When an enterprise holds out the promise of being a good investment, it is bound to attract investment in one way or another. And the only way to attract investments if yours is a small firm is to turn to private equity investment since the public route has been cut off for you. From an Indian perspective, you can turn to either one of venture capital funds, private equity funds or angel investors. By dint of classification, all of them are classed as private equity funds. The only way in which they significantly differ is the amount required by the SEBI to be raised by means of each investment vehicle.
The Securities and Exchange Board of India (SEBI) has laid down the definition of Venture capital funds as funds created by way of a company or a trust, raising this money via loans, donations, or the issue of securities and shares. The entire concept of venture capital and private equity investment originated in the western world and made its way over to Eastern shores soon enough. Perhaps the most famous company to be initially funded by Venture Capitalists is Apple Computers, and look where it got them. IDBI laid down the initial groundwork for venture capital funds in 1987 after the government decided to step into the sphere, and things have come a long way since.
Liberalization arrived in India in the early 1990’s, but before that entrepreneurs worked in a very haphazard way, building empires and legacies with no attention being paid to technologies an competence. Since then, very many entrepreneurs have used technology intensive methods to spur the growth of India Inc. Presently, private equity investment is growing at a very rapid pace in India and this is understandable in a growing economy such as India’s.
Traditionally, businesses would look to buy a controlling stake in a struggling firm and then fix them up. This is not so in the Indian context. Private equity buys budding companies and then boosts their profile and stature, even offering guidance and management where needed. There are advantages to be had in emerging markets that are just not there in developed markets. With the right investment, an entire industry segment can be affected. There’s a lot of money to be made, which is why India is such a strategic investment location.
Some might say China is where the action is at, but India does have a strategic advantage over China in that it has more well trained managers and has greater transparency in the corporate sector. More critically, the judicial system is more reliable when it comes to adjudicating on investors rights. Indian jurisprudence is more evolved compared to other Asian markets and the sanctity of contracts will always be respected. Yes, there are downsides for private equity too, such as poor infrastructure and the red tape that continues to exist. But India is still where the smart money is at, and its why India is attracting so much private investment.
Desc: India enjoys strategic advantages over some of its Asian neighbors and it is why it is becoming a strategic hub of private equity investment.
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