Venture CapitalVenture Capital(Presented(Presented By Grp.-4)By Grp.-4)

Venture CapitalVenture Capital

Venture capital is defined as a long term equity investment in novel technology based projects which display potential for significant growth and financial return.

Purpose of Venture CapitalPurpose of Venture Capital

• Venture capital is equity support to fund new concept that involve a higher risk and at the same time have high growth rate and profit.

• Venture capital broadly implies an investment of long term, equity finance in high risk projects with high reward possibilities.

ROLES WITH IN A FIRMROLES WITH IN A FIRM

CONTD…CONTD…

• Venture Capital General Partners: Also known as venture capitalists are executives in the firm.

• Limited Partners: Investors in venture capital fund.• Venture Partners: Venture partners bring in deal

and receive income only on deals they work on.• Entrepreneur In Residence: EIR’s are experts in a

particular domain and perform due diligence on potential deals.

STAGES IN VENTURE CAPITALSTAGES IN VENTURE CAPITAL

• SEED MONEY-NURTURING IDEA.• START-UP- FINANCING PRODUCT DEVELOPMENT.• FIRST ROUND- MANUFACTURING FUNDS• SECOND ROUND- EARLY WORKING CAPITAL• THIRD ROUND- EXPANSION MONEY• FOURTH ROUND- BRIDGE FINANCING GROWING

PROCESS.

INVESTMENT PROCESSINVESTMENT PROCESS

Deal Origination

Screening

Evaluation

Deal Structuring

Post Investment Activity

Exit Plan

Features of Venture CapitalFeatures of Venture Capital

• Long Time Horizon• Lack Of Liquidity • High Risk• High Tech• Equity Participation • Capital Gains.• Participation In Management.

ORGANIZATIONAL STRUCTURE OF VENTURE ORGANIZATIONAL STRUCTURE OF VENTURE CAPITAL INVESTMENTCAPITAL INVESTMENT

Portfolio Companies–Value creation

– Generate deal flow – Screen opportunities– Harvest investments

– Negotiate deals– Monitor and advise

General Partners

Venture Capital Fund

– Pension plan– Endowments– Life insurance

– Corporations– Individuals

Limited Partners

Effort and 1% of capital

Annual Management

Fee 2-3%

Carried Interest 20-30% of Gain

99% of Investment Capital

Capital Appreciation 70-80% of Gain

Investment Capital and

Effort

Financial Claims

ADVANTAGESADVANTAGES

• Provides large sum of finance and expertise• Mentoring and guidance• Alliances• Facilitate exit• Business and management consultations• Additional resources• Encourages new breed of entrepreneur

DISADVANTAGESDISADVANTAGES

• Pricing/ Negotiations.• Intrusions.• Control/ demand of the board of the

company.• Industry specific.• Bring enormous pressure to profit quick• Long and complex process.• Requirement of professional business plan.

Problems faced by VC Problems faced by VC

• Requirement of an experienced management team• Requirement of an above average rate of return on

investment.• Longer payback period.• Uncertainty regarding the success of the product in

the market.• Questions regarding the infrastructure details of

production.• Skills and Training required.• Time period

VENTURE CAPITAL INDUSTRY IN INDIAVENTURE CAPITAL INDUSTRY IN INDIA

• Risk Capital & Technology Finance Limited.• IDBI Venture Capital Fund.• Technology Development And Information Company Of India Limited.(TDICI)• Indus Venture Capital Fund.• Small Industrial Development Bank Of India.(SIDBI)• Gujarat Venture Finance Limited.