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2006 | Buch

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Venture Capital, Islamic Finance and SMEs

Valuation, Structuring and Monitoring Practices in India

verfasst von: Mansoor Durrani, Grahame Boocock

Verlag: Palgrave Macmillan UK

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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Über dieses Buch

This book explores how the venture capital sector supports growth and development of SMEs. The text draws from major international empirical studies in Indian and Islamic industries to analyse techniques used by venture capitalists to value, structure and monitor investments. This book is essential for students, policy makers and practitioners.

Inhaltsverzeichnis

Frontmatter

1. Introduction

Abstract

The book covers two broad areas, the small and medium-sized enterprises (SMEs) sector and the operation of the venture capital (VC) industry, and a third strand examines the potential role of Islamic VC. These topics are considered in the context of India, a nation of many contrasts and enormous economic potential. The book is underpinned by a major study of the VC sector in India. The survey was conducted in the early part of the new Millennium, and the data were supplemented by ongoing dialogue with the VC community in that country. The authors also draw upon a comprehensive literature review, as well as secondary data and information from specialist research institutions and the financial media. The material should be of interest to finance practitioners, policy makers, entrepreneurs and academics.

Mansoor Durrani, Grahame Boocock

2. An Introduction to the Small Business Sector

Abstract

Small and medium-sized enterprises (SMEs) are considered to be an engine for growth in both developed and developing countries; the benefits of a vibrant SME sector include: the creation of employment opportunities; the strengthening of industrial linkages; the promotion of flexibility and innovation; and the generation of export revenues (Mensah, 1996; Harvie and Lee, 2001; Lerner, 2002).

Mansoor Durrani, Grahame Boocock

3. Barriers to Growth in SMEs

Abstract

This chapter deals with the barriers to growth faced by SMEs. The focus here is on financing issues because access to credit, especially for new investment, has been a recurring constraint on the growth and development of smaller enterprises across the globe (Levy, 1993; Parker et al., 1995). The chapter then discusses other barriers affecting the SME sector, for example: the issues of critical concern for UK SMEs over recent years have been not only the cost and availability of finance but also market-related factors, namely the threat of competition and/or lack of demand (Burns, 2001). Finally, the chapter draws together the arguments as to why governments choose to intervene to assist SMEs.

Mansoor Durrani, Grahame Boocock

4. An Introduction to Venture Capital

Abstract

As discussed in the preceding chapter, SMEs are playing an increasingly important role in the evolution of both developed and developing countries. Most governments support the creation and development of smaller enterprises, based on the presumption of job creation and other benefits from the SME sector. It was noted that small firms have made a significant contribution to GDP by introducing innovative products, generating employment, contributing taxes to the Exchequer and so forth. The role of SMEs as an engine of economic growth was emphasized by Berger and Udell (1998, p.614), when they argued that public attention on smaller enterprises in the 1990s stemmed: ‘from the belief that innovation — particularly in the high-technology, information and bio-technology areas — was vitally dependent on a flourishing entrepreneurial sector’.

Mansoor Durrani, Grahame Boocock

5. Venture Capital: Theoretical Foundations for Research

Abstract

Academic interest in this field was raised by the early success stories of venture-backed companies. However, it took practitioners some time to be convinced that empirical research in this field was worthwhile; Barry (1994, p.11) suggests that research: ‘on VC was virtually nonexistent before the decade of the 1990s … mainly because of lack of data, but some good examples do now exist, and unanswered questions are available in abundance.’ Over recent years, the importance of VC backed companies in employment generation, exports and new product development has led to an explosion of academic activity to tackle these ‘unanswered questions’ (Wright et al., 1999). In this upsurge of research activity, a host of topics have been investigated and this introduction gives the reader a flavour of the breadth of study in this field.

Mansoor Durrani, Grahame Boocock

6. An Introduction to India: The Economy, Financial System, SMEs and Venture Capital

Abstract

We do not attempt to offer a comprehensive social and economic history of one of the most complex nations on earth. The aim is to give a flavour of key economic and social developments, in order that the reader can place our research findings in context. This chapter starts with a brief introduction to the Indian economy, and it highlights current strengths and weaknesses that influence the nation’s ambitions to become a fully-fledged industrial power. Attention then turns to the financial system, with explicit focus on the financial institutions that support SMEs, before considering the role and development of the SME sector within the economy; Government support for smaller enterprises is identified as an area of concern. The chapter concludes with an assessment of the history, current status and prospects of the VC and private equity industry in India.

Mansoor Durrani, Grahame Boocock

7. Venture Capital in India: The Analytical Framework

Abstract

Having reviewed the VC literature in Chapter 5, it was evident that the valuation, structuring and monitoring of deals have not been covered as well as the pre-investment appraisal criteria. In the context of India, Chapter 6 (Section 6.5) referred to the ‘sparse and somewhat descriptive nature’ of previous research on the VC market, until the arrival of recent studies by Dossani and Kenney (2002), Dossani (2003) and Wright et al. (2002). The latter study considers some of the valuation procedures adopted by fund managers, but does not tackle the issues of monitoring and control. Our research programme complements and extends greatly the work of Professor Wright and his colleagues, and the findings should be valuable for students, academics, policy makers and practitioners.

Mansoor Durrani, Grahame Boocock

8. Venture Capital in India: Research Methodology and Findings

Abstract

Having set out the analytical framework in Chapter 7, this chapter opens with a brief discussion of the methodology adopted for the research programme. This is followed by a summary of the data gathered from the sample as a whole. The sample is then segregated on the basis of certain factors identified in the VC literature, and the data are used to investigate the validity or otherwise of the series of propositions set out in Chapter 7. The chapter concludes with a synopsis of our research findings under the three broad headings of valuation, structuring and monitoring of VC deals, and a brief summary.

Mansoor Durrani, Grahame Boocock

9. Business Ethics and Venture Capital in Islam

Abstract

The main theoretical themes running through this book have been agency theory and the associated problems of adverse selection, information asymmetry and moral hazard. In an effort to control the behaviour of managers (agents) and the workforce, the focus of attention for academics and practitioners has been on techniques to improve corporate governance. Others have put forward more imaginative solutions to address potential conflicts of interest. For instance, tapping into the employees’ Emotional Quotient (Goleman, 1998) or allowing them to find expression through art (http://www.artquotient.com) may improve productivity and thus enhance shareholder value. This chapter develops this theme by focussing on the ‘Spiritual Quotient’ (SQ), a dimension that is usually neglected but one that may have a crucial role to play in addressing the problems associated with agency theory.

Mansoor Durrani

10. Conclusions

Abstract

This chapter revisits the key themes in each of the previous chapters, summarizes the key findings of the research programme in India, and draws some implications for VC practitioners, SMEs, academics and policy makers. The focus of attention is on India, but there are many lessons for other countries facing similar issues and problems.

Mansoor Durrani, Grahame Boocock

Backmatter

Titel: Venture Capital, Islamic Finance and SMEs
verfasst von: Mansoor Durrani
Grahame Boocock
Verlag: Palgrave Macmillan UK
Electronic ISBN: 978-0-230-62625-6
Print ISBN: 978-1-349-51855-5
DOI: https://doi.org/10.1057/9780230626256