FMS

FINANCIAL MANAGEMENT(95)

BY GROUP 4
Presented By:
Priyanshi Chauhan
Madhya Shah
Harshil Panchal
Dhruvil Patel
Prerak shah

Presented To:
Dr. Riddhi Dave
AGENDA
 INTRODUCTION
Venture capital is a growing business of recent origin in the area of
industrial financing in India. The term "Venture Capital" is understood in
many ways. In narrow sense, it refers to, investment in new and tried
enterprises that are lacking a stable record of growth. In a broader sense,
venture capital refers to the commitment of capital as shareholding, for the
formulation and setting up of small firm's specializing in new ideas or new
technologies.

A Venture Capital company is defined as 'a financing institution

which joins an entrepreneur as a co-promoter in a project and
shares the risks and reward of the enterprise'.
 NATURE OF VENTURE CAPITAL
1. Form of Investment: Usually in the form of equity participation, but can also
include convertible debt or long-term loans.
2. Risk and Growth: Involves high risk but targets projects with high growth potential.
3. Purpose: Primarily for commercializing new ideas or technologies, not for
traditional business models like trading or financial services.
4. Role of Venture Capitalists: They act as co-promoters with the entrepreneur,
sharing risks and rewards.
5. Exit Strategy: Venture capitalists disinvest when the project reaches its full
potential, either by selling to promoters or in the open market.
6. Target Enterprises: Focuses on small and medium-scale enterprises.
 SCOPE OF VENTURE CAPITAL
1. Promotion of Enterprise:
• Venture capital helps entrepreneurs establish or expand enterprises by
assessing business opportunities.
• It is used for gathering knowledge, making forecasts, setting objectives, deciding
on location, preparing plant layouts, and completing registration and other
formalities.
2. Formulation of Firm:
• Capital is required to give a practical shape to the entrepreneur’s idea.
• It helps determine the form of the organization (e.g., single proprietorship,
partnership, company) and the necessary capital investment.
3. Production of the Product:
• Adequate capital is crucial to address complex production challenges.
• Lack of funding can halt production, blocking returns and impacting overall
operations.
4. Management, Organization, and Control:
• Venture capital supports hiring employees, officers, and subordinates.
• It ensures that the organization works efficiently, maintains quality
standards, and achieves the determined targets.
5. Other Areas:
• Venture capital also focuses on:
• Exploring new opportunities.
• Participating in development programs.
• Contributing to social development.
• Ensuring the future growth of the enterprise.
LIMITATION OF VENTURE CAPITAL
1. Experienced Management Team:
• Venture capital financing requires a skilled and experienced management team
to ensure effective decision-making and operations.
2. Above Average Rate of Return:
• Investors expect a higher-than-average return on their investment, making it
challenging to meet performance expectations.
3. Longer Payback Period:
• Returns on venture capital investments often take a significant amount of time,
which can be a disadvantage for impatient investors.
4. Uncertainty of Market Success:
• There is a high level of uncertainty regarding whether the product will be
successful in the market, posing a risk to investors.
5. Infrastructure Challenges:
• Concerns related to production infrastructure, including plant location,
accessibility, supplier relationships, transportation, and labor availability, can
complicate operations.
6. Market Size:
• The potential size of the market influences the feasibility and profitability of the
venture, and limited market size can be a drawback.
7. Skills and Training:
• Adequate skills and training for the workforce are necessary, and the associated
costs can be substantial.
8. Competitor Analysis:
• Identifying and analyzing major competitors and their market share is essential to
understand the competitive landscape.
 PROBLEMS OF VENTURE CAPITAL
FUNDS IN INDIA:
1. Mismatch Between Available Funds and Market Demand: VCFs primarily focus on
IT, pharmaceutical, and service industries requiring large investments (e.g., Rs 15
crores or more), leaving out many smaller firms.
2. Dependence on Foreign Investors: Most venture capital funds in India are driven
by foreign investments, which leads to policies and performance being influenced by
parent companies abroad.
3. Poor Corporate Governance: Lack of sound legal redress mechanisms results in
unfair settlements for aggrieved partners.
4. Lack of Strong Trade Association: The venture capital industry lacks a broad-based
and effective trade association to support governance and industry standards.
 PROCESS OF VENTURE CAPITAL
1. Deal Origination: Identifying potential investment opportunities through various
channels like referrals, market research, or networking.
2. Screening: Preliminary evaluation of the proposal to determine whether it aligns
with the venture capitalist’s investment criteria.
3. Evaluation (Due Diligence): Conducting a thorough analysis of the business
model, financial performance, market potential, and legal aspects to assess risks
and feasibility.
4. Deal Structuring: Negotiating and finalizing the terms and conditions of the
investment, including ownership stakes, control rights, and exit options.
5. Post-Investment Activity: Monitoring the progress of the invested company
and providing guidance, support, and strategic inputs as needed.
6. Exit Plan: Planning how and when to divest from the investment to realize
profits, usually through IPOs, mergers, acquisitions, or buyouts.
 CONCLUSION
Venture capital plays a vital role in nurturing innovation and
entrepreneurship by providing funding for new ideas and technologies. It
helps bridge the financial gap left by traditional funding methods while
fostering partnerships that share both risks and rewards. Through
collaboration, venture capital empowers businesses to transform innovative
concepts into successful ventures.
THANK YOU