Case Study

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Topics: Venture capital
The Saraf Foods Investment (A)

Cornell University Johnson Graduate School of Management NBA 593 International Entrepreneurship
Auke Cnosssen, MBA ‘04 prepared this case study under the guidance of and with Professor Melvin Goldman as the basis for class discussion rather than to illustrate either effective or ineffective handling of a business situation.1

The Saraf Foods Investment (A)
In August 1999, Vishnu Varshney, head of Gujarat Venture Finance Ltd. (GVFL), a venture capital firm in the state of Gujarat, India, was assessing the investment of GVFL in Saraf Foods Ltd. Saraf Foods was a producer of freeze dried vegetables for export. The latest monitoring report showed the financial projections for Saraf Foods for FY 1999-2000. 1998 had been a particularly bad year as a huge increase in the price of raw materials and restrictions on exports had increased costs and limited the ability to deliver products to customers. Sales volume for 1999 would be significantly below the break even volume. As a result, Saraf was now facing serious liquidity problems and needed additional funding. It had been seven years since GVFL had first put money into the venture and Varshney now had to decide whether to write off the Saraf Foods investment or to keep backing the entrepreneur and his company. Writing off the investment would mean that the return on the investment would be very low, if the assets could be sold. On the other hand, Saraf had turned out to be an honest and hard working businessman that had built up a strong relationship with his buyers. Continuing would mean a heavy time allocation by the staff of GVFL and Varshney in particular. And how would he exit?

Entrepreneurship and Venture Capital in India
The Indian Government as well as state level administrations had provided various incentives and financing schemes to promote and finance small and medium enterprises (SMEs). SMEs proliferated in India, but Gujarat with its tradition of business and

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