PRIVATE EQUITY

STRUCTURE
BY GROUP 8
ROLL NO. 1, 27, 32, 43, 51, 72
INTRODUCTION TO PRIVATE EQUITY

• 1. Private equity is a source of investment capital from high net worth individuals to invest and acquire
equity ownership in companies
• 2.It is the capital that is invested in the direct ownership of businesses not traded on public stock
exchanges
• 3.Private equity (PE) is a medium to long-term financial investment provided in return for equity in a
company that is typically not listed on an exchange
• 4.private equity investments involve a high degree of risk and may result in partial or total loss of capital
BUSINESS CYCLE OF PRIVATE EQUITY

This life cycle begins with the decision of the would-be manager of the fund (the "General Partner" or
"GP") to raise money from outside investors (the "Limited Partners" or "LPs") to invest in private deals. If
the GP has not earlier raised a fund to invest in the proposed strategy, the new fund will be referred to as a
"first-time fund. A private equity business cycle consists of three stages. These are as follows:
 Phase One: Negotiation stage and Fundraising stage - Six months to one year of the Fund life:
• Generally, these private placements are affected by several one-on-one presentations to
investors with whom GP has a pre-existing relationship.
• In this phase, the Fund structure is hypothesized and established in a jurisdiction that is most
favourable to the Investors, offers tax neutrality and set up flexibility.
 Phase Two: Investment period - First five years of the Fund life:
• Private equity funds seek to acquire control of companies, implement value-adding changes and then
realize the resulting capital gain by disposing of their investment within a relatively short time frame
which is generally 3-5 years.
• Depending on the particular investment opportunity the investment can be made under the foreign
direct investment ('FDI') route, foreign venture capital investment route ('FVCI') and the foreign portfolio
investment ('FPI') route.
 Phase Three: Divestment Period and distribution to Investors - Five years to end of the Fund life:
• The Fund generally disposes of the investments within the relative time frame of 3 to 5 years from
investment
• PE funds require timely and profitable exits to redeem capital and return to their investors and
themselves and also to establish and maintain their reputation,
STRUCTURE OF VENTURE CAPITAL /
PRIVATE EQUITY FUNDS
1.OFFSHORE FUND STRUCTURE
An offshore fund structure typically involves establishing a fund in a jurisdiction with favourable regulatory
and tax conditions.

These structures attract investors seeking tax benefits and regulatory flexibility.
2.CO-INVESTMENT
A co-investment structure is a combination of offshore and and domestic investment .
Two separate pools of capital for offshore investors as wll as domestic investors are been raised.

3.UNIFIED INVESTMENT FUND STRUCTURE

2.Management Company
Investment adviser
Owns and Manages the fund

3. Limited Partner
Investors in the fund
4. ROUTES OF VENTURE CAPITAL/ PRIVATE
EQUITY INVESTMENT IN INDIA

1. An SPV is primarily, a business association of person or entities eligible to participate in the association

2. Direct Investments: Investors directly invest in startups or companies by purchasing equity or convertible
debt instruments.
• 3.Private Equity Funds: These funds focus on investing in more mature companies with established
business models and a track record of revenue and profitability. Private equity investments in India
often target companies in sectors like healthcare, technology, consumer goods, and financial services.

• 4.Private Equity Funds: These funds focus on investing in more mature companies with established
business models and a track record of revenue and profitability. Private equity investments in India
often target companies in sectors like healthcare, technology, consumer goods, and financial services.
 REGULATORY ASPECTS OF VENTURE
CAPITAL/ PRIVATE EQUITY INVESTMENTS
Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996 and the Securities and Exchange
Board of India (Foreign Venture Capital Investors) Regulations, 2000 ("SEBI FVCI Regulations")
The SEBI Regulations, specify the investment criteria for venture capital & private equity investors and Foreign
Venture Capital Investor seeking to invest in Indian companies. The SEBI FVCI Regulation
prescribe the following investment guideline.
• The foreign venture capital investor must disclose its investment strategy and How much Where they
Invest etc. At least 66.67% of the investible funds must be invested in unlisted equity shares or equity-
linked instruments.
• Not more than 33.33% of the investible funds may be invested by way of:
 subscription to initial public offer of a venture capital undertaking, whose shares proposed to be listed.
 debt or debt instrument of a venture capital undertaking in which the foreign venture capital investor has already invested,
by way of equity.
 preferential allotment of equity shares of a listed company, subject to a lock-in period of one year.
 the equity shares or equity-linked instruments of a financially weak or a sick industrial company
Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations,
2000 (the "FEMA Regulations")
• The FEMA Regulations prescribe how a foreign venture capital investor can make investments. A foreign venture
capital investor, can through SEBI, apply to the Reserve Bank of India ("RBI") for permission to invest in an
Indian venture capital.
• Subject to RBI approval, a foreign venture capital investor can maintain a foreign currency or rupee account with
an authorized Indian bank.
• The FEMA Regulations prescribe the sectoral limits on foreign investments into India. Print media sector, atomic
energy and related projects, broadcasting, postal services, defence and agricultural activities, must obtain the
approval of the Foreign Investment Promotion Board or Secretariat of Industrial Assistance.
Income-Tax Act, 1961 (the "IT Act")
• The income of venture capital companies or funds is tax-exempt . If they are registered with SEBI and in
compliance with the Indian government and SEBI Regulations.
• The income of such companies or funds will continue to be exempt, if the undertaking in which its funds are
invested after the investment, gets listed on a stock exchange. However, the tax will be payable by the
shareholders of or withdrawers from the company or fund.
WILL BE THE CASE STUDY ON THE
PRIVATE EQUITY STRUCTURE
Case study: xyz private equity firm
Background: Xyz private equity form speciazes in mid-sized technology companies . they identify the
opportunities for growth and operational improvement and eventual exit strategy

Structure
1. Fundraising
2. Investment strategy
3. Operational improvement
4. Exit strategy
5. Distribution of returns
Challenges
1. Market volatility
2. Exit timing
3. Regulatory changes

Success metrics
1. ROI
2. IRR