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Venture Capital

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Jamal Uddeen
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17 views19 pages

Venture Capital

Uploaded by

Jamal Uddeen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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VENTURE CAPITAL

Dr. jAMALUDDEEN
Assistant Professor
Department of Commerce
North Bengal University
Contact No. 07499615156
E-mail: [email protected]
VENTURE CAPITAL

Meaning

Importance

Venture Capital
in India

Growth of
Venture Capital

Future of
Venture Capital
VENTURE CAPITAL
Money provided by an outside investor to finance a new,
growing, risky & untested business

The process of providing funds to new businesses that do


not have access to stock markets and do not have enough
cash flow to take on debts

Mostly, the capital is invested in exchange for equity

Most suitable option for funding a costly capital source for


companies

Most suitable for businesses having large up-front capital


requirements having no other cheap alternatives
FEATURES OF VENTURE CAPITAL
Equity – Actual or potential equity participation through direct
purchase of shares, options or convertible securities

Long-term, illiquid investment and not payable on demand,

Participation in Management - more than finance, technology,


planning and management skills to new firm.

Existence of High Risk – Venture capital financing contains


risks. But the risk is compensated with a higher return

Capital Gains - Those who provide venture capital aim at capital


gain due to the success achieved by the concern that borrows.
PROS & CONS OF VENTURE CAPITAL
Advantages
 Bring wealth and expertise to the company
 Large sum of equity finance can be provided
 No obligation to repay the money
 In addition to capital, it provides valuable
information, resources, technical, assistance to make
a business successful.

Disadvantages
 The autonomy and control of the founder is lost
 It is a lengthy and complex process
 It is an uncertain form of financing
 Benefit from such financing can be realized in long run only
METHODS OF VENTURE CAPITAL FINANCING

 Equity
 Participating Debenture
 Conventional Loans
 Income note
 Quasi equity
TYPES OF VENTURE CAPITAL
FUNDING
Various types of venture capital are classified as per their applications
at various stages of a business. The three principal types of venture
capital are
 Seed Money: Low level financing for proving & fructifying a new
idea

Early Stage
 Start-up: Funds needed for expenses related with marketing and
product development
 First-Round: Manufacturing and early sales funding
 Second-Round: operational capital for early stage companies
which are selling products, but not returning profit

Expansion
 Third-Round (Mezzanine Financing): The money for expanding
newly beneficial company
 Fourth-Round (Bridge Financing): Proposed for financing the
“going public” process
STAGES & RISK OF FINANCING

Financ Period in Risk Activity to


ial Yrs (Funds Percept be Finance
Stages locked) ion
Seed 7 – 10 Extreme For supporting a
Money concept or idea
or R&D for
product
development
Start- 5–9 Very Initializing
up High operations or
developing
prototypes
First 3–7 High Start
Stage commercials
STAGES & RISK OF FINANCING
Financ Period in Risk Activity to
ial Yrs (Funds Percept be Finance
Stages locked) ion
Second Sufficient Expand market
Stage 3–5 ly High and growing
working capital
needs
Market
expansion,
Third
1–3 Medium acquisition &
Stage Product
development for
profit making Co.
Fourth 1-3 Low Facilitating
PROCESS OF VENTURE CAPITAL FINANCING
Deal Origination: Referral System, Active Search & Intermediaries

Screening: Preliminary scrutiny on the basis of technology, product, market,


size of investment, geographical location & stage of financing

Evaluation: A detailed study of project profile, track record of the entrepreneur,


market potential, technological feasibility, future turnover, profitability, etc. Entrepreneur’s
background, especially in terms of integrity, long-term vision, urge to grow managerial
skills and business orientation also evaluated. After considering in detail various aspects of
the proposal, venture capitalist takes a final decision in terms of risk return spectrum

Deal Structuring: The venture capitalist negotiates the terms of the deal related
with amount, form & price of the investment with the entrepreneur. venture capitalists
right to control the venture company and to change its management, if necessary,

Post-investment Activity: The venture capitalist associates himself


with the enterprise as a partner and collaborator

Exit Plan: To realize the investment so as to make profit/minimize losses by


IPO, Trade Sale, Promoter buy back, Acquisition by another company
VENTURE CAPITAL FINANCING PROCESS
VENTURE CAPITAL IN INDIA
Promoted
By
All India Financial State Level Private
Institution Financial Commercia
Sector
l Banks
Indian Foreig Institution Banks
Banks n IL & FS
Banks Trust
IFCI Venture Walden Company
Capital fund Ltd. International Ltd.
Investment
Group Infinity
IDBI Venture Venture
Capital fund Management India Fund
Mauritius Ltd
ICICI Venture Capital Mgt. HSBC
Company Ltd. Private
Equity
SIDBI Venture
Capital Ltd.
RULES BY SEBI
 VCFs are regulated by the SEBI (Venture
Capital Fund) Regulations, 1996.
 The following are the various provisions:

The VCF will be eligible to participate in the IPO through


book building route as a Qualified Institutional Buyer

A venture capital fund may be set up by a company or


a trust after a certificate of registration is granted by
SEBI on an application made to it.

On receipt of the certificate of registration, it shall be


binding on the venture capital fund to abide by the
provisions of the SEBI Act, 1992.
RULES BY SEBI
 A VCF may raise money from any investor
(Indian, NRI, or foreign) provided the money
accepted from any investor is not less than
Rs 5 lakhs & Min. capital to start a venture
business is Rs. 5 crore.
 The VCF shall not issue any document or
advertisement inviting offers from the
public for subscription to its security or units
 SEBI regulations permit investment by
venture capital funds in equity or equity-
related instruments of unlisted companies
RULES BY SEBI
 At least 80% of the funds should be invested
in venture capital companies and no other
limits are prescribed.
 SEBI Regulations do not provide for any
sectoral restrictions for investment except
investment in companies engaged in financial
services.
 VCF seeking benefit under relevant provisions
of the Income Tax will be require to divest the
investment within a period of one Year
from the listing of VC undertaking (later
REASONS FOR GROWTH OF VENTURE CAPITAL

 High Technology
 Human Resource Capital
 Scientific & Technical Research
 Government Initiative
 SEBI Initiative
SUGGESTION FOR THE GROWTH OF VC
FUND
 Exemption/concession for capital gain
 Development of stock market
 Fiscal incentive
 Private sector participation
 Public Issue through OTCEI (Other the
Counter Exchange of India)
ASK ME ABOUT THE TOPIC IF
YOU WANT …

IF ANY QUERIES
Thank You
Dr. jAMALUDDEEN
Assistant Professor
Department of Commerce
North Bengal University
Contact No. 07499615156
E-mail:
[email protected]

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