Chapter- 3

Venture Capital

Venture Capital (VC)

Venture capital (VC) is a form of private equity and a type of financing that
investors provide to startup companies and small businesses that are believed to
have long-term growth potential. Venture capital generally comes from well-
off investors, investment banks, and any other financial institutions. However,
it does not always take a monetary form; it can also be provided in the form of
technical or managerial expertise. Venture capital is typically allocated to small
companies with exceptional growth potential, or to companies that have grown
quickly and appear poised to continue to expand.

Though it can be risky for investors who put up funds, the potential for above-
average returns is an attractive payoff. For new companies or ventures that
have a limited operating history (under two years), venture capital is
increasingly becoming a popular even essential source for raising money,
especially if they lack access to capital markets, bank loans, or other debt
instruments. The main downside is that the investors usually get equity in the
company, and, thus, a say in company decisions.

Features of Venture Capital

Some of the features of venture capital are :–

 Not for large-scale industries – VC is particularly offered to small and

medium-sized businesses.

 Invests in high risk/high return businesses – Companies that are eligible

for VC are usually those that offer high return but also present a high risk.

 Offered to commercialise ideas – Those opting for VC usually seek

investment to commercialise their idea of a product or a service.

 Disinvestment to increase capital – Venture capital firms or other

investors may disinvest in a company after it shows promising turnover.
The disinvestment may be undertaken to infuse more capital, not to
generate profits.
 Long-term investment – VC is a long-term investment, where the returns
can be realised after 5 to 10 years.

Advantages and Disadvantages of VC

Advantages :–

 Help gain business expertise

One of the primary advantages of venture capital is that it helps new

entrepreneurs gather business expertise. Those supplying VC have significant
experience to help the owners in decision making, especially human resource
and financial management.

 Business owners do not have to repay

Entrepreneurs or business owners are not obligated to repay the invested sum.
Even if the company fails, it will not be liable for repayment.

 Helps in making valuable connections

Owing to their expertise and network, VC providers can help build

connections for the business owners. This can be of immense help in terms of
marketing and promotion.

 Helps to raise additional capital

VC investors seek to infuse more capital into a company for increasing its
valuation. To do that, they can bring in other investors at later stages. In some
cases, the additional rounds of funding in the future are reserved by the
investing entity itself.

 Aids in upgrading technology

VC can supply the necessary funding for small businesses to upgrade or

integrate new technology, which can assist them to remain competitive.

Disadvantages :–

 Reduction of ownership stake

The primary disadvantage of VC is that entrepreneurs give up an ownership

stake in their business. Many a time, it may so happen that a company
requires additional funding that is higher than the initial estimates. In such
situations, the owners may end up losing their majority stake in the company,
and with that, the power to make decisions.

 Give rise to a conflict of interest

Investors not only hold a controlling stake in a start-up but also a chair among
the board members. As a result, conflict of interest may arise between the
owners and investors, which can hinder decision making.

 Receiving approval can be time-consuming

VC investors will have to conduct due diligence and assess the feasibility of a
start-up before going ahead with the investment. This process can be time-
consuming as it requires excessive market analysis and financial forecasting,
which can delay the funding.

 Availing VC can be challenging

Approaching a venture capital firm or investor can be challenging for those

who have no network.

Process of Venture Capital Financing: 6 Main Steps

This article throws light upon the six steps involved in the process of venture
capital financing. The steps are: 1. Deal Origination 2. Screening 3. Evaluation
4. Deal Negotiation 5. Post Investment Activity 6. Exit Plan.

Step 1.Deal Origination:

Venture capital financing begins with origination of a deal. For venture capital
business, stream of deals is necessary. There may be various sources of
origination of deals. One such source is referral system in which deals are
referred to venture capitalists by their parent organizations, trade partners,
industry association, friends, etc.

Another source of deal flow is the active search through, networks, trade fairs,
conferences, seminars, foreign resist etc. Certain intermediaries who act as link
between venture capitalists and the potential entrepreneurs, also become source
of deal origination.

Step 2. Screening:

Venture capitalist in his endeavor to choose the best ventures first of all
undertakes preliminary scrutiny of all projects on the basis of certain broad
criteria, such as technology or product, market scope, size of investment,
geographical location and stage of financing.

Venture capitalists in India ask the applicant to provide a brief profile of the
proposed venture to establish prime facie eligibility. Entrepreneurs are also
invited for face-to-face discussion for seeking certain clarifications.

Step 3.Evaluation:

After a proposal has passed the preliminary screening, a detailed evaluation of

the proposal takes place. A detailed study of project profile, track record of the
entrepreneur, market potential, technological feasibility future turnover,
profitability, etc. is undertaken.

Venture capitalists in Indian factor in the entrepreneur‟s background, especially

in terms of integrity, long-term vision, urge to grow managerial skills and
business orientation. They also consider the entrepreneur‟s entre-preneurital
skills, technical competence, manufacturing and marketing abilities and
experience. Further, the project‟s viability in terms of product, market and
technology is examined. Besides, venture capitalists in India undertake
thorough risk analysis of the proposal to ascertain product risk, market risk,
technological and entrepreneurial risk.

Step 4. Deal Negotiation:

Once the venture is found viable, the venture capitalist negotiates the terms of
the deal with the entrepreneur. This it does so as to protect its interest. Terms of
the deal include amount, form and price of the investment.

It also contains protective covenants such as venture capitalists right to control

the venture company and to change its management, if necessary, buy back
arrangements, acquisition, making IPOs. Terms of the deal should be mutually
beneficial to both venture capitalist and the entrepreneur. It should be flexible
and its structure should safeguard interests of both the parties.

Step 5. Post Investment Activity:

Once the deal is financed and the venture begins working, the venture capitalist
associates himself with the enterprise as a partner and collaborator in order to
ensure that the enterprise is operating as per the plan.

The venture capitalists participation in the enterprise is generally through a

representation in the Board of Directors or informal influence in improving the
quality of marketing, finance and other managerial functions. Generally, the
venture capitalist does not meddle in the day-to-day working of the enterprise, it
intervenes when a financial or managerial crisis takes place.

Step 6. Exit Plan:

The last stage of venture capital financing is the exit to realise the investment so
as to make a profit/minimize losses. The venture capitalist should make exit
plan, determining precise timing of exit that would depend on an a myriad of
factors, such as nature of the venture, the extent and type of financial stake, the
state of actual and potential competition, market conditions, etc.

At exit stage of venture capital financing, venture capitalist decides about

disinvestments/realisation alternatives which are related to the type of
investment, equity/quasi-equity and debt instruments. Thus, venture capitalize
may exit through IPOs, acquisition by another company, purchase of the
venture capitalist‟s share by the promoter and purchase of the venture
capitalist‟s share by an outsider.

Stages of Venture Capital Financing/ Types of Venture Capital/

Stages of venture development

Venture development involves various aspects from concept development to
product commercialization, expansion till fully developed. The venture
development is divided into eight in terms of development activities and
financing alternatives available the firms at every stage. This is very important
to understand the risks involved and distinct financing alternatives available in
the progress of venture development to obtain adequate external finance for
long and continual basis as per need arising thereof.

The venture development can be broadly classified into eight stages. The eight
stages of venture development and financing alternatives are discussed below:

1: Seed financing.

2: start – up

3: Early development

4: Expansion

5: Profitable but cash poor

6: Rapid growth toward liquidity point

7: Bridge stage

8: Harvest

1.Seed financing

This is the first stage of venture development wherein entrepreneurs develop the
concept of new business, formulating the for the new firm. The initial ground
work has to be done which may involve building small prototype of the product,
detailed descriptions of the service/product, preparation of business of plan and
explore the actual market potential for the product/service. In this Seed stage
entrepreneurs expend a great deal of time but a relatively lesser amount of
money to explore the prospects of commercialization and development of the
concept. It usually involves 6 months to 1 year of typical time duration in this
stage.

Finance is essential to pay the entrepreneurs at least the modest living wages, to
provide office space, equipment, assistants and so on. The two most common
sources of seed stage financing are bootstrapping and angel financiers.

Bootstrapping

In bootstrapping, entrepreneurs tap their available personal savings and personal

borrowings, from friends, relatives or business associates, may also include
customer advances or extended payment lending from vendors. Bootstrapping is
a broadly used and effective means of financing a venture.

Angel financing

A risk averse wealthy individual, who often possess some entrepreneurial

experience interested to invest in small companies which have high growth
potential are the angel investors. They are often interested in financing these
firms in the early stages of development. Angel network is informal.

2. Start- up

The results of development of the concept, its potential ability of the business
plan and its prospects, ensues the start-up stage.

In this stage, the management team is assembled to develop a more detailed

plan, prototype is tested and product or service development takes place, and
also marketing is done to test the market potential. The typical time duration of
this stage is two years
Development of this stage essentially requires an additional committed capital
for actual testing of the concept developed.

Finance at this stage is extended by angel investors, venture capitalists. Venture

incubators of corporation or universities are also extending support for the
firm‟s development at this stage.

3.Early development

Firm reaches the early development stage after the testing of prototype and test
marketing indicates the substantial potential ability of commercialization and
the results being positive, the firm moves ahead. In this stage the firm secures
its initial, plant and equipment and products/ services are actually
manufactured/ rendered and shipped in commercial quantities. However the
remains in the non-profitable at the end of this stage.

Angle investors usually wishes to cash out at this end or may be interested in
contributing additional finance. Venture capitalists may also interested in
investing at this stage. The initial properties purchased may be able to secure
bank financing.

4.Expansion

The company would have accumulated considerable experience in the market

place, they would have identified the major success factors even though the
ultimate success is at question. The firm is still not in the position to gain more
profit or cash inflows. For the expansion of its operations the firm requires
additional finance to purchase equipments and inventory and for increased
working capital as well. This stage spans about two years.

Alternative financing sources include venture capital and banks for this stage of
development.

5.Profitable but cash poor

Expansion stage being successful, the firm adheres substantial growth . in this
stage the firms is generating profit margin, being positive thereby reducing the
downside risks. Retained earnings can become a internal source of finance
available to them . However, cash generated is not sufficient to meet the
requirements of expansions and working capital needs.

Venture capital firm would continue to be major financing source, banks would
also lend if there are enough collaterals.
6.Rapid growth toward liquidity point

Venture which reach this stage would have reduced the risk significantly and
have become fairly stable. However, capital infusion might be necessary to
finance continuing expansion. the firms would prefer debt financing as the
entrepreneurs and all other equity investors prefer to limit dilution.

7.Bridge Stage

This stage is also called as mezzanine financing.it is the final growth and
preparation stage required before the harvest.at this stage the form of harvesting
alternative will be determined. So that the growth strategy and preparation is
coined along the alternative chosen.

The firm may need additional finance for further growth, financial restricting or
for a limited cashing out of the early investors.

The firm may issue subordinate debt, convertible bonds, or convertible

preferred stock, as the entrepreneurs sensitive towards the dilution issue.

8.Harvest

Harvest is the last of venture development. It involves the exit and cashing out
of investments and all short investors. The three main Harvesting option are

a. Remaining private and replacing short team investors with long term
investors
b. Being acquired or
c. Going public

Role and Importance of Venture Capital.

Venture capital is an important role in materializing the idea of establishing the
enterprise or the industry. Without it, the entrepreneur can not do anything.

In the present age of increasing competition, aspiration for facilities and efforts
comforts and excessive shows, the good impression should be visible even at
the very beginning of the enterprise or the industry, which is possible only by
venture capital.

1. Promotion of the Enterprise

This is the foremost function of an entrepreneur.

For it, the entrepreneur carries out various functions, like emergence of the
business idea, to obtain information about related facts, selection of the location,
preparation of plant layout, registration of the enterprise and completion of
various legal formalities. For all these activities, the role of venture capital is
very important. Otherwise, the emergence and end of the business idea together
are certain.

2. Encouragement to Entrepreneurship

Venture capital is an important tool or method to encourage entrepreneurship,

the reason being that on one side, the venture capital encourages the
innovators to establish the industries/ and on the other side small and medium
entrepreneurs and also encouraged.

3. Performance of Economic Activities

Economic activities, like – sale and purchase for products, purchase of means
and machinery for converting raw material into finished products, carrying out
production and its availability to the consumers may be efficiently
performed through venture capital. As a result of all these, the entrepreneur may
take high risk and the growth may also be high. Besides, the possibilities for
higher profits also increased.

4. Management and Organization

Management and Organisation of the industry should be efficient for the

performance of various economic activities.

For example, manpower planning, taking work from competent persons, to

engage the service of professionals and maintaining balance therein, for getting
economic activities accomplished. For all these, venture capital in the required
volume is essential. Otherwise, other sources will remain in the form of the
source only and it will not be possible to use them for actual economic
activities.

5. Dominance of Desired Skills and Competencies

In each area, professionals are appointed. If the entrepreneur has to avail of the
services of any particular person for specific work, then the venture capital has a
special role in obtaining his desired skills.
 6. Fulfillment of Financial Requirements of High-Risk Entrepreneurs

Use of automatic machines, computers, the latest machinery, robots, new

sources of energy, email, rocket research, etc. Due to scientific progress have
not only brought the technical Revolution but has also increased the risks.
The financial requirement of entrepreneurs involving high risks has been met by
venture capital companies.

7. Representation of Funds Incorporated in New Enterprise

Venture capital represents the funds in the new enterprise. Sometimes, debt
funds are also made available for it.

8. Assistance in Strategy Formulation

Today‟s age is the age of competitions, which can be seen in all areas, activities,
stages, and places.

However, venture capital has to sustain in all types of competition, which

enables the entrepreneur to prepare strategies right from the establishment of the
industry to its development expansion.

9. Possibility of Rapid Development Expansion

Venture capital includes all types of high risk and high probable investments.

Hence, venture capital is made available to a new company from the starting
stage (promotion of the enterprise) to advance further. As a result, the
possibility of rapid development expansion of the company increases.

10. Other Roles and Importance

1. Investment of venture capital for the purchase of modern machinery

establishment of laboratories, the appointment of scientists and training for new
functions and activities, etc.
2. Employees‟ welfare and amenities.
3. Project evolution and reports.

Microcredit
Microcredit is a common form of microfinance that involves an extremely
small loan given to an individual to help them become self-employed or grow a
small business. These borrowers tend to be low-income individuals, especially
 from less developed countries (LDCs). Microcredit is also known as
"microlending" or "microloan."

Microfinance in India

Microfinance is a way in which loans, credit, insurance, access to savings

accounts, and money transfers are provided to small business owners and
entrepreneurs in the underdeveloped parts of India.

The beneficiaries of microfinance are those who do not have access to these
traditional financial resources. Interest rates on microloans are generally higher
than that on traditional personal loan.

Types of Microfinance
Microfinance includes the following products:

 Microloans - Microfinance loans are significant as these are provided to

borrowers with no collateral. The end result of microloans should be to have
its recipients outgrow smaller loans and be ready for traditional bank loans.
 Microsavings – Microsavings accounts allow entrepreneurs operate savings
accounts with no minimum balance. These accounts help users inculcate
financial discipline and develop an interest in saving for the future.
 Microinsurance - Microinsurance is a type of coverage provided to
borrowers of microloans. These insurance plans have lower premiums than
traditional insurance policies.

In some situations, recipients of microloans are expected to take some training

courses, such as cash flow management or book-keeping.

Importance of Microfinance
Almost half of the population of our country does not have a basic savings
account. However, this segment requires financial services so that their
aspirations such as building of assets and protection against risk can be fulfilled.

Microfinance provides access to capital for individuals who are financially

underserved. If microfinance institutions were not offering loans to this segment
of the society, these groups would have resorted to borrowing money from
friends or family members. The probability of them opting for fast cash loans or
payday advances (that bear huge interest rates) are also high.

Microfinance helps these groups invest wisely in their businesses, and hence, is
in alignment with the government‟s vision of financial inclusion in the country.
 Key Features of Microfinance
Some of the significant features of microfinance are as follows:

 The borrowers are generally from low income backgrounds

 Loans availed under microfinance are usually of small amount, i.e., micro
loans
 The loan tenure is short
 Microfinance loans do not require any collateral
 These loans are usually repaid at higher frequencies
 The purpose of most microfinance loans is income generation

Microfinance Channels
Microfinance in India operates primarily through two channels:

 SHG-Bank Linkage Programme (SBLP) - This channel was initiated by

NABARD in the year 1992. This model encourages financially backward
women to come together to form groups of 10-15 members. They contribute
their individual savings to the group at regular intervals. Loans are provided
to members of the group from these contributions. SHGs are also offered bank
loans at later stages, and these loans can be used for funding income
generating activities.
This model has achieved a lot of success in the past and it has also gained a
lot of popularity for contributing to the empowerment of women in the
country. Once these self-sustaining groups reach stability, they function
almost independently with minimal support from NABARD, SIDBI, and
NGOs.
 Microfinance Institutions (MFIs) - These institutions have microfinance as
their primary operation. These lend through the concept of Joint Liability
Group (JLG), i.e., an informal group that consists of 5-10 members who seek
loans either jointly or individually.

Role of Microfinance Institutions (MFIs)

Microfinance services are offered by the following sources:

 Formal institutions, i.e., cooperatives and rural banks

 Semiformal institutions, i.e., non-government organisations
 Informal sources, such as shopkeepers and small-scale lenders

Institutional microfinance encompasses the services provided by both formal

and semiformal institutions.
 A microfinance institution specialises in banking services for low-income
individuals and groups. These institutions access financial resources from
mainstream financial entities and provide support service to the poor.
Microfinance institutions are hence, emerging as one of the most effective tools
in reducing poverty in India.

While several MFIs are well-run with great historical records, others are
operationally self-sufficient.

The different types of institutions offering microfinance in India are:

 Commercial banks
 Credit unions
 Non-governmental organisations (NGOs)
 Sectors of government banks
 Cooperatives

Microfinance institutions act as a supplement to the services offered by banks.

Apart from offering micro credit, financial services such as insurance, savings,
and remittance are provided. Non-financial services such as training,
counselling, and supporting borrowers are offered in the most convenient
manner as well.

NGOs
NGOs are voluntary organizations, that work toward a social cause and social
justice. They have assumed a significant space in civil society. NGOs with the
support given by the government has been accelerating its development
activities by taking up specific issues like poverty alleviation, casteism and
discrimination, women rights, child labour, rural development, environmental
issues etc. In the last two decades the role of NGOs have become significant in
the social sector development-education, health etc.

Role of NGOs in Development:

1. Social development: NGOs have played an immense role in bringing social
change and development. NGOs ensure development which essentially
involves the equal participation of the people. They play an important role in
educating and motivating people to fight for their rights.
2. Education: The NGOs actively work for promoting education, particularly
among weaker sections of the population. The education of girls, and other
deprived people, particularly the SCs and STs, has been their target
objective..
 3. Women empowerment: Women are the other vulnerable section of society.
More and more women are working for their rights and involving themselves
actively in the social sphere. Important in this process has been the role of
NGOs. Sewa, Sathin, Eklavya, Disha etc. are some of the thousands of
NGOs known for their role in development by creating awareness among
people and interventions regarding women.
4. Environmental awareness: Human life is facing a threat due to
environmental pollution and the depletion of natural resources. Here, the role
of NGOs work is noticeable and praiseworthy. Thousands of voluntary
organisations work to awaken people and governments against
environmental degradation and depletion of resources e.g. Vanashakti NGO.
5. Rehabilitation: The projects like the construction of dams, road highways
and railways have often led to displacement of some sections of people,
particularly in rural areas without being properly compensated. The NGOs
have a major role to play towards the cause of people‟s resettlement and are
also performing commendable jobs in this direction.
6. Protecting dignity: NGOs are also rendering great service in restoring
dignity of the deprived and discriminated sections. For example, protecting
dignity of women by protecting women suffering from gender
discrimination, racial and religious discriminations.
7. Human rights protection: The contribution of NGOs to human rights and
public awareness is significant in India. The recognition of the rights of
homosexuals and transgender people, for instance, would have been
unimaginable without the sustained effort of civil society organisations.

Issue and challenges that remained in spite of these legislations

that impact efficiencies of NGOs:
1. Difficulties to get funds: The majority of NGOs have experienced difficulties
in getting enough, and continuous funding in order to do their work. Getting
donors is a hard task, and sometimes dealing with some specific donor‟s
funding conditions can be an enormous challenge for NGOs.
2. Over-regulations: Government regulations are misused to curb voice and work
of NGOs that impact vote bank of politicians. Politicians threaten NGOs of
removing funds or removing their certification. Over-regulation of NGOs hinder
their work and efficiency.
3. Cultural hurdles: NGOs are often seen as encroaching on centuries-old
tradition and culture of the people, and lead to mass protest at times. Ban of
Jallikattu after a Public interest litigation filed by PETA is one such example.
4. Lack of proper networking: For some NGOs, it is difficult to develop
networks. Having a poor network leads to lack of communication. Poor
networks lead to loss of opportunity to work with community and their
participation and impact NGOs effectiveness.
5. Lack of governance: Many NGOs do not have a Board for governance. One of
the main reasons for that is the difficulty to attract board members without
paying them or providing them some benefits. Often lack of board leads to poor
direction and inefficiencies in NGO working.

The NGOs involved in entrepreneurship development can be

classified into three types:
1. Primary Level NGOs:

The NGOs who mobilize their own resources, operate at international level and
execute developmental activities themselves or through intermediate fall within
this category. ACTIONAID, OXFAM, Christian Children Fund, etc. are
prominent examples of the primary level NGOs in India.

2. Intermediate NGOs:

These NGOs procure funds from various agencies, impart training, and conduct
workshops for target work force. SEWA and AWAKE are examples of
intermediate NGOs.

3. Grass Root Level NGOs:

These NGOs are those who conduct field activities by establishing direct
contact with the grass-root needy people. Examples of such NGOs are
RUDSETIs, ANARDE Foundation (Gujarat), Indian Institute of Youth Welfare
(IIYW) of Maharashtra etc.

The training imparted to the needy by the NGOs can be classified

into three broad types:
1. Stimulation:

Conducting EDPs and other training programmes for the target people with a
view to stimulate enterprising attitude among them.

2. Counseling:
Providing counseling and consultancy services to the needy ones how to prepare
a project, feasibility report, purchase of plant and machinery, and performing
other procedural activities.

3. Assistance:

Assisting the target group in marketing their products and securing finance from
financial institutions.

SHGs

SHG is a holistic programme of micro-enterprises covering all aspects of self-

employment, organization of the rural poor into self Help groups and their
capacity building, planning of activity clusters, infrastructure build up,
technology, credit and marketing.

It lays emphasis on activity clusters based on the resources and the occupational
skills of the people and availability of markets.

Self-Help Group refers to self-governed, peer controlled, informal group of

people with same socio-economic background and having a desire to
collectively perform common purposes.

Objectives of SHG:
1. To inculcate the savings and banking habits among members.

2. To secure them from financial, technical and moral strengths.

3. To enable availing of loan for productive purposes.

4. To gain economic prosperity through loan/credit.

5. To gain from collective wisdom in organising and managing their own

finance and distributing the benefits among themselves.

6. To sensitize women of target area for the need of SHG and its relevance in
their empowerment.

7. To create group feeling among women.

8. To enhance the confidence and capabilities of women.

9. To develop collective decision making among women.

10. To encourage habit of saving among women and facilitate the accumulation
of their own capital resource base.

11. To motivate women taking up social responsibilities particularly related to

women development.

12. It acts as the forum for members to provide space and support to each other.

SHGs are considered as one of the most significant tools to adopt participatory
approach for the economic empowerment of women, SHG is a group of people
that meets regularly to discuss issues of interest to them and to look at solutions
of commonly experienced problems. The group may or may not be promoted by
Government or non-Government institutions.

Functions of SHGs.
The members of self-help groups perform various functions. These
functions ensure the successful and long-running of the groups.

They have the responsibility to perform the following functions:-

1. Group meetings

These are one of the most important functions of self-help groups. It forms
the foundation of the groups. Also, it facilitates the flow of ideas and views
or members. Members interact with each other in meetings and make
important decisions. Meetings can be held anytime at the convenience of the
members.

2. Conflict Resolution

The members of the group face several kinds of circumstances. The self -
help groups are encouraged to discuss and rule out solutions to the problems
of the members. On an individual level for poor people, it is not possible
due to inadequate resources and weaknesses.

3.Evaluation of Rules and Bylaws

For uninterrupted and effective functioning and performance of self -help

groups, the members shall make a set of rule or bylaws. Also, guidelines
shall be laid out for decision-making in the group.
 4.Mobilization of savings

The members have to decide the amount of savings every member has to
make towards the group fund. Also, decisions are made related to the
periodicity and utilization of the savings.

5.Maintenance of Records

Every self-help group has to maintain a set of books. The books which a
group shall maintain are savings register, attendance book, loan register,
minute‟s book and Member‟s passbook.

6.Internal Lending

Another vital function of SHGs is internal lending. The groups utilize the
savings fund to provide loans to the members. The group decides everything
related to the loan like duration, interest, repayment, etc.

7.Collective Guarantee system

These groups act as and work as a collective guarantee system. For the
members who borrow from the organized resources, the group serves for
them. The members deposit their savings in the bank and gain access to
loans at nominal interest rates to commence their micro-unit enterprise.

8.Microfinance services

Self-help groups have emerged a powerful tool or measure to uplift the

status of the people belonging to a weaker background socially and
economically. Therefore, SHGs are a strong tool to deliver microfinance
services to the poor.

What are government schemes for Self-Help Groups in India?

The government has taken measures to empower the SHG movement in
India and strengthen their position. Various financial institutions and credit-
granting bodies have stepped forward to support and promote the
movement.

 In 1992, when NABARD realized its potential and started promoting the
self-help groups (SHGs) moment, it gained momentum and rapidly spread
across the country.
 The state governments of Andhra Pradesh, Karnataka, Kerala and
Tamilnadu established separate organisations which were led by a senior
bureaucrat and managed by development professionals

 In 1999, the Swarna Jayanti Gram Swarojgar Yojana was introduced to

promote self-employment in rural areas. It aimed to promote self-
employment through the formation and skill development of the members of
self-help groups.

 Later in 2011, it became a national movement as the National Rural

Livelihood Mission which was the world‟s largest poverty alleviation
programme.

 District versions of these programs are operational in the states and union
territories and work and Leslie to form, strengthen and nurture the SHGs.

 The mission was later renamed as Deendayal Antyodaya Yojana in

November 2015.

Today, over 100 million families through 8.5 million self-help groups are
covered. They have deposits of approximately 161 billion INR and 4.84
million SHGs have received credit and over 615 billion INR of the loan
outstanding.

In all this, over 90% are the women who belong to the rural and urban poor
social and economic background.

Benefits of Self-Help Groups (SHGs).

Apart from escalating the economic and social status of the members of the
groups, SHGs serves various benefits which are:-

 Self-help groups help in women empowerment by making then

independent financially as well as intellectually.

 It has a major role to play in combating the social evils like gambling,
alcoholism, drug addiction and more. It instils better habits in the members
and leads them to be a responsible and better human being.

 It helps in elevating the employment opportunities in rural India and for

the rural and urban poor people. It supports micro-level entrepreneurship
which reduces the dependence on a single source of income and widens
income horizons for the members.
 Being a member of SHGs, it provides easy access to government policies
and schemes. The schemes are meant for the marginalized and backward
section of the society from which most of the members belong.

 It helps in improving the standard of living by providing employment

opportunities through micro-finance entrepreneurship. It improves the living
standard, Health Care, family planning and literacy rates of the weaker
sections of the society.

 It helps in the financial discipline as the members are encouraged to open

savings bank accounts which a short marginalized Savings and
improvement in living conditions by spending on education, health and
more

 It increases the active participation in the democracy of the members and

all other aspects of the local government as well. The weekend marginalized
section of the society would be included in the local government which
would pave way for better roles and policies for their development and
betterment.

Weaknesses of Self-Help Groups.

Although self-help groups are made for the betterment of the people of the
rural areas, they suffer a lot of problems and weaknesses as well.

The weaknesses and problems faced by SHGs are:-

 Although the groups are meant for people from the poor background, the
members do not necessarily come from the poorest backgrounds.

 These groups aim for social enforcement. However, satisfactory qualitative

change has not been noticed in the status of members.

 The activities undertaken by these groups are based on primitive skills and
do not add any value all substantial increase in the income of group
members

 The lack of qualified resource personnel is a hindrance in skill upgradations

by the members

 The lack of resources and poor accounting practices that prevails which
leads to misappropriation of the accounts
 Non-government organisations and other government agency supports and
promotes these groups and their withdrawal could lead to their collapse

What measures can be taken to make Self-Help Groups

effective?
Self-help groups have a major role in poverty alleviation in the rural parts
of India. The rapidly growing numbers of poor people in various parts of
India have become a member of SHGs. There should be various measures
which could be taken in to enhance the effectiveness of SHGs for the
betterment of its members.

Few measures which can be taken are as follows:-

 The SHG movement should be expanded to the credit deficient areas of the
country. It would help the people of these areas to improve their
socioeconomic status and lead a better life with better living conditions

 The government and other authorities should work to develop a supportive

environment to enable SHG moment foster and develop

 The commercial banks and NABARD should adopt a need-based approach.

Working along with the state government, they should endeavour to
innovate and design new financial products for self-help group

 The governing authorities and the government should keep a positive

attitude and approach towards the poor and marginalized

 There should be measures taken to expand the financial infrastructure of the

credit deficient areas of the country

 SHGs currently are limited to rural areas of India full stop that should be
efforts made to extend them to the urban and semi-urban areas to pave the
way for the urban poor people

 There should be a special cell developed to monitor the functioning of self-

help groups in every state which collects both quantitative and qualitative
information

Family Business:
Family business, as the name suggests, is the business which is actively owned,
operated and managed by two or more members of the single-family. Here,
 members may be related by blood, marriage or adoption. Basically, in a family
business:

 Single-family owns majority percentage of ownership

 Possess voting control,
 Has power over strategic decisions,
 Has the involvement of multiple generations of the same family and
 Senior management of the firm is drawn from the same family.

Family Business plays a significant role in the economy. Indeed it is the oldest
surviving economic system, that has a substantial contribution in the country‟s
Gross National Product (GNP), total employment and total exports.

Characteristics of Family Business

A family business is characterized by:

 Members: A group of people, who are the members of the same family owns
and runs the business enterprise.
 Position of members: The position of family members in the business depends
on the relationship which the family members have with one another.
 Control: As the family owns a majority share in the company and also
constitutes the senior management, it can exercise control over the business.
 Mutual interest: As the family members occupy the key positions in the
business, it can exercise influence on the policies of the firm, as per the mutual
interest of the family and firm.
 Involvement of multiple generations: The operation and management of the
business are looked after by the family, and so the reins are passed on, from one
generation to another.
 Mutual Trust: All the members of the family have mutual trust in each other,
as they have a common origin, the same set of values, ethics and business
orientation.
 Integrity and Transparency: It is generally characterised by strong moral
principles and honesty towards business goals and business transparency.

Types of Family Business

In general, there are three forms of the family business, which are discussed
hereunder:
1. Family Owned Business: As the name suggests, a family-owned business in
one in which the controlling size of the ownership stake is owned by the family
or by the member of the family.
2. Family Owned and Managed Business: In this kind of businesses the
controlling size of ownership, lies in the hands of a single-family, or by a single
member of a family. The controlling ownership allows the family to formulate
and decide the objectives, methods and policies.
3. Family Owned and Led Business: In such a business, along with the
ownership of majority stake by the family or by the member of the family, at
least one member of the family is a member of the board of directors. In this
way, the family member can exert influence over business‟s direction, strategies
and plans.

Who are First Generation Entrepreneurs?

These are New Entrepreneurs, who invest their money and bears risks and
uncertainties to set up the business. They are wealth creators and pioneers in the
business. They are innovators who bring new ideas to the business.

Who are Second Generation Entrepreneurs?

Second Generation Entrepreneurs are supposed to control and run the business
established by their parents, but their activities and decisions are always under
examination. They join the business as middle or top-level management, and
after showcasing their potential, the reins of the business are handed over to
them.
 Structure of Family Business
The three-circle model of the family business system is represented as under:

In this model, the first circle indicates „ownership‟, the second circle represents
„family‟ while the third represents „business‟. Now we will discuss entity in
detail:

 Non-family non-manager owners: These are an external investor or say

outsiders, who own a certain proportion of business but do not work.
 Family owners: This group include those family members who own a part of
the business but do not take part in its operations.
 Family owner-employees: As the name specifies, these are the owners of the
business, as well as work as an employee in the firm, usually in top managerial
positions.
 Non-family owners employees: This group covers those individuals who are
employees of the concern and are not family members, as well as own a certain
proportion of the firm‟s share capital.
 Family members: This group includes all those family members who neither
own shares in the company nor they are actively involved in the family
business.
 Family Employees: In this group, all those members of the family are covered
who work for the company, but they do not own part of the company‟s share
capital.
 Non-family employees: These are the employees of the company, who work
for the company under an employment contract, and are not family members.
They also don‟t own shares in the company.

New Generation Successful Entrepreneurs of India

These are some of the phrases that India‟s brightest and youngest mind reveals
in their work. These minds have spawned highly successful and engaging start-
ups and have become India‟s top 10 young entrepreneurs.

Pavani Naidu as a founder of aartisto, responsible for the day-to-day operations

and management of Aartisto Technologies Inc., Canada, and Artisto
Technologies Pvt. Ltd., India. She has been working as a Freelancer since 2004,
she has good experience in Digital Branding and a passion for business and the
creative field. With a vision to excel in the field of Digital media consultancy
services, Aartisto is established.

She is having more than 14 years of experience in the field of Business

Consulting and Digital Marketing also she has become a skilled digital marketer
because of her twelve years of working experience. She has also expertise in
building User-Friendly websites with strong User Experience to making a
website into a lead generation machine.

The 10 New Generation Entrepreneurs

1) Ritesh Agarwal

A smart young man who makes use of the valuable knowledge he gained while
pursuing his hobby of traveling toward business ideas. In 2013 his company,
Oyo Rooms, had to travel on a domestic budget. However, The company
operates in five countries, including Singapore, based in Gurgram. It is invested
by well-known companies such as Softbank and Sequoia Capital.

2) Indian Ragitsin

Indrajeet Singh is the founder and CEO of iQuanta, CAT‟s largest online
coaching company. He is one of the powerful entrepreneurs and also started by
helping applicants and then helped them enter top IIMs and other B schools. His
indigenous shortcuts and unconventional methods gave him the nickname “The
Wizard of Quants.”

During his journey, he helped more than 8,000 students enroll in IIM and other
Higher B schools, with unprecedented results in the country.

3) Deepan Jaridal Mia

A brave soul who quit his job at EY at the age of 26 and began his wonderful
journey. Moreover, to help women in the country, supported by social reasons,
her company, Heyday Care, manufactures sanitary napkins made of bamboo
and corn. It is effective and cheap, allowing many women who cannot afford
hygienic napkins to use them safely at a lower price.

4) Ranveer Allahbadia

He is also a talented person who runs a YouTube channel and his own
company. His company, called Monk-E, is an influencer marketing and video
production company that manages celebrities across the country. In 2013, he
launched his YouTube channel, Beer Bices. This channel has 2.3 million
subscribers.

5) Aayushman Sinha

Appointed as the youngest talent manager at the age of 25, he runs

REPRESENT as a multi-genre talent management company. Along with that,
his TakeIndiato the World campaign became so popular that he added why he
was awarded the Young Business Leader (under 40) and Youth Entrepreneur of
the Year in 2018.

6) Sreelakshmi Suresh

A renowned website designer, she designed 50 websites with one hand last year
for his work, winning the world‟s youngest web designer award and running his
company, eDesign.
7) Trishneat Arora

A high school dropout, a huge success, and a self-made man, Trishneet Arora, is
a complete package. Besides the launch of the company‟s TAC security
solution, which has four offices in India and one in Dubai. It was able to include
clients like Reliance in its portfolio.

8) Tilak Mehta

One of the youngest in the lot, he makes Dabbawala‟s Ola & Uber his latest
achievement.

9) Kavita Shukla

The founders of Fresh Papers have innovated the idea of keeping many products
fresh for longer. His clients include celebrities such as Wholefoods and co-
operatives.

10) Akshay Ruparelia

An Indian who also became one of the youngest millionaires and entrepreneurs
in the UK founded DoorSteps.uk, an online real estate agency. With 12
employees, the company has achieved a valuation of £ 12m over a year of
operation. Overcome barriers and take the courage to come up with ideas that
have the potential to change the world.