Posted: August 8th, 2022

Please Read Below And Complete On Methodology And Other Parts

Introduction
The uniqueness of the most present young generation is aspiring to become an entrepreneur, but only a limited number of people gain access to knowledge becoming an entrepreneur. Tools of becoming an entrepreneur are not just ideas to create start-ups, but also a vast amount of knowledge, resources, connections, and many more skills are required to be a successful entrepreneur. Mentioning about resources, financial resources, or financial support has an undeviating impact on the entrepreneur’s life. Every innovative start-up requires capital as a primary essential component. In that sense, Venture capital plays a significant role in funding start-ups.

The phenomenal stories of great successful entrepreneurs involved with a crucial part of their career are known as Venture capital. The purpose of this research paper is to understand the Venture capital in every possible way, and their role in the start-ups and applying them to the real-world would help to overcome the lack of knowledge in the field of Venture capital industry especially for the entrepreneur seeking to understand Venture capital industry.

Why India?
India has massive potential for being a super economic nation in the future. India has seen rapid activity in the Venture capital industry in recent times, and the Indian Venture capital industry is nor underdeveloped or highly developed. Also, narrowing it down to a particular country is gives a more precise understanding and helps to focus the survey on every cornerstone.

Why Start-ups?
The primary benefited sector of companies from the Venture Capital industry are Start-ups since start-up’s basic necessity is to obtain funding to serve there every day need in business processes. In the end, start-ups are the ones among the companies, which turns out to be successful. This research paper is focusing on the Tech industry start-ups. Since about 80% of Venture Capital investments in 2019 was concentrated in just Tech industry such as Consumer tech, Software/ SaaS, Fintech and B2B commerce, and other Tech related industries. (Bain reports, 2020). Globalization highly concentrated in the Tech industry, which grabs the attention of Investors and Vential capital industry.

Research Objectives
• To ensure the role of Venture capital for the growth of Micro, small, and medium enterprise, including start-ups in the Indian tech industry.

• Analysis between Venture capital and Angel investors on the Tech start-ups.

• Impact of Venture capital financing in India which challenges the economy.

• To explain the present situation of venture capital in India.

Thesis structure
This thesis is divided into four different chapters. The first section presents the Introduction for the research and the research objectives as well as the thesis structure. The second chapter begins with the definition of Venture Capital and continues with the Evolution of Venture capital in India. Furthermore, this chapter provides some of the primary and most significant factors influencing Investment in start-ups. The author used a literature review from academic sources such as academic journals and books, as well as considering this chapter as the basis for the understanding of the thesis objectives.

The third chapter explains the methodology of this study, the research approach and data design, sampling, data collection, how the data was analyzed and the limitations of the research. Furthermore, it interprets the data collected and the results to link it directly and indirectly with the research questions to come up with usable and valuable information.

The last chapter is the overall conclusion of the study as well as recommendations for the further scholar and academic studies as well as pointing out the limitation the author faced during the whole process of writing this thesis.

Literature review
Definition of Venture Capital.
Venture capital can be most simply defined as risk-equity investing. It is an activity by which investors support firms with a combination of two important components “know-how” and “capital”, in order to exploit market opportunities. Venture capitalists aim to achieve long-term, above-average returns. (Darek Klonowski, 2010)

The term Venture Capital is easily defined as to raise a pool of money to invest in an entity at a specific stage or help to grow new technology, new products, or new service in the aim to gain liquidity.

In a board way it is known as the Private equity name itself describes as owning equity privately of a private firm and narrowing the Private equity splits up into Venture capital and private equity’ Private equity firms can buy companies from any industry while venture capital firms are limited to start-ups in technology, biotechnology, and clean technology. Private equity firms also use both cash and debt in their Investment when it is not about equity, whereas venture capital firms deal with equity only. These observations are common cases. However, there are exceptions to every rule. A firm may act out of the norm compared to its competitors’ . The following thesis exclusively deals with Venture capital, so going in detail about venture capital.

Venture capital has more control over the start-up when compared to private equity since they are focused on controlling their capital and getting involved in the places, including the hire and fire of CEOs. Venture capital’s primary attention is at the early stage of the start-ups, so basically, it never just focus on the performance of a company such as private equity.

Venture capital firms can provide valuable expertise or individual, the strategic direction towards the growth of firms and business connection in addition to their initial capital investment, so this the reason the venture capital often invests in a particular industry that they are knowledgeable about or previously worked in that Industry. The following thesis focused on Tech start-ups.

Figure 1: Own illustration based on research.

Every individual or firm has a particular goal to invest in a firm since Venture capital also typically has a goal besides being the shareholders of the company, which has been investing in the firm. After gaining a certain amount from Investment or higher investment profits, they intend to exit from the firm and exit typically be after gaining from about ten times the amount of the Investment.

Two types of Venture capital firms.
Indeed, Venture capital firms are differentiated into two types based on how the venture capital firms are sponsored, Venture capital is supported by two types are wealthy individual and banks, corporation, or Government (Da Rin, Hellmann, & Puri, 2011).

Categories of Venture capital firms.
Venture capital firms are categorized with few factors. These factors are solely based on the personal interest of a particular Venture capital firm. The following few factors are

• Stage based Investment

• Industry based Investment

• Geographical location-based Investment

Stage based Investment
The fundamental difference between the venture capital firms are based on the particular time when the fund invested. The particular time is known as stages, stage at which the portofolio company is functioning and to be invested at that particular stage. Stages are described based on the company seeking for the Investment, how specific company is experienced in the market. Usually, the stages follow with:

Seed stage investment:
The fund raised on the firm during the early stage of product development or specific time where the idea of the firm is starting to implement for the business level, aiming for potential growth. Seed stage investment is the essential stage requirement for the fund, and also the most laborious stage to attract the investors since the risk level is too high. On this stage, firms named as start-ups

Typical funding ranges between $500k to $2 million.

Early-stage/ Series A:
The early-stage or Series A funding focused on the firms which are primarily in the next stage of product development and prioritizing in the long run of the firm. At this particular stage, the firm has a subsequent amount of customers to present the cash flow of the firm.

Typical funding ranges between $2 million to $7 million.

Expansion/ Series B:
After the firm gained a significant increase in revenues and cash flow and the necessity fund during this particular stage is known as expansion funding or Series B round. During this stage, investors can be easily impressed by the firm to achieve its success on a large scale.

Typical funding ranges between $10 million to $15 million.

Pre-public stage/ Series C:
The final stage of funding a firm requires to be a market leader at their particular Industry also the most comfortable way to get funded at this particular stage since it has proved its growth and presents the sign of less risky Investment to the Investment providers.

Typical funding is $15 million and above.

Industry based Investment
The portfolio firm’s Industry plays a major role in Venture capital. Also, there is a preference for selecting a particular industry due to high previous experiences or knowledge in a similar industry. Venture capital firms are risk-oriented field; reducing risk involves many vital elements. One of the most important among those of vital elements is analyzing and selecting a particular industry of venture capital’s portfolio firm. Due to the high trend in the Tech Indusrty, most of the Venture capital firms are highly attracted towards the Tech and Tech related industry. Currently, Fintech is showing its power in treading Industries. Including AI, B2B Tech, FinTech, PropTech, and SaaS.

Geographical location-based Investment
The focus on the one particular area, region, or country to invest is a criteria for particular Venture capital firms due to the concentration of an enormous amount of high potential growth portfolio companies or the targeted sector of industries are located in that geographical location. A notable instance of this is silicon valley due to vast numbers of growth potential, and previously successful firms give opportunities and hopes for the venture capital firms to invest in that particular region.

Process of Venture capital funding.
Generally, this section of the research focuses on how the Investment of Venture capitalist or Venture Capital firm is processed to its portfolio company to grow business together. Portfolio companies are the list of companies which most likely to be invested shortly or most interested companies to invest by the Venture capital.

The risk factor is significantly excessive for high capital investment on firms due to lack of collateral; hence the strict method of process of funding is required.

Figure 2: Process of Venture Capital.

Investors

· Provide capital

Portfolio Companies

· Use capital

Venture capital firms

· Identity and screen opportunities

· Transact and close deals

· Monitor and add value

· Raise additional funds

(Source: Bygrave and Timmons, 1992, p. 11)

Three leading players involved during the process are funding are Investors, Venture capital firms, and the portfolio companies. Each player plays a crucial role accordingly. Venture capitals are highly professional in the field of Identifying and evaluating quality entrepreneurial ideas. Figure 1 represents the basic idea of members involved and their crucial roles.

The venture capital process is dynamic by nature and each of the phases is connected to the others and involves a wide range of stakeholders (Gompers and Lerner, 2002).

Figure 3 : Model 1-The Venture capital investment process. Darek Klonowsk (2010, P.27)

The venture capital process is dynamic by nature and each of the phases is connected to the others and involves a wide range of stakeholders (Gompers and Lerner, 2002).

According to Model 1 Darek Klonowsk (2010) the process of inventment divides into five parts such as

1. Deal generation.

2. Investment Screening.

3. Investment Assessment.

4. Investment structuring.

5. Post- investment activities(Exit).

Summarize of Venture capital process
1. Deal generation:

In this particular process, the raise of capital for Investment is initiated by the members of the Venture capital firm and also determining the objectives of the Investment.

2. Investment Screening:

The process of filtering down the most effective Investment from the group of available investments depending on the analyzes of the venture capital firms are also based on interest in the particular Industry. Measuring market validation for functional product prototype or analyzing similar previous products in the market.

3. Investment Assessment:

The core work of Venture capital starts with this process. The majority of post-investment activities are happening in this process and after the process of screening, selecting the optimistic portfolio company. Assessment of the particular portfolio company is initiated for the documentation process with verifying veracity, usually with the external firms which are specialized with the particular work. Such as legal term sheets.

4. Investment structuring:

After the investment deals are successfully passed the Assessment process, structuring aims to attain the win-win situation for both the Investee and Venture capital or Investor in this process, which also includes the negotiation. The process includes monitoring the Investment, executive’s decisions, the appointment of a new board of directors, and managing the demand and supply of investments.

5. Post- investment activities (Exit):

The final stage and also one of the vital stage of the Venture capital Investment process, also known as Exit of Venture capital, primarily disinvestment occurs when there is Initial Public Offering (IPO) or sale of whole strategic Investment, and this largely attains after the triumphant return on Investment is achieved. Lack of high risk is a major benefited factor of this process, but there are interested venture capital willing to reinvest on the firm. The exit process plays an essential role in the profits of returns. Acquisitions from other companies is also a route of exit or post Investment activities.

“We see an IPO as a reasonable route towards an exit providing market conditions are buoyant and for businesses which meet certain thresholds. A key threshold is scale – to attract high-quality investors and good research coverage, businesses ideally need a market capitalization greater than EUR500m”. Stuart Paterson, (Ernst & Young, 2020)

Venture Capital in India
Evolution of Venture capital in India
The risk-taking attitude is one of the essential parts of the financial world. Indian culture has a less risk-taking attitude in the field of financial Investments. Therefore the Venture capital started the boom in the late 1990s after the technology and tech-related Industry got stronger,

On the other hand, there was risk capital provided by the government before the private equity concept, known as the Risk capital foundation.

In 1988, the start of modern Venture capital in India to bring development in technology, especially in information technology companies. A joint venture fund management with two company ICICI (The Industrial Credit and Investment Corporation of India) and the Unit Trust of India forming the TDICI (Technology Development and Information Company of India Ltd. Along with this Indian government started implementing the guidelines to start the institute level of venture capital. This Venture capital was more risker since it had a narrow definition of Venture capital and focused on the innovative technologies which started by the first generation entrepreneurs. World Bank-supported institutes emerged during the same time for several venture capital firms. “The World Bank selected six institutions to start Venture Capital investment in India, viz., TDICICI (ICICI), GVFL, Canbank Venture Capital Fund, APIDC, RCTC (now known as IFCI Venture Capital Funds Ltd.) and ILF (now known as Pathfinder).” (Viswanatha Reddy, C. (2014)).

Later after half a decade government stepped up with new guidelines regarding the tax payment of venture capital up until it was 20 percent of the income gained from the investments. During the Finance minister speech during the budget 1995-96, free from tax obligations for income from dividends and profits from investments in venture capital firms. Venture capital firms registered from SEBI (The Securities and Exchange Board of India). SEBI established on April 12, 1992, following the provisions of the Securities and Exchange Board of India Act, 1992. Purpose establishment of SEBI is to serve as an interim administrative body to promote orderly and healthy growth of the securities market and for investor protection. (SEBI)

Later in 1997, all of a sudden, the globalization started in the field of Information Technologies industry expansion started at a tremendous pace in India. Also, the Venture capital significantly played a significant role in funding those start-ups helping to boost and match the pace during this era in India, where the bonding between the technology and the Venture capital started with a great future for the Indian economy.

During this era, the eyes of the International investors started to glance over the Indian markets to explore the Venture capital industry. The first foreign institute level of venture capital to enter was William Draper. In 1994, Draper and Robin Richards Donohoe founded Draper International, the first US venture capital fund to focus on investing in private companies with operations in India. Since the Indian government was trying to attract FDI (Foreign Direct Investment) to boost the economy, one of the severe methods was to help the start-ups with the foreign funds; thus, Draper with the help of SEBI started investing in India. Draper when Interviewed in 2005

“We picked India because it was a big complicated country, so is China, but democracy and the rule of law, China doesn’t have that. Very entrepreneurial people and very good technology. In India, they speak English and that was a big plus, because if you’re doing a private deal, you know, if you’ve got to work through an interpreter, that is really tough, so that was a big plus. But that in turn helped India to become the biggest exporter of software other than the US at a time when software was very small, you know, just beginning. But it had to jump over China because of that, and we wanted to go into software primarily, or IT stuff, intellectual properties, the Internet technology, and so on. We ended up with a really good decision. But I had a lot of people who said, God, they didn’t trust the Indians, they are a lot of thieves, lost money every time they worked with them, and stuff like that. But it’s just like every other new part of the world, if you go in as a novice, you have to God, if you go in as a novice, you have to be careful and select somebody that you trust that then helps you select other people. And we did get two very good partners in India. Garnaut Karne and Abbey Havaldar. And, you know, it became easier and easier as we learned more about what they were about, what their biases were and what their weaknesses were — one of them did and the other didn’t know anything about venture capital.” (Draper, 2005)The presence of Draper International in India leads the way to new International venture capital to enter India. During this era, the new regulations made Foreign Venture Capital Investors register with SEBI.

The new trouble has risen, and it is the Recession of 1999 – 2001 due to the year 2000 scare. Computer users and programmers feared that computers would stop working dates beyond December 31, 1999. This recession led to a massive drop in sales of computers and software, just to conclude there was a significant problem in the tech industry. Even the Dot-com bubble made an impact on this recession. In this period, the boom of Venture Capital had slow down by taking a step back. Many of the Venture capital firms either shut down or making changes like focusing on investing in exiting successful companies and particularly avoiding risk start-ups companies highly until 2002.

After slowing down of impact of the recession, there was the emergence of the successful emergence of India-centric Venture Capital firms. Also, NASSCOM has reported that by 2007 – 2008, the Venture Capital disbursement will reach the US $10 billion per annum.

The table 1 below briefly describes the evolution of Venture Capital in India by categorizing into four phases, which not only has the total amount of fund Invested and the number of funds but also the primary focus of specific stage of the start-ups or type the sector that Venture Capital invested during the particular phase.

The table 1 has simplified the whole evolution of the Venture capital industry in India, including the number of funds invested and the number of funds before 1995 to 2005

Phase Ⅰ

Phase Ⅱ

Phase Ⅲ

Phase Ⅳ

Pre-1995

1995-1997

1998-2001

2002-2005

Total Funds:($ m)

30

125

2847

5239

Number of Funds

8

20

50

75

Primary stages and Sectors

Seed, Early-stage and Development – Diversified

Development – Diversified

Early-stage and Development- Telecom and IT.

Growth Maturity – Diversified

Primary sources of funds

World Bank, Government

Government

Overseas Institutional

Overseas Institutional

Table 1:The table has been adapted from Dossani and Desai (2006), p-24.

Categories of venture capital in India
Stage based Investment in India
After the general idea of stages commonly followed worldwide. Since this study is primarily focused on Indian geographical location. The Inc42 Media reports the stage wise investment in India during 2018 is shown in the figure 5 indicating with the amount of US dollars invested at a particular stage, as per the observation of figure stages as named with bridge funding for Series A, Growth stage for Series B and Late-stage for Series C. Series

Analyzing the investment stage of portfolio companies is a critical part of the decision-making process during Investment for the portfolio companies since ceratin levels of risk factor varies for each stage of the funding. Based on figure 5, Series C has highest amount funding compared to others stages.

Figure 5: Indian stage-wise funding in 2018. (Inc42 Media, 2018)

Industry based Investment in India
Figure 6: Indian industry-wise funding in 2018. (Inc42 Media, 2018)

Based on the reports of Inc42 Media, Indian Venture capital firms preference of the particular sector of Industry.is presented figure. 6. A high amount of firms are involved in this results report is Tech or Tech related firms. Indication of this treading of the Tech industry in India is an essential aspect for the rise of Venture capital industry in India.

Geographical location based on Investment in India

Figure 7: Indian geographical location wise investment in 2018. (Inc42 Media, 2018)

High level of industrial activities happening in a particular region or a location, attracting human capital, innovation, and growth of real estate. Indeed this brings a concentration of the Venture capital firms. Analyzing the figure 7 indicates that Bengaluru has obtained a tremendous amount of funding compared to several other cities in India. Bengaluru is known as The Silicon Valley of India. These Start-up hubs play a prominent role in attracting Venture Capital firms.

Performance of Venture Capital and their Investment portfolio companies.
In this generation of the highly competitive world, the best way to successfully survive the firm is to run the firm most efficiently. To stay efficient, one should require skill or strategy, which is to get updated with performance. Performance is a measure of how well a firm can use the assets from its primary mode of business and generate revenues, especially in the financial sector, also known as financial stability or financial health. Different financial measures can be used in order to evaluate the performance of a company. Some of the standard financial measures are: revenue, return on equity, return on assets, profit margin, sales growth, capital adequacy, liquidity ratio, and stock prices, among others. (Qaiser Munar, 2015).The measure of performance has a direct and substantial impact on Venture Capital firms. Since the risky factor of the investment industry is very high.

Figure 8;Money talks,Gil Ben-Artzy, 2016

The success ratio in the venture capital industry is quite less, but even in a group of successful returns category, there are multiple areas where the returns calculated based times of return invested. According to Gil Ben-Artzy, Venture capital fund return is more than three times the fund invested is just 5%. Fifty percent of the venture capital fund return is less than one time of the fund invested.

Factors influencing the Investment.
In an Investment, various factors play a vital role in order to obtain the decision on Investment in the way to reduce possible risk.

Either way risk in Investment is absolute but understanding and making familiar with factors influencing the Investment is one of the solutions to reduce the known risk in the end.

Financial performance
In addition to globalization, competitiveness is an essential issue among policymakers of different levels (country, Industry, and company) in different parts of the world (Shorcheloo, 2002). What is essential in the competitiveness of an organization is the organization’s ability to act and react within the competitive environment. The business performance involves customer performance (satisfaction and customer loyalty) and market performance (sales volume and high market share) and financial performance (profit and return compared competitors). In order to measure business performance, seven indicators and in the form of two categories of marketing performance and financial performance have been used. Marketing performance includes Customer return, customer satisfaction, and trust. Financial performance includes return on Investment, return on sales, sales growth, and market share. Cheng et al. (1999) showed that in many services such as banking and medicine in which a two – way transaction process is conducted directly between employees and customers, Market orientation has a significant effect on performance.

Much of the research has examined the effect of marketing on business performance on the domestic market. Kim (2003) investigated a relationship between market orientation and business performance in an international space. The results of this study show that the firm’s specific factors (including the firm size and subjective experience), competitive strategies (general cost leadership strategies, distinction, and focus ), market factors (including market growth and competition intensity), and interfering environmental factors (including market chaos, technological chaos, competition intensity, and market growth), influence the relationship between market orientation and business performance on international markets. More international experience creates higher performance.

Performance Measurement
In the Investment industry, the total results of the performance of Investments of a particular firm are measured based on the returns of the Investment. Returns of Investment analyzed in many possible methods, but Return on Investment (ROI) is a significant method to analyze the return of the Investment.

Return on Investment (ROI) is a concept of performance in any form of Investment; for shareholders, the ultimate goal of the company is expressed in Return on Investment. Return on Investment is an indicator that shows to which extent a specific business produce gain from the use of capital. It shows the extent to which the amount invested in a particular action returns as profit or loss. (Zamfir, Mariana & Manea, Marinela & Ionescu, Luiza., 2016)

As the formula of Return on Investment indicates the amount gained or profits from the Investment made is the Investment gained and the amount which are invested is also known as the Investment base.

Internal Rate of Return (IRR): In more specific terms, the IRR of an investment is the discount rate at which the net present value of costs (negative cash flows) of the Investment equals the net present value of the benefits (positive cash flows) of the Investment. (Yassin El-Tahir, Derar El-Otaibi, 2014)

Since the internal rate of return is primarily based on the Investment’s cash flow and Venture capitalists or Investors seek to reinvest cash flows, Internal rate of return will be misrepresentative if Venture capitalists or Investors not able to bring the same set of internal results.

Different approaches to performance Assessment
To evaluate the performance of companies, different approaches are used and the most important of these approaches can be divided into four categories as follows.

· Accounting data, such as profit, return on equity capital, sales change process.

· The financial management data, such as return, stock return, capital market equation, and asset pricing model

· The economic data including the economic value-added, adjusted economic value added

· The mixed data is the combination of the market value and accounting information. As with the ratio of P / E, the price to profit ratio, the ratio of Tobin’s Q and the ratio of the market value to the book value of each stock (Shoorcheloo, 2002)

Performance Assessment models
The users of financial reporting are using different criteria to evaluate the performance of the company. There are several methods for performance Assessment that can be divided into two categories of accounting models and economic models

Performance Assessment accounting models.
The result of the accounting information system is financial reporting that the reported earnings are of great importance to consumers. By relying on accounting earnings, investors evaluate the performance of the company and project on that basis. Managers also use benefits for the future planning of the company. In the accounting model, the value of the firm is obtained from the product of two numbers; the first number, the profit of the company, and the second number is the coefficient of return to value. As mentioned before, in performance Assessment accounting models, the value of a company is a function of different criteria such as profit, profit growth rate, return rate, the return on equity capital, the return of capital, free cash flow, and dividends (Stewart, 1991).

Accounting earnings are the most traditional measure of performance Assessment, which is of great importance to investors, shareholders, managers, creditors, and securities. Accounting earnings are calculated with an accrual assumption, is considered to be one of the most important criteria of performance Assessment. According to the advantage of the availability of information required in these models and its ease of computation, users of financial information widely use this group of performance Assessment criteria. The researches conducted by researchers also show that accounting earnings and information from it provide useful information to consumers that are very effective in decision making (Balsam & Lipka, 1998). however, the traditional accounting model has the following characteristics:

• The possibility of falsification and manipulation of profits by selecting different methods.

• The accepted general accounting practices allow a non – uniformity in terms of profit measurement in different companies.

• By changing the price level, the measured profit varies with the historical currency unit.

• Because of the usage of the cost principle, and the realization of earnings, the non-realized sales value of assets held within a given time period can not be identified in the calculation of accounting earnings. this feature makes it impossible to disclose useful information

• Due to the use of different methods to compute the cost and different methods for cost allocation based on the cost-based accounting earnings, it is very difficult to compare the items.

• Relying on accounting earnings is based on the principle of earnings realization; the historical cost conservatism causes misleading information to the users.

• To not consider the cost of capital.

High failure shows that accounting measures based on accounting earnings can not be used as the only measure and basis of performance Assessment.

The economic model of performance Assessment
In addition to the different applications of accounting earnings, some believe that accounting earnings are not a good criterion for evaluating firm performance; for example, using each of the different methods of Assessment, the inventory identification, and measurement, the expense of research and the depreciation of fixed assets will be different because of the use of different accounting methods.

In the introduction of performance Assessment economic criteria is the result of researchers trying to overcome the failure of models based on accounting numbers. In the economic model, firm value is a function of profitability power, available preferences, potential investors, and firm capital cost.

Different ratios used in evaluating companies
Liquidity ratios

Liquidity is the ability of the firm to perform short – term commitments (Foster, 1978). The liquidity ratios represent the firm’s ability to obtain cash in the course of the next few months. In recent years, the effects of current and Quick liquidity have been discussed. Some researchers have objected to these issues and have recognized them in terms of the recognition of liquidity power. They say that the current and Quick ratios are based on the dissolution and dismantling of the economic units, and this is assumed that the activity of the business unit is stopped and all the current assets, such as goods and non – goods, are collected in the fund to answer the current debt and that it does not apply to the financial statements that depend on the existence of the business unit and the continuity of its activity. On the other hand, some argue that there is no Cash flow in these ratios, i.e., the depreciation of the cash into the cash inventory and the sudden withdrawal of it from the cash inventory is not assumed, because the money that comes in at one moment to get more from the liquidity inventory, what effect can it have in terms of the possibility of repaying the debt? In addition to these, there are no noticeable effects for the two conditions that mainly cause cash liquidity.

Liquidity issue.

Experts believe that liquidity in society always has to be as goods and services are equal. Its increase will lead to a shortage of goods and services, resulting in an increase in inflation in society. In relation to liquidity, liquidity management in the banking system is one of the most important challenges. Liquidity should be managed in such a way that it is always available enough since the lack of that will face bank with the risk of failure to meet its obligations, and thus bankruptcy and the lack of liquidity in the bank means an inefficient allocation of resources, which may ultimately lead to loss of market

Liquidity and inflation are one of the most important macroeconomic variables that other variables are affected by them. Therefore, firms, especially in third world countries, should pay attention to the issues mentioned above in order to achieve their goals in the planning phase and other stages and have high flexibility (clinch et al.,2001)

liquidity control is one of the major responsibilities of bank management. The use of short – term funds in long – term investments will expose the bank to the risk that investment accounts holders may be seeking to receive their funds and that the bank will have to sell its assets. The bank should have enough liquidity to respond to demand from lenders to win public confidence. Banks need to have an effective asset management system so that they can minimize the default of assets and liabilities and optimize their return. Also, liquidity is inversely related to profitability, so the financial institutions must balance between liquidity and profitability (Clinch et al., 2001).

The most important of liquidity ratios are current ratio, Quick ratio, receivables collection period, payment period.

Traditional indicators of liquidity measurement
In traditional cash indicators, the main emphasis is that the more the current assets are current debts. The company’s liquidity status is more desirable. In other words, the current assets of the company, whatever its composition represents the payment power of the company and the current debt, regardless of its combination, represents the company’s cash needs. Based on this view, the current and Quick ratios of the liquidity situation is considered to be a long time since these are used as proxies to assess the power of the debt. The shortcomings of these indices have always been an emphasis of analysts, especially the capital market, among which we can address not considering the current levels of cash liquidity and the repayment of current debt.

New indicators of liquidity measurement

In regard to the flaws of traditional cash liquidity, financial researchers sought to introduce indicators that also consider the details of the liquidity situation of the companies as they overcome those flaws. Furthermore, the new indices of liquidity used in this study are briefly reviewed.

Comprehensive cash index

Comprehensive cash index measured by calculating the weighted averages of the current ratio, this index will address the problem of not considering the liquidity state of current assets and the repayment period of current debt.

Index of cash conversion period

The cash conversion period is the net time period between payment of debts and the receipt of cash from the receivables collection. The shorter the period, the better the company liquidity

Net cash balance index

Another new indicator is introduced to determine the liquidity situation of the companies. In this index, to show the cash liquidity of the company, cash balance and securities are considered. this index shows the firm’s real cash liquidity about the unmet needs

Activity ratios

It is important to assess how to use for-profit sources in financial analysis. In this regard, the activity ratios are used. These criteria are also called activity ratios. Because their purpose is to measure the use of a for-profit assets.

The most important Activity ratio is the ratio of Commodity turnover, the ratio of goods to Working capital and the turnover of the current capital, the ratio of the total turnover of capital, turnover of accounts receivable. In this ratio, the inventory of the economic firm has the main role.

In recent years, many large scale manufacturing and industrial enterprises in the western world are using a method called Just in time (JIT) to manufacture or buy goods for sale, explaining that industry managers use manual computers to avoid goods in the warehouse and provide necessary materials in order to save money, store waste, transport, and most importantly the capital recession in goods or commodities. It is clear that in such a case, using Just in time and removal of storage activity ratio, which is mainly based on commodity stocks, will be misleading and represent the legendary performance of managers

Profitability ratios
Profitability is called the company’s ability to create surplus revenues on cost. The optimal performance of the company in the past will give investors a relative confidence that the company will succeed in gaining a profit from the new resources (Foster, 1987)

The most important ratio of profitability include: profit margin, special interest margin (operation), profit margin prior to profit and tax deduction (EBT), net profit margin

In practice, any deficit that is calculated by the commercial unit in terms of deduction and sales, special value, assets, or working capital in the denominator, and as noted in all indices of profitability, the economic units profits are the first, while the philosophy of many cooperative companies offer services to members and create employment in this case it will not provide a logical image of its performance.

Investment ratios

The ratio of return on Investment shows the relationship between profitability and for – profit investment. This is also called the asset return ratio. in this group, the ratios of profitability and efficiency of the use of Investment are measured

the most important ratio of Investment are: return of equity (ROE), return per share (EPS), normal shareholder returns (ROCE), return per share (DPS), asset return or capital return

the investment ratio of two types one that is measured by that amount of Investment in fixed assets and the other that the relation between the financial resources of the business unit is determined and evaluated in terms of current and long term debt. The cooperative companies generally invest their resources in current assets, even in its own premises, which is mainly leased. therefore, the first component that is based on fixed assets is not applicable to cooperative firms.

Coverage ratio

The assets of a company back the company’s debts, are a very useful benchmark for coverage ratio. However, not all assets and coverage are used. An unacceptable asset that is usually not subject to the acceptance of regulatory bodies, including equipment, agents balance and unmarketable securities in the market. This ratio should be greater than 521 % (Clark et al., 1990).

Leverage ratios

Leverage ratios show the ability of the firm to perform short and long – term commitments (Ertugrul & Karakasaglu, 2009). Financial leverage ratios measure the total debt ratio of the company. This ratio is calculated by comparing the fixed cost and profit (from the profit and loss bill) or by linking debts to equity (from the balance sheet).

The most important ratio of financial leverage are: debt ratio, debt ratio to stock market value, constant cost coverage.

The leverage ratios are represented through the creation of debt. In fact, they determine the extent to which the company has provided financial needs from others. in fact, the proportion that shows equity capital of firm debt indicate how much of its financial needs is compensated by borrowing, the effect of financial leverage on corporate capital cost is among topics considered in financial management. The main concern of this discussion is: Does the company affect the expense of its capital by diversifying the resources of finance? This came for the first time in 1958 by Mill and Modigliani. After the study, they concluded that the firm value is independent of leverage (Clark et al., 1990).

In the definition of financial leverage, we have two approaches:

A- Profits and loss approach

It explores the relationship between profit before interest and tax and profit per share, and in fact, the degree of financial leverage represents the percentage of change in the profit per share in return for a percent change before the interest and tax return.

B- Balance sheet approach

Here are two definitions of financial leverage:

1. The ratio of debt to total assets.

2. The ratio of debt to equity (Clark et al. , 1990).

The current debt ratio

This is a direct function of the coverage ratio (current debt/interest ratio), but more clearly, since it states the policy of management in the field of profit distribution and subsequent effects on the current cash to meet current debt obligations, such as the current debt ratio, the company’s ability to repay the debt. The higher proportion relates to the higher safety level. But in the context that the company has the capability to fulfill its obligations, similar to most proportions, the appropriate level changes with respect to specifications (Foster,1987).

The ratio of long term debt to equity

The ratio of debt to equity is a measure of the company’s financial leverage by dividing the total debts owed by the company to the equity, which indicates how much the company uses equity or debt to finance its assets. Sometimes, only long – term debt is used instead of the total debt in the above equation. The high ratio of debt to equity can lead to an increase in the cost of interest and usually means that the company has used more debt in finance. If a large amount of debt is used to fund the company and increase the debt ratio to the equity, the potential company has to produce more revenue than when it did not provide foreign finance. If the revenue increases significantly higher than the debt cost (interest cost), shareholders will benefit from more earnings with their previous investment value in the company. While the cost of financing through debt is greater than the return that the company gains through the acquisition of debt in Investment and business activity, it may lead to bankruptcy that will eventually leave nothing for shareholders. The debt can then be a very fragile equilibrium state indicating the effect of financial leverage and the importance of debt to equity owners. The ratio of debt to equity is also highly dependent on the Industry where the company operates. For example, industrial enterprises such as automobile manufacturing firms tend to have a higher ratio of debt to equity, while private computer manufacturer companies usually have a ratio of debt to equity lower than 0.5 (Atinegar,2005).

A performance indicator

When the data apply the synchronization measure into multiple variables, the data analysis is called multivariate analysis. Many multivariate methods are based on the probability pattern, which is called a multivariate normal distribution. Among the scientific studies used for those multivariate techniques are the following:

· Reduce data or structural ease: without losing valuable information, as far as possible, the phenomenon of study is presented in the form of a combinatorial, simple indicator, and it makes it easier to interpret

· Separate and categorize: categories of objects or similar variables are formed based on measured features.

· Explore the dependence between variables: the nature of relationships among variables is favored. Is it normal for all variables to be independent, or whether one or more variables depend on others? If yes, How?

Multivariate analytical methods can be divided into two categories based on function and capabilities; thus, a group of methods ranks the categories based on the set of variables and another category of multivariate analytic methods, which classify and grade according to the set of variables. For this purpose, we briefly introduce each cluster of multivariate methods. A group of these methods allows the relative comparison of different categories through simple formulations and constraints due to the lack of scales; however, a group of methods is accompanied by complicated statistical calculations (Foster, 1987).

The return on assets

In this study, we try to use the variable of return on assets and the return on equity, which are profitability ratios as an index for measuring financial performance.

One of the most important tasks is controlling operating assets. If additional assets are employed in operation, operational costs will be increased. Return on assets with cost control, net profit, and sales volume will cause managers to plan carefully in the use of operational assets. In fact, operational efficiency is the fundamental criteria used to evaluate management performance. When firms with similar performance have different property life, without any cost adjustment, they can reduce the ability to compare the efficiency of the assets. The growth of assets increases the measured assets to the current cost and increases the efficiency of the return on assets. The researchers have divided the return on assets on a regular basis (asset turnover and profit margin) to obtain information about firm profitability. The results show that the estimation of the asset turnover and profit margin is useful for the current profitability and provides information about the company strategy. In fact, these are useful for improving company assets in order to gain superior operational performance. The strategy is an essential part of any operational plan. By selecting a strategy and its contribution, the participants can achieve the desired results. Different types of business strategies have been identified; despite that, Porter’s public strategy is the most common. Porter (1980) suggests that to gain a long – term and reliable profitability, instead of having a moderate strategy. The adoption of a public strategy is more desirable. The aim of the Cost leadership companies of using asset management is to improve and increase managerial performance; i.e., successful management of physical assets is considered in this strategy. The increasing progress of technology and innovation in the production process is one of the factors that reduce the operational performance of the assets. The advantage of growth in order to improve asset management, for those companies that are in the process of improving efficiency and effectiveness (Cost leadership) is more important. The managers of this group of companies try to provide a unique combination of assets by taking advantage of systematic programs and achieve the advantage of cost price. Therefore, the negative impact of asset growth on asset returns is expected to be less severe in “Cost leadership” companies.

Return on assets reflects the ability of management to use assets efficiently and focuses more on the return on operations. This criterion, together with the criterion of debt ratio (the extent to which the firm uses financial leverage), constitutes the DuPont system. If additional assets are used in operations, it is as if operating costs have increased. One of the important benefits of the asset rate formula is that it forces managers to control operating assets and always controls operating assets by controlling costs, net profit rate, and sales volume. The return on assets ratio is the result of dividing net profit by total assets (Pinovo, 2004).

Asset return rate

One of the criteria for measuring efficiency is calculating the return on assets. Return on assets measures a firm’s ability to make a profit in relation to the total amount of Investment made in the firm (Foster, 1987). The simplest form of profitability analysis is to relate the reported net profit to the sum of assets reflected in the balance sheet, which is calculated as follows:

If a company adds to its investments but fails to increase its profits proportionately, the rate of return decreases, so increasing the volume of the company’s investments does not in itself improve the situation of shareholders. In calculating the rate of return on assets, there are different opinions about the figure in the relevant deduction, including some researchers apply the net profit after tax in the event of deduction and add interest costs to it and believe that Theoretically, the total assets are financed through both shareholders and lenders, so the return on assets should be shown in terms of returns for both categories. Some analysts also sum only the net profit before tax at the expense of the loans taken and put it in the form of a deduction, and their justification is that because the result of the loans is considered in the sum of The asset in question should be considered in terms of homogeneity, the cost of which is in part a result of the application of the loan in determining the return. This ratio is used to measure management operations and shows the efficiency of management in using the company’s assets to generate special profits (Sadeghi, 2012).

Defects in the rate of return on assets

Limiting the forward-looking perspective and not examining the future consequences and effects of management decisions.

The effect of uncontrollable external factors of Management control such as economic, political, cultural, and. Which affects the rate of return on assets is another disadvantage of the rate of return on assets.

Ignoring the management risk perspective at this rate may harm the company in the future.

Another shortcoming of the rate of return on assets or the DuPont system as a whole is the same problem with accounting. That is, using the original historical cost price that violates the relevance of the information.

The rate of return on assets relies more on the short-term performance of managers.

The return on assets does not match the cash flow statement used to analyze capital expenditures.

Allocation of sharing costs that are beyond the control of department managers leads to the complete inefficiency and ineffectiveness of ROA (Sadeghi, 2012).

Mehrani et al. (2010) examined the relationship between Porter’s choice strategy (cost leadership and product differentiation strategy) and the rate of return on assets. In fact, the role of variables affecting the application of the above strategies in short and long term periods on the financial performance of companies was tested. Their study showed that the application of the above strategies has a direct and long-term impact on the performance of companies, and the relationship increases over time.

One of the primary functions of the capital market is the efficient pricing of investments. Li, Li, and Zhang (2008) used external financing cost indicators to find that the effects of asset growth and other factors on companies with higher external financing costs are more according to theories based on risk and asset growth. The results of that research showed that different methods of financing have completely different effects on asset growth. Asset growth rates in less developed countries are more similar than in developed countries with relatively efficient markets. This reduces the abnormality of asset growth. In fact, the impact of low asset growth can be attributed to the low tendency to implement investment projects in these countries. Because the business units in these countries, in order to expand the scope of their activities and meet the new financial needs they encounter in the process, they prefer the internal resources of the company to external sources. finance from the accumulated profit is the first element to be used. If internal resources are not enough; first resort to external financial resources (mostly through banks), if borrowing is not enough and more financial resources are needed, they issue shares (Zhang et al., 2011). Increasing financing by creating debt to achieve asset growth reduces the willingness of managers to invest in risky but high-yield projects and boldly address investment risks. The greater the limiting factors for managers’ opportunistic behaviors, including the pressures of debt contracts, as well as the need to repay debts at maturity, the more likely they are to lead to reduced investment decisions that put managers in uncertain and high-risk situations that they usually have different returns from the normal course of operations of the company. The effects of such decisions often fluctuate the entity’s profits.

Therefore, with the restrictions imposed on the company by creditors, such as: maintaining more cash, controlling the company’s debts, the pressure to reduce production and executive costs, and investment plans, etc. In many cases, companies are forced to abandon the implementation of investment plans and try to maintain the company’s liquidity. Therefore, the growth rate of assets decreases, and this leads to the similarity of the growth rate of companies. Therefore, companies try to rank investments and select the most profitable projects for Investment to achieve higher profitability and more stable operational performance (Zhang et al., 2011).

The results of many studies indicate that investors do not process accounting information properly. One of these variables is net operating assets, which is related to increasing current profitability but is unrelated to future profitability stability. This causes investors who place too much emphasis on accounting profit to make inefficient decisions (Hirshleirfer, Hou, Teoh, Zhang, 2004).

As a result, investors overstate business units with high net operating assets and underestimate business units with lower net operating assets. The results of some studies suggest that the life of assets affects the ability to compare the return on assets. To identify these temporary changes, the difference between the historical total cost and the current replacement cost of the firm’s long-term assets Asset life is considered. When the market price of assets increases, the book value of old assets is less than the current replacement price (Edward and Bell, 1961).

Bias in the value of reported assets adds to the net rate of return on net income and causes the rate to go beyond current economic performance (Fama and French, 2000; Penman and Zhang, 2002; Penman, 2003; Rajan et al., 2007) When firms with similar performance have different asset lives, without the necessary adjustments, the historically completed cost criterion can reduce the comparability of accounting rate of return. The results of Asher and Melissa (2010) showed that there is a positive and significant relationship between asset life and future performance of operating assets after controlling competitive strategies and performance, and found evidence of lower comparability of return rates due to a temporary change in the life of the company’s assets. Asher and Melissa (2010) showed that the net return on the corporate assets of companies with older assets is less positively correlated with current returns.

Therefore, it indicates that investors reduce the net return on operating assets. They also found that the interaction between operating asset returns, average asset life, and future returns is negatively correlated, indicating that investors reduce the return on operating assets of companies with older assets (Asher and Melissa, 2010). Slymvn (2008) examined the effect of net returns on operating assets and DuPont components of operating profit margin and asset turnover on current and future returns. Some researchers have examined the relationship between earnings sustainability and earnings components. Lip (1986), Wilson (1987), Slovan (1996), and Eltimoret al. (2003) found that different components of profit have different stability and are therefore priced differently by investors. Penman and Zhang (2006) acknowledged that investors and financial analysts should pay attention to earnings stability because the capital is valued based on expected profits and not on current earnings. Therefore, investors need to pay more for more sustainable returns.

Some research has focused on the stability of the rate of return on operating assets and its components (Roemer, 1986; Nissim and Penman, 2001; Penman and Zhang, 2006). They showed that the Unconditional stability of asset turnover is greater than the operating profit margin. These results do not necessarily mean that asset turnover has a more relevant value than the operating profit margin, rather than being a more important factor in explaining stock returns. Previous studies have shown that earnings sustainability outweighs profits, but the market response to unexpected earnings is more intense than unexpected earnings. In order to make the competition more efficient by the companies, Eli et al. (2010) and Porter (1985) presented A conceptual framework. Porter’s generic strategies in the field of competition stated that a company should choose among competing through as the “lowest cost producer” in its Industry, Leader strategy in cost or competition through the production of “excellent and unique products in terms of “Quality”, the objective characteristics of the product and the set of services associated with it and differentiation strategy. Porter (1996) emphasized that the nature of business strategy implies the ability of the company to choose the right set of activities, which offers customers a unique combination of value and desirability. The results showed that Porter’s general strategies and the rate of return on assets were correlated. Applying the above strategies can affect the performance of companies and lead to improving their performance. It was also found that applying a cost-effectiveness leadership strategy would not lead to sustainable economic performance overall because competitors easily imitate it. But applying a differentiation strategy can lead to sustainable economic performance because it takes more time to imitate competitors.

Jordan et al. (1998) stated that the goal of “cost leader” companies is to use financial leverage, improve and increase managerial efficiency. This is the goal that the company’s Investors are always pursuing by providing oversight mechanisms. In fact, the task of controlling and preventing debt increases is more important for those companies that are thinking of improving efficiency and effectiveness (cost-leader companies). Porter (1985) stated that cost-leader companies are in need of cost control, avoid spending heavily on innovation, marketing, and advertising, and in the sales phase, to increase sales and profits. Indicators of economies of scale reduce the price of their products. On the other hand, Miller (1987) stated that differentiating companies have a strong desire for development and research activities, through which they can improve their innovation capacities and capabilities and always be ready to face competitors’ new products and thereby achieve the goal of maintaining and enhancing their market share.

Return on equity

Usually, the most important criterion for evaluating the performance of institutions right now is the stock rate. This criterion alone contains information content for investors and is used to evaluate performance. When this criterion is reduced, it is an alarm for the company and does not show the company’s performance properly. This criterion has a lot of information content because performance appraisal based on market value reflects investor information well.

Return in the investor process is the driving force that motivates and rewards investors. The return on the total set of benefits that are awarded to the share during the year, the set of benefits includes the following:

Increase in stock prices at the end of the fiscal year compared to the beginning of the calculated fiscal year (the difference between the first and last rate of the company’s share fiscal year).

Gross cash dividend per share according to the decision of the General Meeting of Shareholders, which is paid after-tax deduction.

Benefits arising from the right of first refusal to purchase a stock that is rateable

Benefits from dividends or bonus shares.

In fact, stock returns are one of the most important factors in choosing the best Investment. For this reason, financial analysts are always seeking to identify appropriate criteria for estimating financial statements using techniques. The debate over the forecast of stock returns in developed countries has long been one of the fascinating scientific topics, and so far effective steps have been taken in this field. But its correct prediction still remains a major issue due to the many problems that exist in this field (Zhang et al., 2011).

With an overview of the shareholders who invest in the shares of different companies, we find that two types of dividends are expected for shareholders, one is cash dividends paid by the investee company, and the other is dividends due to changes in stock value due to changes and various factors such as remaining profit, increased demand on supply, economic and political issues, and so on.

Research Objectives
The role of Venture capital for the growth of Micro, small, and medium enterprise, including start-ups in the Indian tech industry
Since the 1990s, the Indian technology industry has been significantly growing, making it one of the fastest-growing industries in the country. Today, the country has some of the best software and hardware engineers worldwide, to the extent that most of the developed countries such as the United States and Japan have been hiring Indians in their technology Companies The industry’s success has been highly attributed to venture capitalists who have shown the goodwill of supporting the industry. The availability of venture capital in the country has made it possible growth of Micro, Small, and Medium Enterprises (MSMES). In the last two decades, venture capitalists in India have been widely interested in the country’s MSME sector, especially in the tech industry, due to is massive development. Before this, many venture capitalists had tried to avoid the sector due to its small and non-corporate structure. The challenge of exit and increased costs of transactions involved with the undeveloped MSMEs sector previously made it hard for the venture capitalists to feel reluctant to invest in the sector. However, the situation has been widely challenged in recent years due to the deveopment of multiple industries in the sectors such as the Technology, clean energy and retal industries (Werth, .2017). The Indian government has also put into place multiple strategies that have seen financial institutions to financial help to MSMES at reasonable and affordable costs. Through venture capital fundingd, the MSMEs in the country’s tech industry have.widely benefited since the venture capital funding institutions have provided funds at low costs and help in sharing risks associated with the technology industry.

Besides providing financial help, venture capital institutions have been in the forefront in providing management Helpance to MSMEs in the Tech Industry. The practices has made it possible for MSMEs in the country to develop in size and efficiency, which has significantly led to the Tech industry growing as one of the best in India (Narmada and Selvakumar, 2020). The institutions have also been providing technology upgrades and support for enterprises, which has been a primary factor in their increased growth. In the last five years, venture capital institutions have widely expanded their services to reach enterprises both at the state and local level. The involvement of established financial institutions such as The Small Industries Development Bank of India (SDBI) as venture capitalists have made it easy to fund MSMEs. The bank operates as the SIDBI Capital Limited (SVCL). For an extended period now, the bank has cofinancing state-level funds and has, on some occasions, co-invested with private sector venture capitalists on a case-by-case basis. Recently, new Venture capital firms have been operating at the Small and Medium Enterprise levels across the country, such as the Seed Fund, Accel India Venture, and the Upstream Ventures (Surana e t al, 2020). Even though technology has been one of the most sought after investments in the country, there has been a shift to other tech-related services and operations such as the biotechnology and ICT enabled services. The shift has led to increased interests of venture capitalists to fund MSMEs operating in the industry. Venture capitalists such as Seed Fund, as well as government-sponsored Venture Capital firms such as the SIDBI Venture Capital Limited, have thus, been willing to fund tech enterprises tech start-ups at their early stages.

The existence of early stage Venture capitalists ensured that start-ups are well prepared financially as they enter the market. The venture capital firms have been involved in small deals which range from US$ 1-3 million, benefiting even the small enterprises. Venture capitalists have had a healthy appetite for financing SMEs due to the Tech industry’s increased opportunities.

Moreover, there have been multiple sources of investments for MSMEs in technology industry, such as Business angels and Aavishkaar India Micro Venture Capital Fund (AIMVCF).which is part of the micro venture capital fund existing in the country Venture capital has seen as the most appropriate funding strategy for MSMES that need large up-front capital and have no other financing options such as loans from the bank. Since the cost and value of software cannot be proven due to its dynamic changes in the market price, Venture Capitalists have opted to fund fast-growing tech enterprises in the country.

Initially, the Indian government, alongside its people, aimed to improve and support talents who would eventually change the country’s economic state. Thus, venture capitalists saw this opportunity where they would support talented entrepreneuers, especially in the field of technology. Consequently, in the last few years, the country witnessed a change in its economy due to the increased entrepreneurial practices across country, especially in the Tech Industry (Subrahmanya, 2017). The belief that the country can achieve economic growth through increased entrepreneurial practices has also seen the introduction of government sponsored venture capital institutions that are ready to help talented entrepreneurs by offering advice on how to strengthen their growing businesses, as well as providing them with the funds needed to finance multiple business activities and processes.

The involvement of government agencies such as banks and other institutions as primary source of venture capital highly motivated the development and growth of the MSMEs in the tech industries and other sectors in the economy, Contrary to other parts of the world.

Where education, electricity, and data processing sectors have been more emphasis and funded through venture capital, the case has been widely different in India. The government has been at the forefront to promote the development of the technology industry, which has created a pool of venture capitalists both from the private and public sector( Paralkar and Vasudevan, 2019).

The practice has seen developing a business mentorship culture, where venture capitalists in the private sector are willing to provide guidance and mentorship services to entrepreneurs. The practice has led to increased business knowledge on how to respond to business challenges, which has consequently influenced the widespread growth of the MSMEs in the country and the tech industry. Prior to this, venture capitalists in the country, both in the public and private sectors, were limited to financing only. The practice saw many businesses struggle despite having the needed funds for investments due to poor market and business knowledge. At the same time, the most successful start-up in many western countries were opened and run by Indians (Panda and Gopalaswamy, 2020). The practice posed a significant challenge to the country on the need to Help start-ups. Since then, the Indian government has been very keen on implementing policies that promote the success and development of start-ups, among them the MSMEs, especially in the technology industry, which has been seen as a successful venture in the country. The government has also allowed the private sector to finance MSMEs and start-ups through the private venture capital (Shetty, 2017).

The success in the area of Information technology in India in the 1990s showed a high potential of the industry in the preceding years. Even though the development pontential was not seen only on technology, the main focus was put in the tech industry, based on well the Indians were succeeding in the field, outside the country. The availability of skilled and passionate people in technology made it possible for the public and the private sector to develop the goodwill of supporting the development and the growth of the MSMEs through venture capital (Surana et al., 2020), The success realized by the initial venture capitalists in supporting entrepreneurial practices in the country has motivated many more to join in, creating a pool of venture capitalists who are ready to support and finance MSMES enterprises in the country, those in the tech Industry. India’s inherent strength of its cost-competitive and skilled workforce, technological advancements, and development in entrepreneurial activities have seen the country realty rapid economic growth, and placing it as one of the economies expected to dominate the world in the future. Therefore, venture capital has been seen as an ideal strategy for filling the gap between MSMEs capital requirements and service-based start-ups such as tech enterprises to the traditional financing institutions in the country such as banks among other financial institutions.

Besides financial help venture capital’s ability to bridge the entrepreneur knowledge gap that has been existing among many start-ups in the country significantly led to the development of the MSMEs in the technology Industry (Panda and Gopalaswamy, 2020). Before their introduction, business ventures in various sectors, such as technology, appeared challenging as start-ups did not get meaningful support to facilitate their growth. However, the introduction of venture capital by the Indian government has enabled business start-ups to acquire smart advice on how to run and manage their businesses, as well as other relevant skills needed succeed in the market. Venture capital has also facilitated the conversion of entrepreneurial visions to marketable product in the technology industry. From these inputs of the venture capital in the country’s economic development, the Indian government opened the door for the private venture capital, even though the practice was done under specific regulations to ensure that the interests of the Indian entrepreneurs and the business environment are well-protected. Due to its positive contributions to the country economy, venture capital financing han grown significantly in the country in the last decade. The government report shows that venture capital funded over 500 MSMEs in the financial year 20152016 Mittapalli and Karimnagar, 2020).

At the same time, an investment of over six billion USD was made through Venture capital. The practice was impressive, leading to the Indian government setting up a fund in 2016 to support start-ups and MSMEs in various sectors in the economy, including the technology

Since its introduction in India, venture capital has proved be more than a financing agency. It has been used as a tool for facilitating the growth of the business start-ups and MSMEs in the country, as well as their mentoring platform Since its build on patients where venture capitalists believe that money will come back in the future, venture capital makes it possible for enterprises to continue their operations without much pressure of meeting debts. The practice has been very effective, especially for the tech industry, which needs time to pick up and developed to desired levels (Subrahmanya, 2017). Given the delicate nature of the technology industry in the country which cannot be attached to a specific value like the rest of the industries in the country such as manufacturing, venture capital has been elemental since it keeps watch of MSMEs, offer a technological upgrade, and management support to ensure that the business head in the right direction, Its existence in the country has also improved and facilitated the wide growth and development of the MSMEs in the tech industry, which initially was seen as a risky Investment.

Analysis between Venture capital and angel investors on the Tech start-ups
Venture capital and angel investing have been fundamental sources of finance for the Indian Tech Start-ups for a while now. The two have widely revolutionized the Tech industry in the country, making it the fastest-growing industry in the country. However, their role in the industry has been widely different in terms of funding and other functions, as discussed in this section.

Analysis based on how the two work
Even though the primary reason for both angel investors and venture capital is to fund start-ups, the method of financing between the two is highly different. Angel investors usually invest their individual finances in business start-ups, and include their friends and their families in the funding process. In India, angel investors are characterized by the affluent and influential people in society, who partner with high potential start-ups, expecting to get an equal stake. Angel investors have been targeting the tech industry, which has been seen as a promising business venture at the moment and the future in the country. Angel investors only fund the start-ups that they are well-assured that they will own a part of it as the equity for their cash (Sabarinathan, 2019). Since the practice is always a risky one, angel investors may not be willing to fund tech start-ups that they are not fully assured of its growth and future success. Angel investors usually fund tech start-ups at the early stages when the start-up risks are extremely high.

Unlike angel investors, venture capital is a group of professional investors who may be in the form of individuals or groups. Usually, the investors took a form of limited partners, or corporations, foundations, or pension funds (Pradhan et al., 2017). It is from these groups or individuals who do the funding for the tech start-ups in the country. The group works closely with emerging entrepreneurs and start-up founders responsible enough to manage and ensure the organization’s efficiency and growth. Venture capitalists do not necessarily have to have a share in the start-up as equity for their investment. Their involvement in the start-up takes place at later stages when the risk is relatively low. The money used in funding start-ups may not necessarily belong to the venture capitalist as it is the case with the angel investors. For instance, in India, venture capitalists involve government institutions such as banks, well-off investors, and other financial groups both in public and private organizations.

The size of Investment amount involved
Due to the number of involved individuals, groups, and institutions in venture capital and angel investors, the size of the amount involved as the investment amounts significantly varies. Angel investors are associated with lower investment amounts compared to venture capitalists who may offer higher funding amounts of up to millions. In India, most venture capitalists in the Tech industry provide up to $7 million to start-ups (Cavallo et al., 2019). The amount is multiple times higher than that given by angel investors who, even after combining a larger number of them, provide an average of $700 000 or more. Since Venture capital usually deals with more mature start-ups that may not necessarily be profitable, the amount of funding provided to start-ups may be in terms of tens or hundreds of millions.

Funding Responsibilities and Motives in the start-up
In India, the Tech industry is very competitive. This means that start-ups must come up with effective strategies that will enable them to attain a competitive edge in the market. In recent years, organizations and individuals that are willing and involved in funding tech start-ups in India, have on some occasions, provided other services that will promote the start-up growth to a level that has a competitive advantage over the other businesses. Thus, for angel investors and venture capital, there have been different levels of motivations and responsibilities in their involvement in the start-ups (Veena Iyer, 2020). However, for angel investors, the primary goal is to provide financial support to tech start-ups. Even though they may offer more than funding such as advisory services in cases where they are asked to, or connect the start-up to potential clients, they are not under any formal obligations of doing so. Their involvement level in the start-up is narrowed down to the wishes of the individual investors, as well as the interests of the start-ups.

On the contrary, venture capitalists provide more than funding to Tech start-ups that they are involved in. They are mostly involved in start-ups that portray a strong competitive advantage in the market and have a high potential in succeeding in the market. In India, they have also been involved with start-ups with effective and talented management teams that demonstrate high success levels in their respective positions in the start-up. Thus, once they have decided to take up a start-up’s funding role, it also becomes their primary role of adding real value in it by ensuring that the investment has succeeded in the market. Therefore, venture capitalists take a primary role in creating and start-up’s strategic focus and the employment of the senior management teams. By doing so, they ensure that they have attained central control of the organization’s decision-making processes. They periodically monitor the start-upstart-up’s operations to ensure that it becomes successful in the market (Veena Iyer, 2020).

Due Diligence Levels
Due diligence is a critical aspect in business and widely determine the commercial value that investors may get from their investments. Despite the Tech industry’s success in India, it is not a guarantee that any tech start-up will be successful, which shows the importance of investors and funding groups of doing due diligence. In India, only an insignificant number of angel investors have been involved in doing due diligence prior to their investment (Shetty,2017). The situation has been widely different for venture capitalists who spent over $100, 000 in doing due diligence for the tech start-up involved in

Impact of Venture capital financing in India which challenges the economy
Venture capital has been on the rise in India for the last two decades. Initially, only government-sponsored venture capital institutions such as banks existent in the country before the government could allow private venture capital to participate. Therefore, since then, venture capital has widely impacted the country’s economy. Traditionally, the country has profoundly relied on gigantic enterprises and corporations to fuel the country’s economic growth. However, the situation has been widely changing over the years following the introduction of the venture capital industry (Narmada and Selvakumar, 2020). The industry has not only shaped the business model in the country but has created new avenues of realizing economic growth in the country. Medium and small enterprises, especially in the technology industry, have been the country’s economic growth’s backbone. Statistics show that the country’s exports and imports, which are primary sources of foreign exchange in the country, have been widely contributed by small and medium enterprises, with less than 50 employees. Large enterprises that employ close to 500 or more employees have been left out in engaging in economic activities that can promote massive economic growth. The venture capital industry’s existence has made it easy to fund start-ups in various sectors of the economy, such as technology and information technology, which has consequently increased entrepreneurial activities (Mittapalli and Karimnagar, 2020). The success of the start-ups, small and medium enterprises in the country highly challenge the economy, forcing a shift from its over-dependence on the large corporations and enterprises. According to Mishra and Bag (2020), the Indian economy, just like the rest of the world, faces the challenge of creating strong MSMEs, which in the future proves to the primary pillars of any economic growth.

The Present Situation of Venture Capital in India
For an extended period, India has been associated with popular and successful enterprises like Tatas, which had little financial backup form venture capitalists at their start-up levels. Enterprises have traditionally been depending on banking institutions and State Finance Corporations to fund their operations. However, in the last two decades, venture capital has emerged as a primary source of funding enterprises, especially small and medium-sized ones. Its rise started in the year 1987-1988, through the Technology Development Fund (TDF), a government initiative aimed at funding technology-based enterprises in the country through the Industrial Development Bank of India. Since then, venture capital has greatly evolved in the country, taking different forms before attaining the current status in the country. Currently, the number of venture capitalists both in public and the private sector has significantly grown. The industry has experienced rapid growth from 2100 to 2015, with increasing funding with over 50% in 2019 from 2018. According to the Venture Capital report of 2020, venture capital investment has reached an all-time growth of $7 billion in the country as of 2019 (India venture capital report, 2020). Moreover, the number of start-ups funded through venture capital has been on the rise, recording an annual increase of 17% in the last consecutive years (Mishra and Bag, 2020). Moreover, venture capital has specialized in four main sectors of the country’s economy, such as consumer technology, software, business, and Tech. The tech industry accounts for over 35% of the total investments funded by venture capital. The level of funding is currently high among the late-stage start-ups compared to low-level start-ups. Due to the emphasis and entrepreneurial success of the country’s venture capital industry, over $2.1 billion was funded to businesses and start-ups across the country in 2019 (Narmada and Selvakumar, 2020). Venture Capital funding has emerged as the country’s engine currently achieving its economic growth, which means that the industry is expected to grow through 2020 and many more years in the future widely. The Venture Capital Association (VCA) formation in the country has made it possible for new venture capitalists to join the industry.

Figure :Total funding by Venture capital in India. (Bain, Venture intelligence, 2020)

Global economic crisis due to Covid 19 has spread negative impact on every corner of various industries until April 2020, which also includes the Venture capital industry. There massive slow in deal closures, creating new term sheets due to the uncertainty inturn major chages in cashflow directly affecting the value of company.This study not able higly foucs on performance of venture capital during Covid 19 due unsuffiecint data, since research is conducted during same time of pandemic.

Start-up perspective in India
For several decades now, many parts around the world, including the United States and Europe, have adopted the use of venture capital to provide financial, management, and technological support to small and medium start-ups in the country. In India, Start-ups have gained a lot of popularity throughout the country, based on their economic influence. Start-ups have not increased entrepreneurial activities across the country but have also increased the level of creativity, especially among young people. The practice has led to a significant decrease in the country’s employment rates, as most of the young people can now make a meaningful living, thus positively contributing positively to the country’s economy (Mishra and Bag, 2020). The contributions of start-ups in the Indian economy cannot be underrated as they have in recent years formed a critical part in the country’s economy. Start-ups in the country have gradually replaced the mega enterprises, which dominated in employment creation and exports and imports.

The impact of Start-ups in creating changes in India Cities has also created a new perspective. Start-ups have been elemental in transforming most of the country’s cities, such as Bengaluru, in terms of infrastructure and the creation of job opportunities. It has also led to the relocation of experts and young professionals in different cities who are directly involved in the start-ups. This has reduced the flooding of fresh graduates in the job market. The level of start-ups on promoting technology and innovation in the country has also been influenced by how start-ups are perceived in the country. In the last two decades, tech start-ups have widely contributed to the development of the country’s technology information industry, more than it has been seen in the country’s history (Cavallo et al., 2019). Today, the tech industry is the fastest-growing industry in the country. The practice has led to Indians becoming some of the best tech influencers across the country, with most developed countries such as the United States and Japan importing tech specialists from the country.

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