Submitted to:- Submitted by:- Mr. Amit Garg Kapil Rajput

MBA 3rd sem Roll No:- 815

Presentation On

Venture Capital

Venture Capital

Venture capital is early stage financing of new and young

enterprises seeking to grow rapidly. Venture capitalist

finances high and new technology based enterprises

where the banks or financial institution generally support

proven technology with established markets.

Venture capital is also described as unsecured risk

financing. Venture capitalist directly purchases equity

shares of entrepreneur and participates in the

management of entrepreneur business.

FEATURES OF VENTURE CAPITAL

Supporting of Entrepreneurial Talent by Providing Finance

Providing Business Management Skills Consist of High Risk and High Return

Based Financing Reduces the Financial Burden of The

Business Concern at The Initial Stage. A Return In Form of Capital Gain

Venture Capital Process

Exit IPO Promoters buyback Trade sale Buy back of equity by

company

Post investment activities

Deal structuring

Evaluation

Screening

Deal origination

Venture Capital Process Deal origination : there are various VCF which have

originated from India as well as foreign countries. It is essential for venture capital firm to have continuous source of deals in order to survive and grow in market.

Screening : VC firm carry out initial screening of all

the project on the basis of some broad criteria. VCF usually prefer investing in technology related industry which involves development at large scale. E.g. Software industry, information technology, pharmaceuticals, bio technology, agriculture and allied industries. They ensure success rate of project before investing on the same.

Evaluation : as VCF investment huge amount of money in entrepreneurs business and bare high risk and as entrepreneur is new entrant to the business, venture capitalist go in for detailed evaluation of entrepreneurs business in for of screening business plan, evaluating management team of company, understanding credibility of entrepreneur of business.

Deal structuring : once the venture capitalist has evaluated the proposal and found it to be viable, then VC and entrepreneur enter into contract which is known as deal structuring. Which includes details relating to a) VC right to control business b) board members c) right to replace management in case of poor performance d) buyback agreement and acquisition e) earn out agreements etc.

Post investment activities : success of VC activity largely depends on envisaging efficient mechanism from investment and successful implementation of disinvestment. VC are supposed to plan exit from venture at the time of investment. The proposed exit plan have least plan and confirm to statutory compliance.

Initial public offer : benefits of disinvestment through IPO results in improved marketability, improved liquidity, better prospectus for capital gains and widely known status of the VC as well as market control through public share participation.

Promoters buy back : the promoters buy back VC stake at predetermined price and keep the ownership control with him. VC consider it as an exit option only when promoters are in position to mobilise funds for buy back of equity held by the venture investors.

Trade sale : VC may also disinvest his holdings through offer for sale to public. In this trade sale VC sells his stake to the strategic buyer who already owns a business or has plans to enter target industry.

Buy back of equity by company : as per the companies amendment act companies have been allowed to buy back their own equity shares. Even though the VC may not intent to exit through this route, he may consider as the venture has been failed to achieve high growth , below average performance of company.

Advantages of Venture Capital

They can provide large sum of equity finance

Able to bring wealth and expertise to your company

Easier to secure future funding from other sources

The business is not obligated to repay the money

Disadvantages of Venture Capital

Lengthy and complex process (needs detailed business plan, financial projections and etc.)

In the deal negotiation stage, you will have to pay for legal and accounting fees

Investors become part owners of your business - founder loss of autonomy or control

Venture capital funds in India

VCFs in India can be categorized into following five groups:

Those promoted by the Central Government controlled development finance institutions. For example:

- ICICI Venture Funds Ltd. - IFCI Venture Capital Funds Ltd (IVCF) - SIDBI Venture Capital Ltd (SVCL)

Those promoted by State Government controlled development finance institutions.For example:

- Punjab InfoTech Venture Fund - Gujarat Venture Finance Ltd (GVFL) - Kerala Venture Capital Fund Pvt Ltd.

Those promoted by public banks. For example: - Can bank Venture Capital Fund - SBI Capital Market Ltd

Those promoted by private sector companies. For example:

- IL&FS Trust Company Ltd - Infinity Venture India Fund

Those established as an overseas venture capital fund. For example:- Walden International Investment Group

- HSBC Private Equity management Mauritius Ltd

Rules by SEBI

VCF are regulated by the SEBI (Venture Capital Fund) Regulations, 1996.

The following are the various provisions:

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.

A VCF may raise money from any investor, Indian, Non-resident Indian or foreign, provided the money accepted from any investor is not less than Rs 5 lakhs. The VCF shall not issue any document or advertisement inviting offers from the public for subscription of its security or units

SEBI regulations permit investment by venture capital funds in equity or equity related instruments of unlisted companies and also in financially weak and sick industries whose shares are listed or unlisted

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.

REASONS FOR GROWTH OF VENTURE CAPITAL

High Technology

Human Resource Capital

Scientific & Technical Research

Government Initiative

SEBI Initiative

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.

Venture capital industry wise segmentation

6.947.73

11.5

4.32

27.954.82

11.43

12.92

3.369.03

Percentage

IT & ITES

Energy

Manufacturing

Media & Ent.

BFSI

Shipping & logistics

Eng. & Const.

Telecom

Health care

Others

Top cities attracting venture capital investments

CITIES SECTORS

MUMBAI Software services, BPO, Media, Computer graphics, Animations, Finance & Banking

BANGALORE All IP led companies, IT & ITES, Bio-technology

DELHI Software services, ITES , Telecom

CHENNAI IT , Telecom

HYDERABAD IT & ITES, Pharmaceuticals

PUNE Bio-technology, IT , BPO