Finance is vital for setting up of any venture and more so for technology based firms which carry more risk. Such ventures need financing structures somewhat different from other ventures which are based on lower edge of technologies. Essentially, there are two types of financial considerations in a company-One relating to the funds for setting up a new unit or for diversification in an existing company involving purchase of plant & machinery, acquisition of technology, procurement of raw materials and components, etc. The other type of financial requirement relates to undertaking R&D activities and for building necessary R&D infrastructure. The funds in the first case often start yielding returns in a short period of a time (as was anticipated in the project or feasibility report of the project which might have been prepared). In the second case the returns start coming in after a relatively longer period and hence there is a greater uncertainty. However, it may be mentioned that some of the R&D projects relating to incremental developments/modifications may start giving returns in a short time, say, six months to two years. This type of R&D, though, is more common in India.


Industrial projects cannot be financed entirely through the resources of the promoters. This is all the more true for technology based enterprises which are often promoted by first generation entrepreneurs or scientists having creditable technology experience and capabilities, besides commercial interest. In fact they need finance on more liberal terms because of higher risks involved. The development finance institutions realised this need and evolved special schemes and institutions for the purpose. To be able to successfully launch his project, the entrepreneur or his manager must be aware of the various schemes under which finance could be availed of. The present article attempts to increase his awareness.

The institutions which are the main players in providing technology finance in India are :

  • Industrial Finance Corporation of India (IFCI).
  • Industrial Credit & Investment Corporation of India (ICICI).
  • Industrial Development Bank of India (IDBI).
  • Risk Capital & Technology Finance Corporation Ltd. (RCTC).
  • Technology Development & Investment Company of India Ltd. (TDICI).
  • Small Industries Development Bank of India (SIDBI).
  • National Research Development Corporation of India (NRDC).
  • Biotech Consortium India Ltd. (BCIL).

In addition, there are a number of venture capital fund companies both in the public and private sectors.

The development finance institutions (DFI) were set up with a view to provide finance for long term investment for industrial projects. As the country was trying to bridge the gap in its industrialisation vis-a-vis the developed countries, it had to encourage industries by providing concessional finance. For this purpose, the Government promoted the Industrial Finance Corporation of India (IFCI) in 1948, the Industrial Credit & Investment Corporation of India (ICICI) in 1956 and the Industrial Development Bank of India (IDBI) in 1964. The State Governments also prompted State Financial Corporations (SFCs) and State Industrial Development Corporations (SIDCs) for promoting industrialisation in their respective States.

The DFIs were primarily concerned with financing industries based on proven technology and for products with an existing market. Once R&D effort in the country bore fruit, this role was not enough. Stress had then to be placed on the transfer of technology from the laboratories to the manufacturing stage and utilisation of newer technologies. This called for flexible financial schemes, such as those provided by venture capital funds (VCF). All these financial institutions started venture capital schemes and set up venture capital fund companies recently.


One of the important inputs required in the transfer of technologies from the laboratory or conception stage to the manufacturing/commercial stage is the availability of flexible financial assistance or financial assistance that takes into account the risk factors.

Projects based on untried or relatively new technologies carry high risk as the returns are uncertain and the possibility of the technology being unsuccessful cannot be ruled out. Consequently, adequate financial assistance was not available from the conventional financing sources, which generally looked for projects based on tried and proven technologies. While there is abundant availability of technical skills and expertise with research institutions, private organisations and individuals in the country, the entrepreneurs willing to take up the challenges and the risks involved in the commercialisation of new technologies need the support of innovative financial institutions to translate their ideas into reality. The need to fund such development-cum-commercial projects has led to the setting up of various agencies to provide venture capital mainly for the development of indigenous technologies. 

Agencies for providing finance for technology development 

In the budget for 1986-87, the Government of India decided to impose a 5% levy on all technology import payments, to create a fund to be operated by Industrial Development Bank of India, known as the Venture Capital Fund of IDBI. Since then, a number of specialised financial institutions have been promoted by the major all India Financial Institutions. The agencies providing assistance for such projects at present are the: Venture Capital Fund of IDBI, the Risk Capital & Technology Finance Corporation Ltd. (RCTC) promoted by IFCI, the Venture Capital Fund called VECAUS III promoted jointly by IFCI and UTI and the Technology Development and Investment Company of India Ltd. (TDICI), promoted jointly by ICICI and UTI. In addition, the following organisations have also entered into the field:

i) SBI Capital Markets the State Bank of India’s Merchant Banking Subsidiary is setting up a venture capital fund. At present, this organisation provides finance to ventures through its bought out deals but the new fund will finance those ventures which have innovative characteristics.

ii) Grindlays Bank has launched the India Investment Fund with money raised abroad from non-resident Indians (NRIs) and is scouting around for projects which need venture finance.

iii) Canara Bank’ has also set up a venture capital fund through its subsidiary Canbank Financial Services.

iv) Credit Capital Finance Corporation a private organisation has also launched a venture capital fund.

v) Indus Venture Capital Fund is another private sector VCF.

vi) Gujarat Industrial Investment Corporation (GIIC) and Andhra Pradesh Industrial Development Corporation (APIDC) have also promoted venture capital companies for operations within their States.

While the above organisations are yet to make a dent in the field, the organisations which have really gone ahead in their operations are RCTC, Venture Capital Fund of IDBI and TDICI as well as ICICI under its PACT (Programme for Advancement of Commercial Technology) Scheme. The basic features of these schemes are discussed in detail in the following paragraphs : 

Scheme of Technology Finance and Development of RCTC 

Risk Capital & Technology Finance Corporation Ltd. (RCTC), a public limited company incorporated with effect from 12th January, 1988 is the successor to the erstwhile Risk Capital Foundation (RCF), which had been sponsored by IFCI in 1975. It has been providing:

a) Risk capital to first generation entrepreneurs intending to set up industrial projects in the medium and medium large sectors within a project cost range of Rs. 2 crores to Rs. 10 crores, and

b) finance for technology development particularly for advancement of research and development.

It is significant that 60% of the cases assisted by RCTC involved technologies developed by the entrepreneurs themselves.

RCTC has been depending on funds support being provided by IFCI by way of subscription to its share capital and interest free loans. RCTC has so far given assistance in individual projects only up to Rs. 2 crores in view of its limited resources. To strengthen RCTC’s resources to enable it to handle large number and larger size of projects as also to extend its ambit to cover a wide range of eligible , organisations, a venture capital fund has been floated by UTI and IFCI which would be managed by RCTC. The venture capital fund called “VECAUS III” has a capital base’ of Rs. 30 crores.

The RCTC provides funds by way of equity participation which is treated as apart of promoters’ contribution to share capital and also provides loans. Loans are of two types : conventional and conditional. As the interest on loans can cause a heavy burden do the fledgling enterprise, there is way to reduce this burden by giving a conditional loan. Conditional loans are interest free loans, which are to be serviced by profit sharing when the company earns profits. Even the conventional loans given by RCTC are concessional. They are sanctioned at an initial interest, rate of 6% per annum to be stepped up gradually to 14% per annum. In suitable cases a moratorium on interest payment is granted.

The “VECAUS III” VCF promoted jointly by IFCI and UTI, and which is managed by RCTC, at New Delhi also provides finance through the above three modes viz., equity investment, conditional loan and conventional loan.

DSIR has also promoted a Consultancy Development Centre (CDC) at New Delhi, essentially with a view to promote and strengthen consultancy capabilities in India for domestic and export market. Also, efforts are being made to provide reliable services to small sector or new entrepreneurs at affordable costs. In the changed industrial environment the need for knowledge-based inputs is expected to increase considerably.

Venture Capital Fund of IDBI

The VCF of IDBI is designed to promote adoption of domestic technology and encourage the adaptation of imported technology. It covers the setting up of pilot/demonstration plants, development of products or processes which substitute for imports or lead to quality upgradation, reduce material consumption, energy savings etc. It also covers the cost of surveys, seed marketing, market promotion and related training.

The assistance is by way of conventional loans. The amount ranges between Rs. 5 lakhs to Rs. 250 lakhs for each project. The promoters are required to contribute 10% for projects costing up to Rs. 50 lakhs and 15% for ventures costing more than Rs. 50 lakhs. The assistance is available at a concessional rate of 6% p.a. during the development period which can be enhanced to 17% p.a. once the product/process is developed and available to commence commercial production. The interest rate may be restricted to 14% p.a. with a charge on sales also. 

Venture Capital Scheme of TDICI

After IFCI, ICICI is one of the first institutions in the country to initiate venture capital operations. The activity was commenced in 1986, and was later transferred by ICICI to a company created for the purpose called Technology Development & Investment Company of India (TDICI) at Bangalore. Under the scheme, TDICI extends financial assistance to projects involving commercialisation of new technology for which, due to inherent risk, the promoters may find it difficult to raise funds from traditional sources through conventional financial mechanisms.

Activities eligible- TDICI assistance is available to projects undertaking the following activities:

a) Commercial R&D involving development of new technology or an innovative product;

b) Implementation of an indigenously developed technology on a commercial scale; or

c) Implementation of an innovative technology imported/transferred from an external source.

The new technology or the product concerned must have significant tangible benefits over the existing options and the financial return on the project should be commensurate with the risks. The assistance is available for projects having initial aggregate investment up to Rs. 2 crores. The assistance is available in three forms i.e., conditional loans, conventional loans and equity investment. No specific promoters’ contribution is stipulated.

Under its scheme, TDICI also provides assistance for projects which may not involve any indigenous technology development but are based on imported technology; it may be noted that VCF of IDBI and RCTC emphasise indigenous technology development. 

PACT (Programme for Advancement of Commercial Technology) Scheme of ICICI

PACT scheme envisages technology development (and not technology transfer) through Indo-US joint ventures in R&D. It is expected that such joint ventures will result not only in development of new technologies, but also provide Indian partner an opportunity to acquire the R&D management techniques from USA. PACT co-finance pre-production R&D costs of innovative products and processes.

To be eligible for PACT support, a project should

a) involve the development through R&D efforts, of an innovative product or process which promises tangible benefits to the Indian economy;

b) be proposed by an Indian company and US company as a team, with each member having a specified role in the development and commercialisation programmes;

c) have potential for commercialisation in three years;

d) involve project cost, typically not exceeding US $ 1 million and envisage a PACT contribution up to US $ 500,000;

e) involve technology development and not just technology transfer; and

f) not be related to defence/armament surveillance, weather modification or abortion-related equipment or services.

The cost of eligible projects should not exceed US $ 1 million and should envisage a PACT contribution up to US $ 500,000. The promoters’ contribution is normally 50% of the cost of the project. The scheme is not a true Venture Capital Scheme. 

Risk Finance by National Research Development Corporation (NRDC)

National Research Development Corporation (NRDC), New Delhi, a Government of India enterprise in the Department of Scientific and Industrial Research (DSIR), is charged with the objective of commercialising research carried out in national laboratories. It provides risk finance for technology development both by way of equity participation in companies set up for the first commercialisation of NRDC know-how and also provides development loans for setting up of pilot plants. NRDC’s participation in equity capital is limited to companies set up specifically for, commercialising NRDC know-how, having total capital investment of the order of Rs. 50 lakhs or more, restricted to the first commercial plant based on the technology given by NRDC. NRDC is prepared to share in risks by writing off a part or the whole of the development loan if the project is unsuccessful. NRDC acquires technologies from indigenous sources including national relations for transfer to companies as a package. 

Fund Support by Biotech Consortium India Ltd. (BCIL)

The Financial Institutions have promoted a company called BCIL to provide financial assistance for preparation of Pre-Feasibility Reports (PFRs) and Detailed Project Reports (DPRs) for biotechnology based industries. BCIL, which was incorporated on the 14th September, 1990 with its Headquarters at New Delhi, has an authorised capital of Rs. 10 crores subscribed by IDBI, IFCI, IClCI, UTI and. RCTC, BCIL will catalyse preparation of reports on technology being developed by academic and research institutions as well as by entrepreneurs and industry with a view to minimise risks. Assistance will be available for financing fixed assets and operations. A minimum promoter’s contribution of 10% for ventures costing up to Rs. 1 lakh and 30% for those above this has been proposed. It would also fund the preparation and completion of DPRs and the promoter’s contribution would be in the range of 30 to 50% of the cost. In the case of pre-feasibility reports, the loan would be interest-free or at a lower rate to be converted into equity if the project moves to the DPR stage. In the case of DPRs, concessional rate of interest would be 6% per annum during the development period to be increased to 18% depending upon the estimate of the likely cash generation. If the project proves to be commercially successful, BCIL would expect returns in the form of royalty from the commercially successful projects but will not claim ownership of know-how or any patents. Equity investment will be in the form of direct subscription in the sponsored company. There would be suitable buy-back arrangements to enable the promoters to buy back these equity shares. 


No enterprise can remain competitive if it does not upgrade its technology from time to time. This can be achieved by in-house R&D, induction of newer technology and capital equipment from abroad or from indigenous sources. With a view to induct the latest technology in selected capital goods manufacture and meeting the need for indigenous Research and Development (R&D) facilities and reducing costs, special programmes of technology upgradation have been launched by the Financial Institutions. Assistance under the Scheme covers acquisition for upgradation of fixed assets including plant and equipment, know-how, drawings and designs and need based margin, money for additional working capital needs of the proposed projects. Effective from 1st August, 1990, the loans under the Scheme carry concessional rate of interest of 11.5% per annum under Tier-I (up to completion period or 2 years whichever is earlier) and 12.5% per annum under Tier-II on the first Rs. 5 crores and on 50% of the loans above Rs. 5 crores subject to a ceiling of Rs. 7.50 crores per project for the concessional portion. The balance loan carries the normal lending rate of interest with additional interest of 1% per annum in case of closely held companies.

IDBI provides direct loans to industrial units to enable them to utilise the import licence under the Technical Development Fund Scheme of the Government of India. Generally the limit for assistance under the Scheme is Rs. 125 lakhs per undertaking per year. The Scheme covers all industries as also import of inputs needed by industrial units for improving export capabilities. Assistance under the Scheme is available only to existing industrial concerns with good record of performance and sound financial position. The applicant unit must hold an import licence granted by the Government of India under the Technical Development Fund and should also satisfy IDBI that the proposed imports will improve its productivity, exports etc.


Many new entrepreneurs, particularly those with a technical-academic background, find the move to industrial environment quite daunting. The procedures and channels of operation are often totally unfamiliar. Further, they are generally not in a position to pay for the high profile consultants.

Technical Consultancy Organisations

With a view to providing low cost but quality consultancy service to tiny, small and medium scale entrepreneurs, the all-India Financial Institutions, in collaboration with the State-level institutions and banks, have set up Technical Consultancy Organisations (TCOs), with the primary objectives of-

  • providing under one roof the total package of services which include preparation of feasibility reports, project reports, carrying out market surveys and pre-investment ingentigations for prospective entrepreneurs,
  • providing guidance to entrepreneurs on project development, implementation and operation as also technical guidance to the existing industrial units with regard to their schemes of diversification, modernisation and More efficient operations, providing marketing, financing and technical advice regarding rehabilitation of sick units,
  • identifying potential entrepreneurs and undertaking activities relating to the development of the entrepreneur including training and providing technical and other assistance often free of charge.

At present 18 TCOs-9 under the lead of IDBI, 5 under the lead of IFCI, 3 under the lead of ICICI and one sponsored by Government of Karnataka-are providing a wide spectrum of consultancy and extension services to enterprises particularly in the rural, tiny, small and medium scale industrial sectors. DSIR has also promoted a Consultancy Development Centre (CDC) at New Delhi, essentially with a view to promote and strengthen consultancy capabilities in India for domestic and export market. Also, efforts are being made to provide reliable services to. small sector or new entrepreneurs at affordable costs. In the changed industrial environment the need for knowledge based inputs is expected to increase considerably.

Entrepreneurship Development Programmes on Science and Technology 

The Science and Technology Entrepreneurship Development Programmes sponsored by the National Science & Technology Entrepreneurship Development Board (NSTEDB) are being funded partly by the Department of Science & Technology of the Government of India and partly by the all-India Financial Institutions, viz., IDBI, IFCI, ICICI etc. So far, the aforesaid institutions have supported about 300 Science & Technology (S&T) EDPs where about 6000 S&T entrepreneurs have been trained. 

Establishment of Science and Technology Entrepreneurs’ Parks Science & Technology Entrepreneurs’ Parks (STEPs) provide an interface between science and technology institute of excellence and industries, promote and nurture applied research and translate it into product development. It is an effort to channalise research excellence into business. The concept of STEP envisages promotion of industrial ventures by scientists and technologists by fostering a research industry culture, near a research institute, which can help in the removal of technical difficulties in the commercialisation of new technologies.

Under the auspices of NSTEDB, STEPs are being set up on the lines of Science Parks in USA and UK. Eight such STEPs have already been agreed to be supported by, all-India financial Institutions at: (i) Ranchi (Bihar), sponsored by the Bihar Institute of Technology (BIT), (ii) Tarapur (Maharashtra), sponsored by the Jawaharlal Nehru Engineering Chemical Park (JNECP), (iii) Tiruchirapalli (Tamil Nadu), sponsored by the Regional Engineering College (REC), (iv) Kanpur (Uttar Pradesh), sponsored by Harcourt Butler Technological Institute (HBTI), (v) Mysore (Karnataka), sponsored by Sri Jayachamarajendra College of Engineering (SJCE), Ludhiana (Punjab), sponsored by Guru Nanak Engineering College (GNEC), Bhopal (Madhya Pradesh), sponsored by Maulana Azad College of Technology (MACT), and (viii) Kharagpur (West Bengal), sponsored by Indian Institute of Technology, Kharagpur. DST is the modal agency for this activity. Recently, Technology parks are also being established to provide infrastructural facilities and support to innovative companies.

Promotion and Support to Consultancy Services

As mentioned earlier, the Department of Scientific & Industrial Research (DSIR), Government of India, has set up a Consultancy Development Centre (CDC) with the support and cooperation of various consultancy organisations and associations. The CDC promotes and supports consultancy organisations with a view to meeting the growing need for and importance of development of consultancy profession in India. This is an important development because it can play a major role in acquisition, upgradation, transfer and export of technology and services. The primary objective of CDC is to encourage and support technological activities including the collection and dissemination of information/data of consultancy organisations. A Consultancy Development Assistance Scheme, among others, has also been initiated mainly to encourage and recognise performance and activities of consultancy organisations.

Technology Business Incubator (TBI)

Small businesses have the maximum difficulty in obtaining infrastructural services such as land, telephones, facsimile machines (fax), computers, management consultants etc. The Technology Business Incubator (TBI) is like a large workshop, which provides space facilities and environment for starting business. The TBI has all the service facilities required by any business and is managed by an experienced manager, who can advise the new entrepreneur regarding the difficulties that he may be facing. Once the business is put on a commercially profitable footing, which may be in about three years, it is required to vacate the premises, and make way for another new entrepreneur. Maharashtra Industrial and Technical Consultancy Organisation (MITCON), in Pune, has been identified among others, to start a general TBI in Pune. This TBI will accommodate manufacturing and service enterprises. The other proposed sites for TBIs include Central Electronics Engineering Research Institute (CEERI) Pilani and Shri Ram Institute for Industrial Research at New Delhi. This TBI programme of CSIR has been started for the first time in India and only three sites have been related on experimental basis. Efforts are on to promote many more TBIs in India; the number may touch even a few hundreds during the Eighth Plan period. 


In the early days of industrialisation, businessmen had to depend upon loans from the development finance Institutions for raising the finances required because the financial sector was not developed enough. The banking system was not as extensive systems as it is now and the stock exchanges were yet to gain importance.

However, in the 1980s, the equity cult took off, and investors including household savers, are keen to invest directly in the equity of companies. This trend has been further encouraged by the Mutual Funds, which have taken over the role of managing the Investment portfolio for the small investor. This has reduced their risk and the transaction cost of operating in the stock markets. Many commercial banks and finance companies have also started offering similar services to small investors.

However, the small businesses still do not have access to the stock exchange because there is a minimum value limit for the issuing of equity to the public. This barrier has also been removed in 1990 by the creation of the Over-The-Counter-Exchange (OTCE) for trading in the scrips (equity share certificates) of small companies, which are not listed on the stock exchanges.

As equity capital imposes no immediate cost towards its servicing, the small businesses can now have access to this source with greater ease. This will help reduce their debt service cost and improve their profitability. They may not be able immediately to get these resources directly, but may be able to get them through the venture capital fund companies. The VCF companies can issue their shares to the public and use the resources to finance more new technology companies. The public at large is conscious of the nature, level and source of technology used by a company while offering its shares in the market, and in fact, many companies do mention the level and source of technologies in their announcements. 


Considerable effort is often put in preparing feasibility reports. Great care is also taken in assessing the technology, the market, the raw material availability and even the quality of the personnel. The capital cost of the project and its financing is also done with meticulous care. However, when it comes to assessing the requirement for working capital the same care is often not shown.

Working capital is a very important element in the success or otherwise of an enterprise. Owing to delays in project implementation and cost over-runs, a majority of projects run into liquidity problems. Such shortages of money at critical stages can lead to severe difficulties, and have even been known to lead to the project being abandoned. It is, therefore, advisable to provide liberally for working capital.


Small businesses, which do not have a large complement of staff, have often faced difficulty in collection of their dues from their clients. The bigger clients even use their greater strength to delay payment to small suppliers. This puts an unbearable strain on the latter’s resources.

To help them get over this problem, banks have started factoring services. In factoring, the bank takes over the responsibility to collect the money due on unpaid bills. The bills usually of small concerns, are taken at a discounted (lower) value. The task of the collection of the money against the bill is thus taken over by the bank and the businessman gets immediate payment. The uses of factoring services have to pay some nominal charges.

The working capital needs of small businesses can be greatly reduced by using the factoring services. In their absence, large amounts of money used to remain locked up in unpaid bills, and the businessman was forced to borrow further money to continue production. Now he can get immediate payment and devote himself to his primary task of running his business efficiently.


The financial institutions and commercial banks are expected to evaluate the project proposals received from companies for financing for economic and technical viability and to ensure that they would be able to get back their money. Most of these institutions and banks have developed in-house expertise to appraise the projects and sometimes seek export and advice from outside also, if necessary. However, it is felt in business circles that projects are not adequately appraised from technology point of view. The financial institutions and banks also generally do not have adequate built-in technical capabilities particularly in the context of fast changes taking place in technologies and managerial systems. The result is that the industrial sickness is increasing alarmingly and large funds have been locked up with sick units. In view of this, it is necessary that the personnel concerned with the technical appraisal of the projects are adequately trained and exposed to the newer developments and trends.

It should be seen, rather insisted, that project reports are prepared by really competent professionals and consultants. The role of chartered accountants and others should be limited to their fields of activities, and not allowed to cover technological issues unless such capabilities have been demonstrated. The viability of a project largely depends upon the depth and care with which the project report has been prepared, appraised and implemented. A sound approach on the part of the financial institutions and banks would go a long way in proper utilisation of scarce funds and would ensure reasonably good returns on investments made.

Scientists and R&D personnel in a company are not able to fully appreciate the commercial aspects and the need for financial returns from their R&D projects. Time targets are often slipped. It is therefore necessary that Technology Management group carefully examines the financial inputs required and expected financial gains from a particular R&D project. In any corporate research laboratory with good management and talented researches, there will usually be more ideas for projects than there will be funds and personnel; to act on all of them. Accordingly it is an important management function to select research projects that would turn into innovation. The selection of research projects should be based on both technical and financial criteria (Betz, Frederick, Managing Technology Prentice-Hall, New Jersey, 1982). It would be pertinent to aski)

Is the project technically feasible and exciting in creating new functionality or advancing technical performance? ii) Will the project contribute significantly to corporate profitability. The expenditure on Research and Development is a capital investment which yields returns or enhances profitability in the future. Like any new investment, the principal management criterion for evaluating R&D projects are cash flows and return on investment, which have been traditionally used to evaluate new products. For a successful R&D project, sales will eventually grow until either (i) the market is maturated (ii) competition limits market share for the product, or (iii) product obsolescence occurs. It is necessary that R&D personnel are made adequately aware of the above.

The objectives of R&D projects can be classified as

i) Supporting current businesses

ii) Creating new ventures

iii) Exploring new technologies

Financial evaluation of projects may use the following approaches for different purposes:

Current businesses

  • The current products are projected as to life times
  • The product mix is then projected as a sum of projects
  • Contribution to extending the life times or improving the sales or lowering costs of products is estimated

New Ventura

  • Projects that result in new ventures are chartered over expected life times
  • Cash flow requirements and return on investment are calculated


  • These projects are not financially evaluated but chosen for their potential for dramatic impact on technological performance.
  • Project costs are treated as an overhead function in corporate R&D.
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