Family & Non Family Entrepreneur

Family Business ????

Family Business Members of the same family are directly involved in managing the business Ownership control passes from one generation of a family to another (succession)

The family business triangle

Entrepreneurialism is about recognizing, seizing, and exploiting opportunities. Managerialism is related to administrative procedures and organizational structures. Paternalism is about the protection and guardianship of the family business, and it carries both positive and negative connotations.

Family vs. Non-family Businesses

Agency theory- A theory explaining the relationship between principals, such as a shareholders, and agents, such as a company's executives. the principal delegates or hires an agent to perform work. Agent-managers, are the managers who run a business without having an ownership stake. Owner-managers, are predisposed to create business value because their motivations are different ...their wealth is generated from the successful growth of the business, not a salary paid to them by the business.

Facts about Family Businesses

More than 90% of all businesses in the United States are family owned,In India 95% are family run business. 177 of Fortune 500 companies (35%) are family owned Family businesses account for 78 percent of all new jobs created Family firms generate more than 50% of the business revenue in the USA and employ more than half (60%) of the workforce Over a 10 year period Family-owned firms averaged 21.1% growth per year, while Non family-owned firms grew at about 12.6% per year Growth per year averages 30%+ if the founder is still involved Only about 30% of family businesses get passed to the second generation, 12% -16% make it to the third generation, and only 3% operate at the fourth generation and beyond. Family Business Forum. http://www.unca.edu/fbf/statistics.html Accessed June From the University of North Carolina
2006

Indians facts
Started in 1890 to promote import substitution & attain economic freedom , Swasdeshi Movement License Raj to avoid exposure Cpncept of promotors still ava. Because
Promotors control in term of share Lack of strong institutional base

 In the next five years, 30 percent of family-owned firms will experience a change in leadership due to retirement or semi-retirement 25 percent of senior generation family business shareholders have not completed any estate planning other than writing a will, 80 percent want the business to stay in the family, and 20 percent are not confident of the next generations commitment to the business
From the University of North Carolina Family Business Forum. http://www.unca.edu/fbf/statistics.html Accessed June 2006

Competition between Family and Business Interests

Family Concerns Family comes firstkeep family members happy Family members want a share of the profits each year Dont make changes that upset the traditional way our family does things Get a job in the family company and advance your career Keep the company going so other family members can have jobs Maintain family relationships at all costs, and be loyal to each othertake care of each other Business Concerns The customer (and business) comes firstwork long hours to keep the customer happy Invest in innovations to create new goods and services for new and expanding markets To operate efficiently, the business must be professionally managed Hire only competent workers and managers Operate effectively and generate good profits for reinvestment and for dividends

Advantages of a Family Business

Have greater internal motivation to make the business succeed --its our family name on the sign! Willing to make financial sacrifices -- working for very little pay leaving the money in the firm for reinvestment Willing to share the secrets of how to keep the firm operating successfully with other trusted family members Family managers are more likely to focus on the long-run success of the business and less likely to try to manipulate short-run (quarterly or annual) performance targets, like sales or profits. More likely to worry about the firms reputation for honesty and ethical dealing

 Reduced cost of controls for theft, etc. because family workers trust each other and are less likely to steal from themselves. Communicate more effectively through efficient informal communication and decision-making channels

Challenges for Family Business A famous saying about family owned business in Mexico is Father, founder of the company, son rich, and grandson poor (Padre noble, hijo rico, nieto pobre). The founder works and builds a business, the son takes it over and is poorly prepared to manage and make it grow but enjoys the wealth, and the grandson inherits a dead business and empty bank account. The issue is sustainability of transgenerational wealth. Emotions. Family problems like Divorce, separations, health or financial problems will affect the business Informality. Absence of clear policies and business norms for family members Tunnel vision. Lack of outside opinions and diversity on how to operate the business. Compensation problems for family members. Dividends, salaries, benefits and compensation for non-participating family members are not clearly defined and justified.

 Role confusion. Lack of talent. Hiring family members, not qualified or lack the skills and abilities for the organization.
Inability to fire them when it is clear they are not working out.

Succession Planning. Do not have a plan for handing the power to the next generation, leading to great political conflicts and divisions. Paternalistic. Control is centralized and influenced by tradition instead of good management practices. Predisposed to being more risk averse.

 Overly Conservative. Older family members try to preserve the status quo and resist change. Especially resistance to ideas and change proposed by the younger generation. Communication problems. Provoked by role confusion, emotions (envy, fear, anger) Growth. Problems due to lack of capital and new investment or resistance to re-investment in the business. Lack of written strategy. No documented plan or long term planning.

Challenges/Disadvantages to the Family Business Differing family member goals and expectations Jealousy and interference from some annoyed family members Predisposed to being more risk averse. Attempt to avoid bringing in outsiders as resources because they believe that it threatens the security of the family.

Who's in charge
Should the owner run the business? Family power struggles and rivalries

Under qualified family members

Balancing business needs and family loyalties

India's top business families that had been there, done thatand then lost the plot or missed a trick.
Right from the Mafatlals to the Kilachands to the Walchand Hirachand Group in the West, the Shrirams in the North, the Bangurs in the East and the BPL group in the South, India's corporate landscape is littered with family businesses whose best days may be behind them. Some were broken by the violent trade unionism and gang wars of Mumbai in the '80s and others by family splits and competition from global enterprises. Some made merry in the Licence Permit Raj and then found the going tough when India opened up its economy to foreign competition;

Resolving Challenges
Families must become more business-like Objectivity and transparency in all dealings Clear succession plans Training and development Written policies and procedures Family therapy or conflict resolution process May also involve non-family members

Stage I
Pre-Business
Child becomes aware of facets of firm and/or industry. Orientation of child by family member is informal.

Stage II
Child works as part-time employee. Work becomes more difficult. Includes education and work for other firms.

Introductory Functional

Entry of Successor

Stage III
Functional
Potential successor begins work as full-time employee. Includes all . nonmanagerial positions.

Stage IV
Advanced Functional
Potential successor assumes managerial position. Includes all management positions prior to . becoming president.

A Model of Succession in a Family Business

Transfer of Leadership

Stage V
Early Succession
Successor assumes presidency. Includes period in which the successor becomes head of company.

Stage VI
Mature Succession
Successor becomes head of company.

The Successful Entrepreneur

The Entrepreneurial Traits & Psychological Makeup: High Need for Achievement Moderate Risk-Taking Creativity Flexibility Commitment Proactive Intuition Confidence Sense of Observation The Successful Entrepreneur Managerial Skills and Competence in the following areas: Strategy Cash Flow Management Strategic Planning Accounting & RecordKeeping Marketing Networking Delegation of Routine Activities

Professional Management
Family culture is built around an informal entrepreneurial style of management. Decision making process is centralized Over dependence on the owner-founder and other family members Family and non-family members used to this style will resist change

Professional Management Business growth requires a larger, deeper pool of qualified management talent than any one family can realistically produce.

Reasons to introduce professional management in Family Business

Lack of qualified successor from within the family Family infighting Desire to formalize the decision-making process Lack of management talents in the family Lack skills in decentralized manner of decision making in the family business Family Business is planning to pursue an aggressive growth strategy Supervising relatives

Reasons for introducing Professional Management in the Family Business

Lack of a qualified successor within the family The desire to formalize the decision-making process The family business is planning to pursue an aggressive growth strategy Reasons for Introducing Professional Management Family infighting

Supervising relatives

The desire to complement family members skills Lack of management talent in the family

Elements of professionalism
Unselfish concern for the welfare of others Accountability, responsibility & reliability Excellance
Knowledgeable, skillful Competency to handle situation Decision making skills Communication competency

Respect to orhers

Professionalism V/S Family Entrepreneur

Parameters Professionalism Family Entrepreneur

Degree of openmindness

Receptive to new ideas, ready to experiment

Lack

New Practices ( quality certification, participative management, change in working styles) Impartial HRM

Adopt

Lack

No , even in selection

Employ relatives, friends, caste

Professionalism V/S Family Entrepreneur

Parameters Professionalism Family Entrepreneur

Financial benefit

Organisation

own

Decision making style

Qualitaive , participative & broader vision

autocratic

Differences in Views and Expectations of Owner and Non-Family Professional Non-

Owner Feelings and Thinking Feels he is paying high salary. Expects maximum time and effort with quick results Expect professional to come in and make immediate, even dramatic improvements in the business

Professional Management skills and training Recognized past performance and rewarded Feels that it is unrealistic to expect any real changes immediately and should take one to two years to make significant changes

Differences in Views and Expectations of Owner and Non-Family Professional Non-

Owner
Professional should be spending a great deal of time everyday, including weekends Professional should not only work on broad areas but also perform detail work.

Professional
Works under the assumption that he can get on top of the business by putting in a full regular day. Professional doesnt think detail work is wise use of time. He prefers broad-range thinking and has others to do the detail work for him.

Differences in Views and Expectations of Owner and Non-Family Professional Non-

Owner
Owner is economical with expenses. Motto is stay out of debt Owner feels that every expenditure should pay off immediately

Professional
Professional feels one must invest in development and not expect immediate return.

Ewing Marion Kauffman

An American pharmaceuticals magnate and owner pharmaceutical company Bedridden for a year at age 11 Kauffman worked as a pharmaceutical salesman until 1950 Formed Marion Laboratories with a $5,000 investment, operating it initially out of the basement of his home

 Ewing Kauffman was the entrepreneur, who started with few resources, grew his firm into a multibilliondollar company over four decades, and did so in an ethical and compassionate manner. He experienced first hand the rewards of education and entrepreneurship for himself, his family, his work associates, and his community. People in the company were called associates, not employees- offered a profit sharing plan Mr. K, philosophies rewarding those who produce & allowing decision making through out the ORGconcepts what is now called intrapreneurship in a company

Transitions The Acid Test

Only 5% of Family Businesses in the world are going concerns in 3rd Generation - Survey by J P Morgan Transition involves both management and ownership

Strategies for success in family Businesses

Firm Foundation Meritocracy Open Communication Innovative Processes The Implementation of the above strategies demands

Fresh Ideas Innovative thinking gaze Learning and Dynamic Positive Change Entrepreneurship is the way out

The success stories

Wal-Mart, Ford, Samsung, LG, Motorola

The entrepreneurial trait Involving Employees and Customers as Shareholders.

16 Top 25: Circa 1939 Rank Group Assets 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 TATA 62.42 Top 25: Circa 1969 Group Assets TATA 505.36 Top 25: Circa 2009 Group Assets MUKESH 37,510.80 2,00,469.13 TATA AMBANI 1,44,183.63 BK.-K.M. BIRLA 19,497.94 TATA 19,345.59 ADAG 1,41,304.36 AMBANI 9,664.12 BIRLA ADITYA 78,943.79 R.P. GOENKA OM PRAKASH 9,593.78 37,545.16 RUIA JINDAL O.P. JINDAL
5,456.10

Top 25: Circa 1997 Group Assets

MARTIN BURN 18.02 BIRD 12.40 ANDREW YULE 12.38 INCHCAPE E.D. SASSOON ACC BEGG ORIENTAL TEL. & ELEC. DALMIA JARDINE WALLACE BROS BIRLA WADIA DUNCAN FINLAY 10.70 9.56 8.68 5.75 5.60 5.51 5.33 5.33 4.85 4.70 4.54 3.84

BIRLA 456.40 MARTIN BURN 153.06 BANGUR 104.31 THAPAR SURAJMULL NAGARMULL MAFATLAL ACC WALCHAND 98.80 95.61 92.70 89.80 81.11

ESSAR

36,837.49

M.A. 4,782.10 CHIDAMBARAM 4,434.09 L.M. THAPAR M.L. MITTAL RAI LALBHAI DHOOT GUPTA BAJAJ B.M. KHAITAN
4,425.35 4,210.87 4,112.44 3,737.87 3,705.27 3,415.87

SUNIL MITTAL 35,357.61 HINDUJA SHRIRAM TRANSPORT VEDANTA DLF JAIPRAKASH

35,138.37 28,126.00 22,204.41 21,989.79 21,620.50

SHRIRAM 74.13 BIRD HEILGERS 68.62 J.K. SINGHANIA 66.84 GOENKA SAHU JAIN MACNEILL & BARRY SARABHAI 65.34 58.75 57.28 56.72

MAHINDRA & 21,251.67 MAHINDRA 20,187.74 KRISHNA 18,037.68 17,583.37

3,351.62 ADANI

H.S. SINGHANIA 3,275.80 INDIABULLS

Sustaining Entrepreneurship in Family Business

A family business are responsible for as much as 71 per cent of the market capitalisation in India, according to Gita Piramal. 40% of the country's sales turnover comes from them, as do over 30 per cent of assets. However, according to IMD International, 40 per cent of family firms die within the first five years. About 66 per cent of the remainder, die or leave the control of the founding family during the first generation itself. Only 17 per cent of those still left, survive up to the third generation of the founding family.

 To sustain valuation levels in the long run will not be possible with only organic growth but companies should look outwards for other attractive opportunities or in other words through acquisitions and strategic transformations. When Reliance Industries was split between the two brothers, the investors were skeptical of the valuations but market capitalization of RIL (Mukesh Ambani) and Anil Dhirubhai Ambani Group (Anil Ambani) have proved them wrong. In emerging markets many companies are increasingly involved in both domestic and cross-border acquisitions but the major concern for family businesses being dilution of control restricts many such businesses from being aggressive on the M & A front.

 Inorganic Growth Mittal Steel acquired Arcelor in 2006. Prior to that end 2005, Mittal family owned 88% of Mittal Steel. After acquiring Arcelor the familys shareholding reduced to 44%. The first gain was Mittal-Arcelor became the worlds leading steel company, larger than its next 3 closest rivals put together. Secondly, the family stake valued at Euro 14 billion (end of 2005) is Euro 33 billion (end of 2006) a 61% increase. Dilution of control with respect to equity issuance must be evaluated in the context of overall growth potential of a company and enhanced valuation of family stake.

 Organic Growth Mr. Gyan had started his small business with a cycle shop. The core business was hinged on giving the cycle on rent on hourly basis. He had three sons naming Vinay, Ajay, and Sanjay. Subsequently Vinay joined his fathers business. However, he realized that doing this was not sufficient. He started expanding by entering into the new segment of autorickshaw dealership. So, the business shifted their core to giving auto-rickshaws on rents on day-to-day basis and to earn commission on auto fares and rent on an hourly basis. They stopped their cycle business. To help Vinay, Sanjay the 2nd brother joint the business.

The sustainability of all these family firms hinge on the power and influence politics
1. Rajan and Anil Nanda (Escorts Heart Institute) are still fighting legal battles after elder brother Rajan decided to sell majority stake in EHI to Fortis Healthcare (2005). Anil had moved to court to stall the deal. 2. Narinder Jeet Kanwar, younger brother of Onkar Singh Kanwar (Apollo Tyres) has approached company law board saying his elder brother has fraudulently acquired control of the company (November 2007). 3. BPL group chairman, T.P.G. Nambiar has alleged that his son-in-law Rajeev Chandrasekhar was illegally trying to take control of BPL Communications in 2004. Therefater they have reached an out-ofcourt settlement. 4. This year (2007) there was some difference in opinion between Sonu Mirchandani and Gulu Mirchandani regarding the control of their company Gurviso.

 Innovations
The family business survived on the right team, consolidation and diversification strategies, people power and adaptability of the management

Options for Existing Owners

Keep all ownership and control within the family and stay involved Retain ownership but hire an outside CEO Sell to employees or a third party

Women Entrepreneur

She captured the markets around the world and now she wants to conquer space
Work on formulations that astronauts could carry with them to protect their skin from the ravages of space travel and slow down the ageing process. Sent National Aeronautics and Space Administration (NASA) free samples of her moisturizers, hoping that they will be used on space expeditions One of the largest manufacturers of herbal products in the world. Formulates and markets over 400 products for various beauty and health needs and has a strong presence across the globe, from the USA to Asia.

 In 2002, the Shahnaz Husain Group was worth $100 million. Employed about 4200 people in 650 salons spread across 104 countries. Good growth rate in the 25 years that it has been in business. Average growth rate in the initial years (late 1970s to the early 1980s) was 15-20%. In the 1990s the average growth rate was 19.4%. Diversified into Ayurvedic centers for Panchkarma, Dhara and Kerala massage. Set up two Shahnaz Husain Ayurvedic Health Resorts, one near Delhi and another in collaboration with the Hyakumata group of Japan in the US island of Saipan. "The Arch of Europe Gold Star for Quality", "One of the Leading Women Entrepreneurs of the World", "The 2000 Millennium Medal of Honor , "Rajiv Gandhi Sadbhavana Award", etc.

Lessons on Entrepreneurship
Dedication and relentless hard work have paid off "It is important to have a dream and to believe in the magic of your dreams A true entrepreneur is a person who has independence of spirit. "One should be innovative, dynamic and willing to try every avenue towards success"...

 Dr. Kiran Mazumdar-Shaw, Chairman & Managing Director of Biocon Ltd., Became Indias richest woman in 2004, was educated at the Bishop Cotton Girls School and Mount Carmel College in Bangalore. Founded Biocon India with a capital of Rs.10,000 in her garage in 1978 Her application for loans were turned down by banks then on three counts
biotechnology was then a new word, the company lacked assets, women entrepreneurs were still a rarity.

Today, her company is the bigget biopharmaceutical firm in the country.

 Ekta Kapoor, creative head of Balaji Telefilms Synonymous with the rage of soap operas in Indian TV, after her most famous venture Kyunki Saas Bhi Kabhi Bahu Thi which was aired in 2000 on Star plus. Ekta dominates Indian Television. At the 6th Indian Telly Awards 2006,she bagged the Hall Of Fame award for her contributions.

 Neelam Dhawan, Managing Director, Microsoft India, Graduate from St. Stephens College in 1980,and also passed out from Delhis Faculty Of Management studies in 1982. She was keen on joining FMCG majors like Hindustan Lever and Asian Paints, both companies rejected Dhawan, as they didnot wish to appoint women for marketing and sales.

 Naina Lal Kidwai, was the first Indian woman to graduate from Harvard Business School. Fortune magazine listed Kidwai among the worlds top 50 Corporate Women from 2000 to 2003. She is the first woman to head the operations of a foreign bank in India. ( HSBC)

 Indu Jain, used to be the Chairman of the Times Group The most powerful and largest Media house India has known. Indu Jain is known by many different identities such as that of spiritualist, humanist, entrepreneur,an educationalist but most prominently she played the role of the Chairman of Times Group.

WOMEN ENTREPRENEURS
A woman or a group of women who initiate,organize and run a business. Women who innovate or adopt a business activity

Women Entrepreneurship
An enterprise owned and controlled by a women having a minimum financial interest of 51% of capital and giving at least 51% of the employment generated by the enterprise to women. An act of business ownership and business creation that empowers women economically increases their economic strength as well as position in society. Economically independent. Strong desire to do something positive Contributes to the position values of family and social life.

Dr. APJ Abdul Kalam

"empowering women is a prerequisite for creating a good nation, when women are empowered, society with stability is assured. Empowerment of women is essential as their thoughts and their value systems lead to the development of a good family, good society and ultimately a good nation."

Pandit Jawaharlal Lal Nehru

When women move forward, the family moves, the village moves and the Nation moves.

Emergence of Women Entreprener

3 Ks- Kitchen, Kids, Knitting 3 Ps- Powder, Pap pad, Pickles 4 Es- Electricity, Electronics, Energy, Engineering . Indian women had undergone a long way and are becoming increasingly visible and successful in all spheres Have shifted from kitchen to higher level of professional activities. Todays women are taking more and more professional and technical degrees to cope up with market need and are flourishing as de signers, interior decorators, exporters, publishers, garment manufacturers

 Mahila Grih Udyog 7 ladies started in 1959: Lizzat Pappad Lakme Simon Tata Shipping coorporation Mrs. Sumati Morarji Exports Ms. Nina Mehrotra Herbal Heritage Ms. Shahnaz Hussain Balaji films Ekta Kapoor

KEY CHANGES IN WOMEN ENTREPRENEURS IN LAST FIVE DECADES

WOMEN ENTREPRENEURS OF THE FIFTIES:

Compulsive factors led to the creation of women entrepreneurs.

WOMEN ENTREPRENEURS OF THE SIXTIES:

-Women began to aspire but also accepted the social cultural traditions.

WOMEN ENTREPRENEURS OF THE SEVENTIES:

The women in this decade opened up new frontier. They had not only aspiration but ambition

WOMEN ENTREPRENEURS OF THE EIGHTIES:

Women were educated in highly sophisticated, technological and professional education. They became

equally contributing

partners. WOMEN ENTREPRENEURS OF THE NINETIES:

This was the first time when the concept of best rather than male heir was talked about.

WOMEN ENTREPRENEURS OF THE 21st Century:

The status of women in India has been changing as a result to mounting industrialization and urbanization and social legislation. More and more women are going in for higher education, technical and professional education and their proportion in the workforce has also been increased. Women have shifted from the kitchen, handicrafts and traditional cottage industries to non-traditional higher levels of activities. The Government has also laid special weightage on the requirement for conducting special entrepreneurial training programs for women to enable them to start their own ventures. Financial institutions and banks have also set up particular cells to help women entrepreneurs.

Segments of Women Entrepreneur

SelfHelp Group
Well served & mentored by microfinance

Grassroots Entrepreneur
Driven by the need to augment the familys finances to secure children;s future e.g tailors, flower sellers, STD booth owner Turnover aspiration of 5 lakh

 Mid rung Entrepreneur

Driven by a need to build reputation, become known & satisfy creative instincts Garments shops, export business Turnover of 50 lakhs to 1 crore Donot want to scale too high as they feel that children will get neglected

Upper Crust
Drawn from top most social class Well educated Travel agencies, traders in pharaceuticals, Turnover over 5 crore

Women Entrepreneurs Categories in India

First Category Established in big cities Having higher level technical & professional qualifications Non traditional Items Sound financial positions Second Category Established in cities and towns Having sufficient education Both traditional and non traditional items Undertaking women services-kindergarten, crches, beauty parlors, health clinic etc Third Category Illiterate women Financially week Involved in family business such as Agriculture, Horticulture, Animal Husbandry, Dairy, Fisheries, Agro Forestry, Handloom, Power loom etc.

Why do Women Take-up Entrepreneurship

Push Factors Death of bread winner Sudden fall in family income Permanent inadequacy in income of the family Pull Factors Womens desire to evaluate their talent To utilize their free time or education Need and perception of Womens Liberation, Equity etc. To gain recognition, importance and social status. To get economic independence

Role of women as an Entrepreneur

Creative: Innovative ideas with competitive market. Wellplanned : Need to examine the existing situation and to identify the entrepreneurial opportunities. Quality to working hard: Innovative women have further ability to work hard.. Determination: Women entrepreneurs must have an intention to fulfill their dreams. They have to make a dream transferred into an idea enterprise Ability and desire to take risk: Willingness to take risk and ability to the proficiency in planning making forecast estimates and calculations. Profit earning capacity: Capability to get maximum return out of invested capital.

Successful Leading Business Women in India

1. Akhila Srinivasan, Managing Director, Shriram Investments Ltd 2. Chanda Kocchar, Executive Director, ICICI Bank 3. Ekta Kapoor ,Creative Director, Balaji Telefilms 4. Jyoit Naik, President, Lijjat Papad 5. Kiran Mazumdar-Shaw, Chairman and Managing Director, Biocon 6. Lalita D Gupte, Joint Managing Director, ICICI Bank 7. Naina Lal Kidwai ,Deputy CEO, HSBC 8. Preetha Reddy, Managing Director, Apollo Hospitals 9. Priya Paul, Chairman, Apeejay Park Hotels 10. Rajshree Pathy, Chairman, Rajshree Sugars and Chemicals Ltd

11. Ranjana Kumar ,Chairman, NABARD 12. Ravina Raj Kohli, Media personality and ex-President, STAR News 13. Renuka Ramnath, CEO, ICICI Ventures 14. Ritu Kumar ,Fashion Designer 15. Ritu Nanda, CEO, Escolife 16. Shahnaz Hussain, CEO, Shahnaz Herbals 17. Sharan Apparao, Proprietor, Apparao Galleries 18. Simone Tata, Chairman, Trent Ltd 19. Sulajja Firodia Motwani, Joint MD, Kinetic Engineering 20. Tarjani Vakil, former Chairman and Managing Director, EXIM Bank 21. Zia Mody, Senior Partner, AZB & Partners

Women Entrepreneurss Problems

Arrangement of Finance: Finance is said to be the life blood, Two important bases.
Firstly, women do not in general have property on their own names to use that as collateral securities for obtaining loans/funds from banks and other financial institutions. Thus their access to external sources is very limited . Secondly, obtaining the support of bankers, managing the working capital, lack of credit resources are the problems which still remain in the males domain.

Shortage of raw-materials: High prices of raw materials, on one hand and getting raw materials at minimum discount rates are the other.

 Cut-throat Competition: Lot of the women entrepreneurs have imperfect organizational set up to drive in a lot of money for canvassing and advertisements. Face severe competition from organized industries. Face a stiff competition with the men entrepreneurs who easily involve in the promotion and development area and carry out easy marketing of their products with both the organized sector and their male counterparts.

Lack of education and prevalent levels of illiteracy amongst women: In India, around (40%) of women are still illiterate. Illiteracy is the root cause of socioeconomic barriers or hurdles. Due to lack of Knowledge of latest technological change, know-how and education creates problems before women to set up competitive enterprises.

 Family Conflicts: Conflict of performing of home role as they are not available to spend enough time with their families. Incapability to attend to domestic work, time for education of children, personal hobbies, and entertainment adds to their conflicts.

Marketing Problems: Dominated by males and even women with adequate experience fail to make a dent. Have to be at the mercy of middlemen who pocket the hunk of profit. Women entrepreneurs also find it difficult to capture the market and make their products popular.

 Lack of self-confidence & optimistic attitude among women: Lack of selfconfidence, determination, physically powerful outlook, hopefulness etc. Always panic from committing mistakes Limited initiative of taking risk and bearing uncertainty in them.

High cost of production:

High cost of production undermines the efficiency and adversely affects the development of women entrepreneurs. The installation of new machinery during expansion of the productive capacity and like similar factor dissuades the women entrepreneur from venturing in to new area Problems of labour, human resources, infrastructure, legal formalities, overload of work, lack of family support, mistrust etc.

STATUS OF WOMEN ENTREPRENEURSHIP IN INDIA

Status

No. of Units Registered

No. of Women Entrepreneurs 2930 3180 1618 1394 842 2135 1538 1026 4185

Percentage

Tamil Nadu Uttar pradesh Punjab Maharastra Madhya pradesh Kerala Gujrat Karnatka Other states & UTS

9618 7980 4791 4339 2967 5487 3872 3822 14576

30.36 39.84 33.77 32.12 28.38 38.91 39.72 26.84 28.71

LOAN/ SCHEMES BY SEVERAL COMMERCIAL BANKS FOR THE DEVELOPMENT OF WOMEN ENTREPRENEURSHIP

Name of Bank Vijaya bank State bank of India Bank of India Canara Bank Union Bank of India UCO Bank Central Bank of India Oriental Bank of commerce ICICI Bank

Name of Loan/ Scheme V Mangla Stree Shakti Package Priyadarshini Can Mahila Viklang Mahila Vikas Yojana Nari Shakti Cent Kalyani Orient Mahila Vikas Yojana Womens Account

Yojna Schemes and Programme Nehru Rojgar Yojna Jacamar Rojgar Yojna TRYSEM DWACRA Technological Training and Awards Stree Shakti Package by SBI Entrepreneurship Development Institute of India Trade Related Entrepreneurship Assistance and Development (TREAD) National Institute of Small Business Extension Training (NSIBET) Women's University of Mumbai

Federations and associations in promoting women entrepreneurship

National alliance of young entrepreneurs ( NAYE ) India council of women entrepreneurs , New Delhi Self employed women association (SEWA) Association of women entrepreneurs of Karnatka ( AWEK) World association of women entrepreneurs (WAWE) Associated country women of the world (ACWW)

Women Work Participation

Country
India (1970-1971) India (1980-1981) India (1990-1991) India (2000-2001) USA UK Indonesia Sri Lanka Brazil

Percentage
16 23 25 36 45 43 40 35 35

Roadblocks to new businesses

Lack of business experience Fierce competition Scarcity of capital

 Venture an undertaking involving uncertainty especially a risky or dangerous one a business enterprise or speculation in which something is risked in the hope of profit

Venture Capital
A type of private equity capital typically provided by professional, outside investors to new, growth businesses. As cash in exchange for shares in the invested company, High risk, but offer the potential for above-average returns. Long term equity finance with return in the form of capital gain

 Private equity, made for the launch, early development or expansion of a business. Provides equity capital to enterprises not quoted at the stock market. The money can be used to develop new products and technologies, to expand working capital, to make acquisitions, or to improve a companies gearing-up.

Origin
1946 General Georges Doriot Father of the modern Venture Capital Industry Founded the American Research and Development Corporation whose biggest success was Digital Equipment Corporation at Massachusetts For 11 yrs, financed 35 companies & gained 35 times of his investment 1977 Arthur Rock & Co. provided venture capital to Apple Computer Indian Scenario Started in 1988 with four institutions , ICICI ( Mumbai), Gujrat Industrial Development Corporation ( Ahmedabad) , Andhra Pradesh Industrial Development ( Hyderabad) & Canara Bank ( Bangalore) Fund from 12 ( 1990)-45 ( 2000)

Role of Venture Capitalist

As business partner
- sharing risk & reward

As Mentor
Providing strategic, operational & financial advice Contacts networking in field like
Recruiting key personnel Providing contacts in International market

KEY ELEMENTS OF VENTURE CAPITAL Investments in unquoted companies Is equity capital by nature Is medium to long-terms targeted at companies with growth potential

Characteristics
Long time horizon Lack of liquidity High risk Equity participation Participation in management

HOW VC OPERATE Venture capital companies obtain their funds from investors. these are institutional investors, the parent companies of the venture capital companies, private individuals and other parties. Provide their investees management skills, contacts and market access. Representation in the board, Act as management consultants and as financial advisors in certain projects. Get their returns mainly when they sell out their stakes in the investee companies. often this is done in the course of an IPO (initial public offering).

Objective of Venture Capital

Catalyst/fuel ambitions & dreams Life support to business venture Help in building enterprise vision Inspire entrepreneurship

FEATURES OF VENTURE CAPITAL

Nature: Long term investment Form: Mainly in the form of equity capital.
Normally up to 49% of the total equity capital required for the project.

Borrowers: New entrepreneurs who cannot get such an amount from the general investors. Type of project: High risk, high rewards and long term projects. Managenment: Jointly by the entrepreneurs and venture capitalists, take active part in the management and decisionmaking.

 New venture: New technology to produce new products, in expectations of high gains
Mode of investment: Basically an equity financing method, the investment in relatively new companies when it is too early to go to the capital market to raise funds. Objective:
is to make a capital gain in equity investment at the time of exit long-term capital that is injected to enable the business to grow at a rapid pace, mostly from the start-up stage.

Funding of Venture Capital

Fund investors:
Insurance companies Pension funds Family trusts Government Agencies Listed corporations / Private companies Wealthy high net worth individuals

Methods of Venture Financing

Equity :
contribution does not exceed 49 percent of the total equity capital. Effective control and majority ownership of the firm remains with the entrepreneur. Buy shares of an enterprise with an intention to ultimately sell them off to make capital gains.

Conditional Loan:
Repayable in the form of a royalty after the venture is able to generate sales No interest is paid on such loans. In India, VCFs charge royalty ranging between 2 to 15 percent; Actual rate depends on other factors of the venture such as gestation period, cost-flow patterns, riskiness and other factors of the enterprise.

 Income Note :
Hybrid security which combines the features of both conventional loan and conditional loan. The entrepreneur has to pay both interest and royalty on sales, but at substantially low rates.

Exit Route
IPO Trade Sale-sell his stake to strategic buyer having a similar/complementry or plan to enter Promoter Buyback- at predetermined price

Advantages
Injects long term equity finance which provides a solid capital base for future growth. Venture capitalist is a business partner, sharing both the risks and rewards. Venture capitalists are rewarded by business success and the capital gain. The venture capitalist is able to provide practical advice and assistance to the company based on past experience with other companies which were in similar situations.

The venture capitalist also has a network of contacts in many areas that can add value to the company. The venture capitalist may be capable of providing additional rounds of funding should it be required to finance growth. Venture capitalists are experienced in the process of preparing a company for an initial public offering (IPO).

Disadvantages
Long & complex process Require to draw a detailed business plan & need professional help Pay legal & accounting fees whether successful in securing Lossening of management control

MARKET SEGMENTS Seed capital Start-up capital Expansion capital ( 1ST & 2ND Phase) Mezzanine financing ( 3RD Phase) Bridge financing capital ( 4th phase) Rescue capital

 Seed capital and start-up capital are provided to finance the early growth phases of a company.

Seed capital is used to determine weather an idea is worth further consideration and to transform the idea into a working business concept. Self finance, friends & family
Founder(s) only No product No customers Primary risk: R&D

Start-up capital finances the foundation of the company and about the first year of its operation. typical activities financed by start-up capital are trial product development and testing and test marketing. Firms have assembled a management team, & beginning to generate revenues
No revenues Limited customer interest Primary risk: market

accept

Two sources
Business angels-Is an affluent individual who provides capital for a business start-up, usually in exchange for ownership equity. They typically invest their own funds, unlike venture capitalists, who manage the pooled money of others in a professionally-managed fund Venture Capitalist firms-

Expansion capital ( 1ST & 2ND Phase) supports companies in the growth phase which have already brought their products to market.
Production & marketing Working capital funds- for early stage companies that are selling product, but not yet turning a profit Primary risk:execution

Mezzanine financing ( 3RD Phase)

expansion money for a newly profitable company

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

Risk in each stage

Financial Stage Period (Funds locked in years) 7-10 Risk Perception Activity to be financed For supporting a concept or idea or R&D for product development Initializing operations or developing prototypes Start commercials production and marketing Seed Money Extreme

Start Up

5-9

Very High

First Stage

3-7

High

Financial Stage

Period (Funds locked in years) 3-5

Risk Perception

Activity to be financed Expand market and growing working capital need Market expansion, acquisition & product development for profit making company Facilitating public issue

Second Stage

Sufficiently high

Third Stage

1-3

Medium

Fourth Stage

1-3

Low

VC investment process
Deal origination Screening Due diligence (Evaluation) Deal structuring

Post investment activity

Exit plan

Deal origination:
VC investor creates a pipeline of deals or investment opportunities that he would consider for investing in. Deal may originate in various ways. referral system, active search system, and intermediaries. Referral system
by their parent organisaions, trade partners, industry associations, friends etc.

Active search through networks

trade fairs, conferences, seminars, foreign visits etc.

Intermediaries
Used by venture capitalists in developed countries like USA Intermediaries who match VCFs and the potential entrepreneurs.

Screening Before going for an in-depth analysis, carry out initial screening of all projects on the basis of some broad criteria. limit projects to areas in which the venture capitalist is familiar in terms of technology, or product, or market scope. The size of investment Geographical location and Stage of financing

Due Diligence Evaluating an investment proposal. Evaluate the quality of entrepreneur before appraising the characteristics of the product, market or technology. Ask for a business plan to make an assessment of the possible risk and return on the venture. Evaluation: VCFs in India expect the entrepreneur to have:Integrity, long-term vision, urge to grow, managerial skills, commercial orientation. Risk analysis of the proposed projects which includes: Product risk, Market risk, Technological risk and Entrepreneurial risk. Final decision is taken in terms of the expected risk-return trade-off

Deal Structuring: Negotiate the terms of the deals, that is, the amount, form and price of the investment. Include the venture capitalist's right to control the venture company and to change its management if needed Buyback arrangements, acquisition, making initial public offerings (IPOs), etc.

Post Investment Activities: Once the deal has been structured and agreement finalised, the venture capitalist generally assumes the role of a partner and collaborator. Gets involved in shaping of the direction of the venture. If a financial or managerial crisis occurs, the venture capitalist may intervene, and even install a new management team.

Exit Venture may exit in one of the following ways: 1. Initial Public Offerings (IPOs) 2. Acquisition by another company 3. Purchase of the venture capitalist's shares by the promoter, or 4. Purchase of the venture capitalist's share by an outsider.

Venture capital funds Small Medium Large Corporate venture funds Financial service venture groups

Types of Venture Fund

Small and upstart venture capital fundsare smaller venture capital companies that mostly provide seed and start-up capital. Medium venture fundsfinance all stages after seed stage and operate in all business segments. Large venture fundsoperate in all business sectors and provide all types of capital for companies after seed stage. they often operate internationally and finance deals up to $500 million.

 Corporate venture funds

Invest in growing or maturing companies to make investments in technology or product development. World's top drug companies such as GlaxoSmithKline, Eli Lilly Group has set up a corporate venturing fund to support to future medical treatments. Prof. Mark Pepys, head of medicine at the Royal Free and University College Medical School in London, would develop a treatment for a rare form of amyloidosis by staying in academia while GSK provided facilities, funding and performance fees

Financial services venture funds

are venture capital funds set up by financial institutions. Have access to resources from pensions fund and from their parent companies.

FORCES AND DRIVERS THAT IMPACT ON THE VC INDUSTRY

FIVE EXTERNAL FORCES
THREAT OF NEW ENTRANTS

POWER OF SUPPLIERS

COMPETITIVE RIVALRY

POWER OF BUYERS

THREAT OF SUBSTITUES

Competitive rivalry within the industry:

Highly liquid capital markets and a growing number of startups provide sufficient business opportunity for the whole industry.

Threats of New Entrants

Industrys high profits attract new entrants. Despite the money needed, this is not too difficult. if you have industry contacts and a good network, you can set up a new vc company. With today liquid financial markets it is not the problem to obtain funds. People working in the industry for several years have the prerequisites to set up new companies. Large financial and non-financial firms can take some money and set up a new vc firm as a means of diversification or for some other reasons.

Power of Supplier
Power of suppliers of money is not overly high because of the high liquidity of todays financial markets. Very important for the venture capital companies to demonstrate a good track record of high returns to attract funds.

Power of Buyers
Venture capital funds select them carefully and according to their own preferences to limit potential losses.

Threat of Substitute
Hardly any real substitutes for the venture capital industrys product, consisting of equity combined with management help, contacts, and guidance.

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

DEVELOPMENT OF VENTURE CAPITAL IN INDIA

 The concept of venture capital was formally introduced in India in 1987 by IDBI. ICICI started VC activity in the same year Later on ICICI floated a separate VC company TDICI (Technology Development & Information Company Of India Ltd. )

A Case on Technology Development & Information Company Of India Ltd.

TDICI was incorporated in January 1988 with the support of the ICICI and the UTI. The country's first venture fund managed by the TDICI called VECAUS ( Venture Capital Units Scheme) was started with an initial corpus of Rs.20 crore and was completely committed to 37 small and medium enterprises. The first project of the TDICI was loan and equity to a computer software company called Kale Consultants. Present Status: At present the TDICI is administering two UTI mobilised funds under VECAUS-I and II, totaling Rs.120 crore. the Rs.20 crore invested under the first fund, VECAUSI, has already yielded returns totaling Rs. 16 crore to its investors.

Projects financed by the TDICI :

MASTEK , a Mumbai based software firm, in which the TDICI invested Rs.42 lakh in equity in 1989, went public just three years later, in November 1992. It showed an annual growth of 70-80 percent in the turnover. TEMPTATION FOODS, located in PUNE, which exports frozen vegetables and fruits, went public in November 1992. The TDICI invested Rs.50 lakh in its equity. RISHABH INSTRUMENTS of Nasik got Rs.40 lakh from the TDICI. It manufactures a range of meters used in power stations in collaboration with the ABB Metra Watt of Germany. After making cash losses totaling Rs.25 lakh in two bad years, it turned around in 1989 and showed an increase of over 70 percent in the turnover. SYNERGY ART FOUNDATION, which runs art galleries in Mumbai and Chennai and plans to set up in Pune and Delhi too, had received Rs.25 lakh from the TDICI as convertible loans which were converted into equity on march 31, 1994. Most of this money has been used for the company's innovative art library scheme at least paintings to corporate clients.

Venture capital funds in India

VCFs in India can be categorized into following five groups: 1) Those promoted by the Central Government controlled development finance institutions. For example: - ICICI Venture Funds Ltd. - IFCI Venture Capital Funds Ltd (IVCF) - SIDBI Venture Capital Ltd (SVCL)

2) Those promoted by State Government controlled development finance institutions. For example: - Punjab Infotech Venture Fund - Gujarat Venture Finance Ltd (GVFL) - Kerala Venture Capital Fund Pvt Ltd. 3) Those promoted by public banks. For example: - Canbank Venture Capital Fund - SBI Capital Market Ltd

4)Those promoted by private sector companies. For example: - Infrastructure Leasing & Financial Services Limited
(IL&FS) Trust Company Ltd

- Infinity Venture India Fund 5)Those established as an overseas venture capital fund. For example: - Walden International Investment Group - HSBC Private Equity management Mauritius Ltd

Rules & regulations of VC in India

AS PER SEBI AS PER INCOME TAX ACT,1961

Rules by SEBI:
VCF are regulated by the SEBI (Venture Capital Fund) Regulations, 1996. The following are the various provisions:
A venture capital fund may be set up by a company or a trust, after a certificate of registration is granted by SEBI on an application made to it. On receipt of the certificate of registration, it shall be binding on the venture capital fund to abide by the provisions of the SEBI Act, 1992. A VCF may raise money from any investor, Indian, Nonresident Indian or foreign, provided the money accepted from any investor is not less than Rs 5 lakhs. The VCF shall not issue any document or advertisement inviting offers from the public for subscription of its units

SEBI regulations permit investment by venture capital funds in equity or equity related instruments of unlisted companies and also in financially weak and sick industries whose shares are listed or unlisted At least 80% of the funds should be invested in venture capital companies and no other limits are prescribed. A VCF is not permitted to invest in the equity shares of any company or institutions providing financial services. The securities or units issued by a venture capital fund shall not be listed on any recognized stock exchange till the expiry of 4 years from the date of issuance .

As per provision of income-tax rules:

Restrict the investment by VCFs only in the equity of unlisted companies. VCFs are required to hold investment for a minimum period of 3 years. VCF shall invest only upto 25% of the corpus of the venture capital fund in a single company. There are sectoral restrictions under the Income Tax Guidelines which provide that a VCF can make investment only in specified companies.

How does the Venture Capital work?

Venture capital firms typically source the majority of their funding from large investment institutions. Investment institutions expect very high ROI VCs invest in companies with high potential where they are able to exit through either an IPO or a merger/acquisition. Their primary ROI comes from capital gains although they also receive some return through dividend.

Venture capital industry wise segmentation

Percentage
9.03 3.36 12.92 6.94 7.73 IT & ITES Energy Manufacturing 11.5 Media & Ent. BFSI Shipping & logistics 4.32 11.43 Eng. & Const. Telecom Health care 4.82 27.95 Others

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

Top cities attracting venture capital investments

CITIES MUMBAI SECTORS Software services, BPO, Media, Computer graphics, Animations, Finance & Banking IT , Bio-technology

BANGALORE

DELHI CHENNAI HYDERABAD PUNE

Software services, Telecom IT , Telecom IT , Pharmaceuticals Bio-technology, IT , BPO

Growth of VC/PE in India

16000
14234

450

14000

400
387

12000
299

350

300

10000

280

250
8000
7500 6390

200

6000
146

170

150

4000

110 78 71 56 1160 937 591 470 1650 2200

100

2000

50

0 2000 2001 2002 2003 2004 2005

No of deals

0
2006 2007
Value of deals

1st half of 2008

Impact of recession on the VC industry in India

The down market virtually closed the IPO market for emerging companies. With less opportunities for getting ROI, investors tend to scale back, adjust their investment focus and/or get more picky in funding companies. The investors that put money into their funds became less aggressive during recession so it was harder for the VCs to raise money.

VC/PE funds to take 2 years to regain vigour

Venture capital (VC) and private equity (PE) funds are likely to take up to two years to regain their 2005-07 level. With Indias economy bouncing back and the country on track to achieve an 9 % GDP growth, interest in the Indian market is re-emerging. The VC/PE fund inflow into the country in the last five and half years has been to the tune of over $44.8 billion with investments flowing into around 13,000 domestic companies.

Future prospects of VC in India

VC can help in the rehabilitation of sick units. VC can assist small ancillary units to upgrade their technologies VCFs can play a significant role in developing countries in the service sector including tourism, publishing, health care etc. They can provide financial assistance to people coming out of universities, technical institutes, etc thus promoting entrepreneurial spirits

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