Book Reviews
The Little Book Of Venture Capital Investing: Book Review

A trip through the exotic land of venture capital 

No other facet of the financial sector is more mysterious, risky, rewarding, romantic and creative than venture capital (VC). Stories of entrepreneurs, with a bright idea, backed by venture capitalists and going on to create sensational products or services like a Google or Apple, fill us with awe and wonder. It is probably the only facet of the vast financial sector from where some public good can emerge—in the form of a path-breaking new product or service.

The problem is, of the many ideas that get funded, we  get to know only what eventually succeeds. The most celebrated examples of venture capital success these days are in the field of computing, software and the field that combines these two with essential human behaviour and psychology, viz. social media. Massive global successes of VC-funded social media, such as Facebook, Twitter, LinkedIn, Pinterest and so on, have become part of our lives. Ventures that fail are never highlighted; they are hidden from the public view, keeping the aura of VC business intact.

What is the VC business really like? Louis Gerken, a venture capitalist himself, offers an insider’s view. He explains how VCs work tracing the fascinating history of the activity to its present. The VC business has its roots in early 20th century to Carnegie Steel Company which was sold to the United States Steel Corporation in 1901 for $480 million, of which about half went to the founder Andrew Carnegie. The second-largest shareholder was Carnegie’s partner, Henry Phipps. “In 1907, Phipps formed Bessemer Trust as a private family office to manage his fortune. Four years later, he transferred $4 million in stocks and bonds to each of his five children and Bessemer Venture Partners was launched—the nation’s first venture capital firm of the US. The firm has prospered, managing more than $4 billion of venture capital, invested in over 130 companies around the world.” They are present in India too, though their investment has been in some dubious companies.

Gerken also offers background information on  VC investors and their investment strategies. There are discussions on VCs’ performance and the sectors that VCs find attractive. Venture capital business has its own cycles. The book explains the current investment climate, sharing data on the growth of new start-ups and the challenges they face. There is a list of private and listed venture capital investment options available.

Gerken explains that VCs don’t, typically, use a lot of their own money. It is ‘angel investors’ who do that and, typically, invest $1 million or less in an enterprise. An angel-funded company may grow and become attractive to venture capitalists. VCs form a firm and start a fund which is often designated for a specific industry sector. In the US, the fund will attract money from pension funds, endowments, foundations and high-net-worth individuals and family offices interested either in investing in that particular sector or just looking for the higher than normal returns.

The fund then backs an entrepreneur for an equity position, opens the doors for the management team and, if the idea blossoms, exits the investment through an initial public offering (IPO) on the stock market or a sale to another firm. The profits of several such ventures are shared by the venture capitalist with the investors who had contributed to the venture fund.

According to statistics of the National Venture Capital Association (NVCA), 40% of all ventures fail, while another 40% may break even. About 20% dream of funding the ‘next big thing’.

A large part of the book is devoted to advocating the good side of VC—the multiplier social impact that a successful VC-funded enterprise can create. It is not intended to be a guide on how to get VC funding; nor is it a guide on how to become the next Facebook. It is written more for investors—the wealthy ones who can pony up big money to get a slice of the VC action. But will someone wanting to invest millions in a VC fund read a book on it? Or tap into his network?


Equity mutual fund net inflows cross Rs7,000 crore in June, the highest in six years

Equity mutual funds reported a net inflow of Rs7,153 crore during June 2014, the highest since February 2008

Over the past two consecutive months, equity mutual fund schemes have been reporting record inflows. The inflows in June 2014 of over Rs7,000 crore, is higher than the sum of net inflows from December 2007 to May 2014, which is equivalent to Rs2,876 crore. This is so because, over the past five years from August 2009 to May 2014, as much as Rs40,357 crore flowed out of equity mutual funds. Why are investors showing a regained interest in equity mutual funds?

Retail investors are usually the last to join in on a rally. We have seen this in the past as well as where investors usually come in at the market peak. In January 2008, a record Rs13,678 crore flowed in to equity mutual funds. For the quarter ended June 2014, net inflows from equity mutual funds totalled Rs9,015 crore.

Equity linked savings schemes (ELSSs), which form a part of the total equity fund flows, witnessed an outflow of Rs156 crore. With the tax exemption limit under Section 80C increased to Rs1.50 lakh, as announced in the Union Budget presented on 10th July, we may witness higher inflows in these schemes during the March quarter of FY15.

During June, equity mutual funds recorded a sales of Rs12,368 crore, the highest since January 2008, where sales touched a record of Rs21,247 crore. Previous month, equity sales were reported at Rs10,244 crore. The sales in the past two month is substantially higher, considering that equity mutual fund sales have averaged just around Rs3,000-R4,000 crore per month over the past six years.


Redemptions were lower than the average of the past six months at Rs5,215 crore. Over the past six months, redemptions from equity mutual funds have averaged around Rs5,500 crore.

The number of equity mutual fund folios increased marginally by 44,838, to 29.26 million folios in June. The present number of equity folios is still lower by 8% compared to 30.05 million folios as on 30 June 2013. Equity fund witnessed a continuous decline in folios over the past year.

There were as many as eight new fund offers launched over the past month, bringing in as much as Rs1,114 crore. There were an equal number of open-ended schemes and close-ended schemes launched. This brings up the tally to 31 fund launched since the beginning of the calendar year and this is the most number of schemes launched in the first six month of the year.

Equity mutual fund assets under management soared by 10.95% to Rs2.41 lakh crore as on 30 June 2014 from Rs2.17 lakh crore as on 30 May 2014 on the back of record fund flows and the market rally. The CNX Nifty over this period gained 5.27%.


The reason why Pune’s Information Commissioner is sitting on an 'illegal' seat
While Information Commissioner Ravindra Jadhav entrenches himself as Pune division’s IC, it is important to understand why appointments in Maharashtra are different from any other state in India

Information Commissioner (IC) Ravindra Jadhav holds the Pune division post as of Monday. The board with his name etched on it and Right to Information (RTI) applicants,  who come for hearings of their second appeals, is a picture of normalcy. However, the undercurrent of autocracy that lies in the way this seat was gifted to Jadhav speaks of a danger to the sanctity of appointments of Information Commissioners, if one goes by the rules implemented for Maharashtra. 
So, what is wrong if Ratnakar Gaikwad transfers Ravindra Jadhav from one commission to another? Let us examine.
Unlike any other state in India, wherein the State Information Commission and entire strength of ICs is concentrated only at one particular city, that is the capital of the relevant State, Maharashtra’s formula is completely different.
When the RTI Act was implemented in 2005, Maharashtra Government decided upon setting up Information Commissions at different regions as a gesture of citizen convenience. Meaning, if you are a Nagpur resident and have filed a second appeal, you do not have to travel the distance to Mumbai, but you have the privilege of having an IC in Nagpur itself, which will conduct the hearing. 
Maharashtra has seven benches of Information Commissions located in Pune, Greater Mumbai, Konkan, Amravati, Nashik, Aurangabad and Nagpur, and the State Chief Information Commission, which is in Mumbai. Thus, appointments of ICs in Maharashtra are not general in nature. They are region-specific and bench specific. In case a transfer has to be made, the entire process of recommendation by the High Powered Committee (HPC) and a signature by the appointing authority, the Governor, is mandatory.
Therefore, despite Section 14 stating "The general superintendence, direction and management of the affairs of the State Information Commission shall vest in the State Chief Information Commissioner who shall be assisted by the State Information Commissioners and may exercise all such powers and do all such acts and things which may be exercised or done by the State Information Commission autonomously without being subjected to directions by any other authority under this Act’’, in Maharashtra the SCIC cannot trample or encroach on the Governor’s authority to appoint an information commissioner.
To reiterate, as per the norms, the Governor is the only authority to appoint Information Commissioners after a High Powered Committee (HPC) comprising the Chief Minister, the Leader of Opposition in the Legislative Assembly and Deputy Chief Minister recommends a name for the post. This clearly means, that the Chief State Information Commissioner (SCIC) of Maharashtra cannot be the authority to transfer an IC from one region to another, as per his whims and fancies. In fact, in a letter to the state government dated 28 November 2013, SCIC Gaiwad had brought to its notice, that vacancies of Information Commissioners in Amravati, Nagpur, Brihan Mumbai and Konkan need to be filled, which means he has been abiding by the rules that are exclusive to Maharashtra. So, why did he flout them in the case of Jadhav? And at whose behest?
In a trail mail started by RTI activist Sarbhajit Sen who feels the issue is being blown out of proportion, Lt Gen SCN Jatar (retd), a noted RTI activist has written, “Nowhere could I spot even by remote inference that someone down the line can change the place of posting once the appointing authority has specifically mentioned it in the appointment letter. Else, the letter would have read differently without giving the place of posting of the IC as is done in the Services. Promotion or first appointment and postings are never mixed up in good business rules.”
“In the industry as well as in government, the authority that can appoint and those that can issue postings are not always the same. By no stretch of imagination can the provision 'the general superintendence, direction and management of the affairs of the State Information Commission shall vest in the State Chief Information Commissioner'  mean that the CIC is empowered to move around ICs at his whim and fancy. In fact, postings of senior officers are always at a higher level than the immediate boss. Else, there would have been a separate clause to that effect or a word saying that 'the officer is being posted initially at so and so place and further postings would be at the discretion of the CIC in public interest',” he said.
RTI activist Vijay Kumbhar, who has vociferously raised this issue says, “The SCIC Ratnakar Gaikwad, while transferring three ICs last year had defied even the legal  opinion of Advocate General (AG) that 'A State Information Commissioner cannot be transferred unless he resigns from his present posting'.’ Jadhav has not resigned – he has been simply transferred.”
In a letter to the Governor last year, Kumbhar had stated, “This was revealed after an official copy of AG's report in a similar case few years back was obtained. AG's report about the transfer clearly states that even if the high power committee (comprising Chief Minister, Deputy Chief Minister & Leader of Opposition in Vidhansabha) decides to recommend to the Governor transfer on new posting for an SIC, his resignation from his present posting is essential. Even when this report is in the records of the General Administration Department and State Information Commission, CIC Gaikwad ordered transfers of SIC, MH Shah from Nasik to Pune, Bhaskar Patil from Amravati to Nagpur and PW Patil from Nagpur to Nasik in June 2012 within a week after taking over as CIC.”
Since there is no power vested in state CIC for such transfers in RTI Act 2005, Vijay Kumbhar had written to the Governor to revoke these illegal transfers. 
“The legal opinion in this report has confirmed his contention that transfers of SIC's by SCIC Gaikwad were illegal. As per the report in 2007-08, the SIC Nagpur Vilas Patil had requested to the High Power Committee for his transfers to Nasik. The Committee under the chairmanship of Chief Minister accepted his request and sent recommendation of his transfer to the Governor. However the Governor's office observed that there was no provision of SIC's transfers in RTI Act, 2005 and ordered for the opinion of law and judiciary department and the AG.” 
In his report submitted to the Government on 14 February 2008 the AG states, 'Minutes of the high power committee clearly indicate a specific recommendation of commissioner for a specific reason. Committee can change the decision provided he (Vilas Patil) resigns from his present post. His appointment would be a fresh appointment requiring his resignation from his post at Nagpur. Neither an amendment nor a partial notification of the extant notification would serve the purpose.” 
Following this complication Patil withdrew his request for transfer. 
As per the minutes of the HPC, each of these three SIC's had been recommended for a specific region by the committee and the appointment letters signed by the Chief Secretary also indicate their postings. It is clear that even the HPC cannot transfer an SIC, then how can state CIC order and execute such transfers? The State CIC has clearly defied all authorities and procedures.
Let us for a minute say these legal technicalities are irrelevant. Then why not get them out of the way through an official process? Until such time, no one can be above law, and therefore, it will continue to be an issue.
(Vinita Deshmukh is consulting editor of Moneylife, an RTI activist and convener of the Pune Metro Jagruti Abhiyaan. She is the recipient of prestigious awards like the Statesman Award for Rural Reporting which she won twice in 1998 and 2005 and the Chameli Devi Jain award for outstanding media person for her investigation series on Dow Chemicals. She co-authored the book “To The Last Bullet - The Inspiring Story of A Braveheart - Ashok Kamte” with Vinita Kamte and is the author of “The Mighty Fall”.) 


We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)