venture capital

12
By Kashika Parikh

Upload: samraiz-tejani

Post on 26-May-2015

705 views

Category:

Education


2 download

DESCRIPTION

Venture Capital

TRANSCRIPT

Page 1: Venture capital

By Kashika Parikh

Page 2: Venture capital

What is Venture Capital?

 Venture Capital is “equity support to fund a new concepts that involve a higher risk and at the same time, have a high growth and profit.”      “Venture Capital is broadly implies an investment of long term, equity finance in high risk projects with high rewards possibilities.”

Page 3: Venture capital

Features of Venture Capital

• The main features of venture capital are:

• Long-time horizon: In general, venture capital undertakings take a longer time say, 5-10 years at a minimum to come out commercially successful; one should, thus, be able to wait patiently for the outcome of the venture.

• Lack of liquidity: Since the project is expected to run at start-up stage for several years, liquidity may be a greater problem.

• High risk: The risk of the project is associated with management, product and operations. • High-tech: However, a venture capitalist looks not only for high-technology but the innovativeness

through which the project can succeed. • Equity participation and capital gains: A venture capitalist invests his money in terms of equity. He does

not look for any dividend or other benefits, but when the project commercially succeeds, then he can enjoy the capital gain which is his main benefit.

• Participation in management: Unlike the traditional financier or banker, the venture capitalist can provide managerial expertise to entrepreneurs besides money.

Page 4: Venture capital

Roles Within a Venture Capital Firm

• 1. Venture capital general partners: Also known in this case as "venture capitalists" or "VCs" are the executives in the firm.

• 2. Limited partners: Investors in venture capital funds are known as limited partners.

• 3. Venture partners: Venture partners "bring in deals" and receive income only on deals they work on.

• 4. Entrepreneur in residence: EIRs are experts in a particular domain and perform due diligence on potential deals. EIRs are engaged by VC firms Some EIR's move on to roles such as Chief Technology Officer (CTO) at a portfolio company

Page 5: Venture capital

Types of Venture Capital

• There are several different types of venture capital.

Early Stage Financing:

Early stage financing has three sub divisions – seed financing, start up financing and first stage financing. Seed financing is basically a small amount that an entrepreneur receives for the purpose of being eligible for a start up loan.

Start up financing is given to companies for the purpose of finishing the development of products and services. However, this type of venture capital may also be used for initial marketing as well. Companies that have spent all their starting capital and need finance for beginning business activities at the full-scale are the major beneficiaries of the First Stage Financing.

Page 6: Venture capital

• Expansion Financing:

Expansion financing may be categorized into second-stage financing, bridge financing and third stage financing or mezzanine financing. Second-stage financing is provided to companies for the purpose of beginning their expansion.

Second-stage financing is also known as mezzanine financing. It is provided basically for the purpose of assisting a particular company to expand in a major way. Bridge financing is useful in many ways. It may be provided as a short term interest only finance option as well as a form of monetary assistance to companies that employ the Initial Public Offers as a major business strategy

• Acquisition or Buyout Financing:

Acquisition or buyout financing is categorized into acquisition finance and management or leveraged buyout financing. Acquisition financing assists a company to acquire certain parts or an entire company. Management or leveraged buyout financing helps a particular management group to obtain a particular product of another company.

Page 7: Venture capital

Stages in venture capital• 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 Mezzanine 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”

Page 8: Venture capital

Advantages of Venture Capital

Page 9: Venture capital

Economy Oriented-

• Helps in industrialization of the country

• Helps in the technological development of the country

• Generates employment

• Helps in developing entrepreneurial skills

Investor oriented-

• Benefit to the investor is that they are invited to invest only after company starts earning profit, so the risk is less and healthy growth of capital market is entrusted.

• Profit to venture capital companies.

• Helps them to employ their idle funds into productive avenues

Page 10: Venture capital

Entrepreneur oriented-

• Finance - The venture capitalist injects long-term equity finance, which provides a solid capital base for future growth.

• Business Partner - The venture capitalist is a business partner, sharing the risks and rewards.

Mentoring –

• Alliances - The venture capitalist also has a network of contacts in many areas that can add value to the company

Page 11: Venture capital

Methods of venture capital

Equity

Conditional loan

Income note

Other financing method

Page 12: Venture capital