History of Venture Capital in India dates back to early 70’s when Govt of India appointed a committee laid by Late Shri R.S.Bhatt to find out the ways to meet a void in conventional financing for funding start-up companies based on absolutely new innovative technologies. Such companies either did not get any financial support or the funding was inadequate which resulted into their early mortality. The committee recommended starting of Venture Capital industry in India. In mid 80’s three all India financial institutions viz IDBI, ICICI, IFCI started investing into the equity of small technological companies.

In Nov 1988, Govt of India decided to institutionalize Venture Capital Industry and announce guidelines in the parliament. Controller of Capital issues implemented these guidelines known as CCI for VC. These guidelines were very restrictive and following a very narrow definition of VC. They required Venture Capital to be invested in companies based on innovative technologies started by first generation entrepreneur. This made VC investment highly risky and unattractive. Nonetheless about half a private initiative were taken. At the same time World Bank organized a VC awareness seminar and selected 6 institutions to start VC investment in India. This included TDICICI (ICICI), GVFL, Canbank Venture Capital Fund, APIDC, RCTC and ILF (now known as Pathfinder). The other significant organisations in private sector were ANZ Grindlays 3i Investment Services Limited, IFB, Jardine Electra.

After the reforms were commenced in 1991, CCI guidelines were abolished and VC Industry became unregulated. In 1995, Govt of India permitted Foreign Finance companies to make investments in India and many foreign VC private equity firms entered India. In 1996, after the lapse of around 8 years, government again announced guidelines to regulate the VC industry. Though there were many shortcomings there guidelines were the starting point. These guidelines did not create a homogeneous level playing field for all the VC investors. This impeded growth of domestic VC industry. Lack of incentives also made Indian Corporate and wealthy individuals shy of VC funds. With the result VC scene in India started getting dominated by foreign equity fund.

In 1997, IT boom in India made VC industry more significant. Due to symbiotic relationship between VC and IT industry, VC got more prominence as a major source of funding for the rapidly growing IT industry. Indian VC’s which were so far investing in all the sectors changed their focus to IT and telecom industry.

The recession during 1999 – 2001 took the wind out of VC industry. Most of the VC either closed down or wound-up their operations. Almost all of them with the exception of one or two like GVFL changed their focus to existing successful firms for their growth and expansion. VC firms also got engaged into funding buyouts, privatisation and restructuring. Currently, just a few firms are taking the risk of investing into the start-up technology based companies.