towards liberalization, privatization, and globalization. It
aimed to dismantle the license raj system and open up the economy to foreign investment
and competition.
4. National Manufacturing Policy, 2011: This policy aimed to increase the share of
manufacturing in GDP to 25% and create 100 million jobs by 2022. It focused on
enhancing the competitiveness of the manufacturing sector through various measures.
5. Make in India Initiative, 2014: This initiative was launched to promote India as a
manufacturing hub and attract foreign investment in various sectors. It aimed to boost
domestic manufacturing and create jobs.
6. National Industrial Policy, 2021: The Government of India has proposed a new
National Industrial Policy to replace the existing policy of 1991. The new policy aims to
promote the growth of industries in India, especially in sectors like manufacturing,
services, and technology.
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(CDOE), Mysuru
6. Skill Development: Initiatives to promote skill development and training programs to
meet the demands of the evolving industrial landscape.
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