Venture capital refers to funding provided to startup companies and small businesses with growth potential. Venture capitalists provide funding in exchange for equity in the company and often actively participate in management. They typically invest in companies developing new products and services. Venture capital funding is a long-term illiquid investment that carries high risk but can provide high rewards if the company succeeds. Venture capitalists guide companies through different stages of development from seed funding to growth to exit via IPO or acquisition. The business plan is key to convincing venture capitalists to invest.
Venture capital refers to funding provided to startup companies and small businesses with growth potential. Venture capitalists provide funding in exchange for equity in the company and often actively participate in management. They typically invest in companies developing new products and services. Venture capital funding is a long-term illiquid investment that carries high risk but can provide high rewards if the company succeeds. Venture capitalists guide companies through different stages of development from seed funding to growth to exit via IPO or acquisition. The business plan is key to convincing venture capitalists to invest.
Venture capital refers to funding provided to startup companies and small businesses with growth potential. Venture capitalists provide funding in exchange for equity in the company and often actively participate in management. They typically invest in companies developing new products and services. Venture capital funding is a long-term illiquid investment that carries high risk but can provide high rewards if the company succeeds. Venture capitalists guide companies through different stages of development from seed funding to growth to exit via IPO or acquisition. The business plan is key to convincing venture capitalists to invest.
Venture capital refers to funding provided to startup companies and small businesses with growth potential. Venture capitalists provide funding in exchange for equity in the company and often actively participate in management. They typically invest in companies developing new products and services. Venture capital funding is a long-term illiquid investment that carries high risk but can provide high rewards if the company succeeds. Venture capitalists guide companies through different stages of development from seed funding to growth to exit via IPO or acquisition. The business plan is key to convincing venture capitalists to invest.
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VENTURE CAPITAL
Meaning
Venture capital means funds made available for start-up firms and small businesses with exceptional growth potential.
Venture capital is money provided by professionals who alongside
management invest in young, rapidly growing companies that have the potential to develop into significant economic contributors. Venture Capitalists generally:
Finance new and rapidly growing companies
Purchase equity securities
Assist in the development of new products or services
Add value to the company through active participation.
The SEBI has defined Venture Capital Fund in its Regulation 1996 as ‘a fund established in the form of a company or trust which raises money through loans, donations, issue of securities or units as the case may be and makes or proposes to make investments in accordance with the regulations’. Characteristics
Long time horizon
Lack of liquidity
High risk
Equity participation
Participation in management CHARACTERISTICS OF VENTURE CAPITAL
Illiquidity: Easy liquidity by cashing out in short-term is not an option for
venture capital funding. Long-term commitment: Venture capital financing is a long term, illiquid investment, it is not repayable on demand. Equity participation: Venture capital is actual or potential equity participation through direct purchase of shares, options or convertible securities. The objective is to make capital gains by selling-off the investment, once the enterprise becomes profitable. Participation in management: Venture financing ensures continuing participation of the venture capitalist in the management of the entrepreneur’s business. Advantages
It injects long term equity finance which provides a solid capital
base for future growth.
The venture capitalist is a business partner, sharing both the risks and rewards. Venture capitalists are rewarded by business success and the capital gain.
The venture capitalist is able to provide practical advice and
assistance to the company based on past experience with other companies which were in similar situations. The venture capitalist also has a network of contacts in many areas that can add value to the company.
The venture capitalist may be capable of providing additional
rounds of funding should it be required to finance growth.
Venture capitalists are experienced in the process of preparing a
company for an initial public offering (IPO) of its shares onto the stock exchanges or overseas stock exchange such as NASDAQ. They can also facilitate a trade sale. Stages of financing
1. Seed Money: Low level financing needed to prove a new idea. 2. Start-up: Early stage firms that need funding for expenses associated with marketing and product development. 3. First-Round: Early sales and manufacturing funds. 4. Second-Round: Working capital for early stage companies that are selling product, but not yet turning a profit . 5. Third-Round: Also called intermediate range financing, this is expansion money for a newly profitable company 6. Fourth-Round: Also called bridge financing, it is intended to finance the "going public" process Risk in each stage
Financial Stage Period (Funds locked in years) Risk Perception Activity to be financed
For supporting a concept
or idea or R&D for product Seed Money 7-10 Extreme development
Initializing operations or de veloping prototypes Start Up 5-9 Very High
Start commercials producti
on and marketing First Stage 3-7 High How does the Venture Capital work?
Venture capital firms typically source the majority of their funding from large investment institutions.
Investment institutions expect very high ROI
VC’s invest in companies with high potential where they are able to exit through either an IPO or a merger/acquisition.
Their primary ROI comes from capital gains although they also receive some return through dividend. VC investment process Methods of Venture Financing
The financing pattern of the deal is the most important element.
Following are the various methods of venture financing: Equity Conditional loan Income note Participating debentures Quasi equity METHODS OF VENTURE FINANCING
EQUITY: When a venture capitalist contributes equity capital, he acquires the
status of an owner and becomes entitled to share in the firm’s profits as much as he is liable for losses. CONDITIONAL LOAN: A conditional loan is repayable in the form of a royalty after the venture is able to generate sales. In India VCF’s charge 2-15% royalty. INCOME NOTE: It is a hybrid security which combines the features of both conventional and conditional loan. The entrepreneur has to pay both interest and royalty on sales but at low rates. Quasi-capital : It fills the gap between debt and capital and aims to reflect some of the characteristics of both. Also known as revenue participation investment, is usually structured as investments where the financial return is calculated as a percentage of the investee’s future revenue streams. A quasi- capital investment can be a useful source of finance when debt financing is inappropriate or too onerous for charities or social enterprises, or where shared capital may not be possible due to the investee’s legal structure. THE BUSINESS PLAN
The B-Plan is to convince the venture capitalist that the company
and the management team have the ability to achieve the stated goals within the specified time. ESSENTIALS OF A BUSINESS PLAN
EXECUTIVE SUMMARY BACKGROUND ON THE VENTURE THE PRODUCT OR SERVICE MARKET ANALYSIS MARKETING BUSINESS OPERATIONS THE MANAGEMENT TEAM FINANCIAL PROJECTIONS AMOUNT & USE OF FINANCE REQD. AND EXIT OPPORTUNITIES Exit route
Initial public offer(IPOs)
Trade sale Promoter buy back Acquisition by another company Top cities attracting venture capital investments CITIES SECTORS
Software services, BPO, Media, Computer graph
MUMBAI ics, Animations, Finance & Banking
BANGALORE All IPR led companies, IT & ITES, Bio-technology
DELHI Software services, ITES , Telecom
CHENNAI IT , Telecom
HYDERABAD IT & ITES, Pharmaceuticals
PUNE Bio-technology, IT , BPO
THANK YOU D.R CHANAKYA BHARADWAJ M.FA 1st Semester Christ Academy: Institute For Advanced Studies
