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  Private Equity and Venture Capital Initiative
 

Background

The core of UNIDO’s development strategy for sustainable poverty reduction is creation of wealth and enhancement of productivity. UNIDO sees productivity as the engine of development to reach the Millennium Development Goals (MDGs). This engine is primarily driven by technological upgrading and diffusion, and the other key component is investment. The productivity-investment nexus is symbolic. If developing countries are to benefit from liberalized trade, they need to produce competitive products and services. On the other hand, to reach the level of competitiveness required to penetrate foreign markets, developing countries need investment - a suitable mix of foreign and domestic investment. This is the medium through which competitive production capabilities are established and maintained.

Investment follows profit. However, in many developing countries due to government and market failures, market forces alone will not bring enough quality investment to deliver the MDGs. There is an acute need to: firstly vitalize economic development in a bottom-up process and secondly to engage global business players in effective linkages and broader partnerships for sustainable development.

There is a clear synergy between the work of UNIDO and that of private equity/venture capital funds (PE/VC). UNIDO welcomes and supports the contribution PE/VC as a vehicle for development to deliver the MDGs.

About the project

While SMEs are considered to be key players in economic development in India, access to finance has continuously been a major challenge for them to grow. In many cases, funds required by SMEs are too large for microfinance institutions and too small or too risky for commercial banks. This gap is usually described as “missing middle”, and this is one of the primal issues that the PE/VC component addresses as part of the Investment promotion of the Consolidated Project for SME Development in India.

Among some options to fill in the “missing middle”, there are prospects for equity investments since there are active equity investors focusing on SMEs in India. Therefore, the main objective of this component is to create an “Ecosystem”, a self sustained mechanism to promote equity investments in Indian SMEs, by:

  • Creating awareness among stakeholders about equity investments in SMEs and assisting companies to increase their readiness to accept investments from PE/VC funds or angel investors

  • Developing institutional capacities at PE/VC associations to facilitate equity investments in Indian SMEs

Initial Efforts

  • Conducted a basic research about Indian auto components sector and its attractiveness as a target for PE/VC funds

  • Identified a number of Indian and Italian PE/VC funds as potential investors for Indian SMEs

  • Developed partnerships with PE/VC associations in India and Italy

  • Organized introductory seminars about PE/VC funds for SMEs in Pune, Chennai and National Capital Region (NCR) of Delhi

  • Conducted a research about Indian SMEs and equity investments

Future activities

  • Organize trainings for SMEs about PE/VC

  • Organize a round-table conference with the Government of India on the role of PE/VC in the SME finance

  • Facilitate partnerships between IVCA and foreign PE/VC associations for SME investments

Partners

IVCA: India Venture Capital and Private Equity Association is a member based national organization that represents venture capital and private equity firms, promotes the industry within India and throughout the world and encourages investment in high growth companies.

IVCA members comprise venture capital firms, institutional investors, banks, incubators, angel groups, corporate advisors, accountants, lawyers, government bodies, academic institutions and other service providers to the venture capital and private equity industry.

Members represent most of the active venture capital and private equity firms in India. These firms provide capital for seed ventures, early stage companies, later stage expansion, and growth finance for management buyouts/buy-ins of established companies.

IVCA was founded in 1993 and is based In NCR.

Link to www.indiavca.org

IAN

Indian Angel Network is India’s first and largest network of business angels. The Angel members are successful entrepreneurs and dynamic CEOs who believe in the power of entrepreneurship. They seek to seed new ventures and create disproportionate wealth for all the stakeholders. Apart from financial investments, they bring strategic direction and leverage their vast networks for the young start-up companies – in other words provide “smart money”. They bring the first round of professional money before institutional financiers come and invest.

The network represents the who’s who of Indian industry and today has over 80 members from around the country and even overseas. It has operations in Delhi, Bangalore and Mumbai. The Network has as of date, invested in 17 companies across multiple sectors including information technology, hospitality, education, intellectual property, consumer internet, mobile telephony, robotics, etc.

Link to www.indianangelnetwork.com