Financing of small and medium sized enterprises in India with a special emphasis on private equity financing

Abstract

This paper studies the private equity industry and the trends in the investments. An effort is made to study the deals to get an insight about the industry and try to infer as to how the investors and investees benefit symbiotically. It also looked at whether PE money signals superior stock performance to retail investors. We also analyzed as to why India needs this risk capital and how India satisfies the investment needs of the Venture Capital and Private Equity funds. The key sectors were identified. An important find was that many of the Indian acquisitions abroad has been by buying out the stakes belonging to PE funds and the reason behind this trend. The paper then looks for the financing and the challenges associated with it for Small and Medium Enterprises. We also try to address the financing gap faced by SMEs and how private equity funds and SMEs can benefit from association. On the basis of identification of the key sectors, we finally focused on Small and Medium IT companies. Unfortunately, lack of data was a major constraint. The data on the private equity industry is difficult to get. Their motivation to invest in a particular stage or company is not revealed on the grounds of trade secrets. Data on SMEs are equally difficult to find. Most of the deals involved companies which were not even present in the subscribed databases.