Venture capitalist

VCCapital provided by outside investors

for financing of startup ventures, growth ventures or struggling business. Venture capital investments generally are high risk investments. At the same time offer the possibility of extraordinary high returns

featuresEnters in the form of equity ,or equity & debtRisk investmentExtraordinary returnsNot just fund provider but involves himself in

managing the same Invest in tiny, small or nonexistent ventures Interested in capital gains and cash gainsExit business after achieving desire growth

Stage Capital concept Purpose

Concept and idea

Seed capital Product development and plant. Commercial possibilities tested

implementation Start up finance Commercial plant development and operational activity

expansion Growth capital To scale up operations

Other forms

Struggling and loss making

Turnaround financing

BPR

Stop gap Mezzanine financing

Urgent need of money due to IPO,LOAN ETC….

Features of VC firm Investment in high risk - high return

venturesParticipation in managementExpertise in managing fundsRaises funds from several sourcesDiversification of portfolioExit after specified time

Eligibility to seek VC financingStrength and motivation

Clarity on product development strategies

Innovation

Competition to competitors

Clear exit routes for the investment

Steps in seeking VCStudy of VC details- website

Submission of business plan

Scrutiny of business plan

Preliminary meeting – due diligence,

strategies, business understanding

VC invst process

Market Product managerial product

Expected

returnExpected risk

Decision

Screening

Evaluation

Approval

Steps in VC processDeal origination- referralsScreening- tech, mkt,productDue diligence- risk and returnDeal structuring- IPO, buyback,

M& APost investment activities

Exit routesPromoters buybackPublic issueSale to private equity funds-

invest in early stage then give hold to PEF at grown up stage

Management buyouts-sell it to busi tycoons

Sell in OTC mkt

RegulationsSEBI 1996Any body subject to RBI clearanceShould not carry any other activityCan raise money from indian or foreign

or from nonresident indiansInvestor can invest min 5 lac in VC FundScheme launched or fund set up by VCF

shall have firm commitment from investor in contrbn of atleast Rs 5 crores before the start of operation of VCF

On investmentsDisclose the invst strategy at time of

appln 4 regnShould not invest in more than 25%

corpus of fund in one ventureAt least 75% of investible fund shld

be invstd in unlisted equity sharesNot more than 25% investible funds

may be invested by way of subscription to IPO where lockin period is of 1 yr or debt

VCF not allowed to get its units listed on Stock exchange for first 3 years from date of issuance of units

No advt for inviting offers from public for the purchase of units

Should maintain proper books of accounts as per the law

Methods of VCEquity- contribution not more

than 49%Conditional loan- in the form of

royalty, no interest on such loans, royalty 2-15%

Income note- pay both interest and royalty

Other financing methods

AdvantageTo VC investorsEvaluates proposals

professionally

Investment opportunity in high risk and high return firms

Only ways to see mega invst for the well estbld business

To enterprise seeking VC fundingNo other source of fund available

Funds and management

Foreign funds bring network support for estblmt, and mkt reach

To economyGrowth

Social talent

Motivation to new entrepreneuers

Challenges to vc industry in indiaHigh risk projects may or may

not give R

Lack of net knowledge. Infra, penetration

Indian software earns thru exports, yet share of India is not even 1% in global mkt

Alternative form of VCLeveraged buy out- acquisition of

business by using mostly debt and small amount of equity

Management buy in- buy of business by outside team of mgrs

Series of preferred stock-stages of financing

VCUS-1946-ARDCComputer maker digital

equipment corp1958 small busi invst co1960-1970 focus on invst activity1978 tech finance1980- pension funds invested in

VC funds1990 boom M&A, IPO

India1973 committee on dvlpt of small

and medium enterprise1988 financial instns and individualsStudy by WB1995 guidelinesSEBI 1996Amended in 2000Committee-1999Bharat matrimony example