'Inject insurance funds into VCFs'

By Our Special Correspondent

NEW DELHI, DEC. 15. With many private insurance companies coming on the scene, the Government is planning to permit provident and pension funds to invest in the venture capital business. A suggestion to this effect has been made by the venture capital industry which is facing a critical shortage of funds.

Venture capital funds basically provide finance to new entrepreneurs, especially in high-tech areas, who find it difficult to access funds from regular sources as they have no track record to support their proposals.

The Government thinking was given out by the Special Secretary in the Union Finance Ministry, Mr P. K. Banerjee, who told a conference organised by the Indo-American Chamber of Commerce and Industry that a number of suggestions had been received for improving the operations of venture capital funds, including permission to the insurance and pension funds to assist these venture capital operations. The Government was also considering the framing of standard guidelines for valuation of venture capital funds so that they could attract more resources for their operations.

The suggestion for allowing pension and insurance funds into this business had come from the information technology sector and the Securities and Exchange Board of India (SEBI) was also considering this issue. The venture capital funds are regulated by SEBI.

Mr Banerjee pointed out that the majority of the knowledge-based industries were in the small and medium sector and there was critical shortage of funds for them. There was also a need to set up venture capital funds dedicated to the small and medium industries, he added.

UNI reports:

Mr. Banerjee pointed out that venture capital, as financial services, was introduced in the federal budget a few years ago. It was intended that venture capital assistance should mainly go to enterprises where the risk element is comparatively high due to the technology involved being relatively new, untried or loosely held, he said. Venture capital in the U.S. developed as a method of early stage financing of high technology oriented enterprises and transformed into a business of financing different stages of business such as development, expansion and growth phase by way of equity.

Within Asia, Japan has deployed more than 80 per cent of the venture capital investment in traditional industries. Taiwan has made 75 per cent of its venture capital investment in technology based ventures to accelerate its economic growth.

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Section  : Business
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