venture capital

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The VC story…

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Angel Financing

Venture Capital

Private Equity

PublicStock Markets

Self Finance / Bootstrapping

Debt / Bank Finance

Equity FinancingNon-Equity Financing

Introduction

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Meaning

VC - Funds made available for startup & SB

VC - Money provided by professionals

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

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Characteristics

Long time horizon Lack of liquidity High risk Equity participation Participation in management

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Advantages•

Injects long term equity finance

1

•The VC is a business partner, sharing both the risks and rewards

2

•The VC’s provide practical advice and assistance

3

•The VC may be capable of providing additional rounds of funding

4

•

VCs are experienced in the process of preparing a company for

an IPO of its shares onto the stock exchanges or overseas like

NASDAQ, facilitate a trade sale.

5

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Stages of Financing

Seed Money

To prove a concept (15-25L)

Extreme risk

Start Up

Provided to companies

(25-60L)

Very high risk

First Round

Manufacturing funds (1-3cr)

High risk

Second Round

Working capital & expenses

(2-5cr)

Sufficiently high

Third Round

For newel profitable company (2-10cr)

Medium

Forth Round

Bridge Financing for going public

process (100cr)

Low

Acquisition or buyout financing (10-100cr)12/7/2010

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Approval

Evaluation

Screening

VC investment

process

Market

Expected Return

Decision

Product Entrepreneurial(managerial) Product

Expected Risk

VC investment process

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Methods of venture financing

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Methods

Equity

Conditional loan

Participating debentures

Income note

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Initial public offer(IPOs) Trade sale Promoter buy

backAcquisition by

another company

Exit Route

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Critical factors for the success of VC

The regulatory, tax and legal environment

Resource raising, investment, management and exit should be simple

Should have global exposure and investment opportunities

Infrastructure in the form of incubators and R&D need to be promoted using government support

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Why it is hard to find a VC !!!

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How do contact a VC ?

Introductions are best:

•Attorney•Accountant•Banker•Angel Investor•Industry Executive

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The concept of VC was formally introduced in India in 1987 by IDBI.

The government levied a 5 per cent cess on all know-how import payments to create the venture fund.

ICICI started VC activity in the same year

Later on ICICI floated a separate VC company - TDICI

Development of VC in INDIA

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1) 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)

2) 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.

3) Those promoted by public banks.For example:

- Canbank Venture Capital Fund - SBI Capital Market Ltd

VC funds in India

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4)Those promoted by private sectorcompanies.For example:

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

5)Those established as an overseas venture capital fund.For example:

- Walden International Investment Group - HSBC Private Equity

management Mauritius Ltd

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http://www.hsbcnet.com/

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VC can help in the rehabilitation of sick units.

VC can assist small ancillary units to upgrade their technologies

VCFs can play a significant role in developing countries

Provide financial assistance to people coming out of universities, technical institutes, etc

Future Prospects of VC in INDIA

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Case study: Skype

• VOIP service provider

• Revenues based on, advertising or some such

• No cost for PC-to-PC calls

• Initial VC investors: – 2002,Draper Investment Company - $250,000 initial investment

• Sold to eBay in 2005 for $2.1B

• Initial VCs make 1300X return on their initial investment

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The online fashion site My Wardrobe - won £6m of funding

GroupSpaces, – secured $1.3m funding

Source: 5 July 2010

Get funding -If you have the right idea

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Where VCs Are Putting Their Money in 2010

Source: Thomson Reuters

In 2010, record 111 VC-backed M&A deals were reported with an aggregate value of $5.6 billion.

*Mergers and acquisitions*Information-technology sector

*Biotechnology companies*Medical and health

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Thank You

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venture capital

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