VENTURE CAPITALVENTURE CAPITAL

VENTUREVENTURE

A Venture is often A Venture is often used for referring to used for referring to a risky start-up or a risky start-up or enterprise enterprise company.company.

VENTURE CAPITALVENTURE CAPITAL

► Venture Capital is the money and resources Venture Capital is the money and resources made available to high risk startup firms and made available to high risk startup firms and small businesses with exceptional growth small businesses with exceptional growth potential. Most venture capital money comes potential. Most venture capital money comes from an organized group of wealthy investors.from an organized group of wealthy investors.

► A pool of risk capital contributed by large A pool of risk capital contributed by large

investors from which allocations are made investors from which allocations are made available to small young companies that have available to small young companies that have good growth prospects but are short of fundsgood growth prospects but are short of funds

VENTURE CAPITAL FIRMVENTURE CAPITAL FIRM

Venture Capital Firm is an Venture Capital Firm is an investment company that invests investment company that invests its shareholders' money in startups its shareholders' money in startups and other risky but potentially very and other risky but potentially very profitable ventures. profitable ventures.

VENTURE CAPITAL FUNDSVENTURE CAPITAL FUNDS

Venture capital funds pool and Venture capital funds pool and manage money from investors manage money from investors seeking private equity stakes in seeking private equity stakes in small and medium-size enterprises small and medium-size enterprises with strong growth potential. with strong growth potential.

VENTURE CAPITALISTVENTURE CAPITALIST

►An investor who provides capital to An investor who provides capital to either start-up ventures or support small either start-up ventures or support small companies who wish to expand but do companies who wish to expand but do not have access to public funding. not have access to public funding.

►A person who invests in a business A person who invests in a business venture, providing capital for start-up or venture, providing capital for start-up or expansion. Venture capitalists are expansion. Venture capitalists are looking for a higher rate of return than looking for a higher rate of return than would be given by more traditional would be given by more traditional investments.investments.

CHARACTERISTICS OF VENTURE CHARACTERISTICS OF VENTURE CAPITALCAPITAL

►Finance the ideas and innovations with Finance the ideas and innovations with potential for growth and inherent potential for growth and inherent uncertainties.uncertainties.

►Consist of risk finance, networking, Consist of risk finance, networking, management and marketing support.management and marketing support.

►Creates an environment suitable for Creates an environment suitable for knowledge and technology based knowledge and technology based enterprise.enterprise.

CHARACTERISTICS OF VENTURE CHARACTERISTICS OF VENTURE CAPITALCAPITAL

► Involves funding high tech, unproven Involves funding high tech, unproven technologies.technologies.

►Expectation of high growth rate.Expectation of high growth rate.►Bring in management and business Bring in management and business

skills.skills.►Based on the principal of “No return Based on the principal of “No return

without risk; greater the risk greater without risk; greater the risk greater will be return”will be return”

ProblemsProblems

►Locating playersLocating players►Concerns regarding exchange of infoConcerns regarding exchange of info►Larger companies look equally Larger companies look equally

attractive with lesser riskattractive with lesser risk►Even listed securities are giving great Even listed securities are giving great

returnsreturns

VC : Advantages VC : Advantages

►No fixed expense of debt servicingNo fixed expense of debt servicing►Financial flexibilityFinancial flexibility►Sharing of riskSharing of risk►Value added investingValue added investing

Attracting talentAttracting talent Networking with service Networking with service

providers/suppliersproviders/suppliers Accessing marketsAccessing markets

►Enhanced credibility with lendersEnhanced credibility with lenders

VC : DisadvantagesVC : Disadvantages

►Dilution of shareholdingDilution of shareholding

► Increased 3Increased 3rdrd party governance party governance

► Increased controlsIncreased controls

► Increased commitment to stated Increased commitment to stated strategystrategy

Stages of VC Stages of VC 1.1.Seed Money:Seed Money: ► Low level financing needed to prove Low level financing needed to prove

a new idea a new idea ►Provided by "angel investors" Provided by "angel investors"

2. Start-up:2. Start-up: ► Early stage firms. Early stage firms. ► For market research and product For market research and product

development development

Stages of VC Stages of VC

3. First-Round:3. First-Round: Early sales and manufacturing fundsEarly sales and manufacturing funds

4. 4. Second-Round:Second-Round:► Working capital for new companies.Working capital for new companies.► Selling product but not yet turning a Selling product but not yet turning a

profit profit

Stages of VC Stages of VC 5. Third-Round:5. Third-Round: ► Mezzanine financing.Mezzanine financing.► Expansion or replacement money for a Expansion or replacement money for a

newly profitable company.newly profitable company.

6. Fourth-Round:6. Fourth-Round:► Bridge financing.Bridge financing.► To finance the "going public" process To finance the "going public" process

TYPES OF VENTURE CAPITAL FUNDSTYPES OF VENTURE CAPITAL FUNDS

DOMESTIC FUNDSDOMESTIC FUNDS►Created and registered under Indian Created and registered under Indian

Trust Act 1882.Trust Act 1882.►Has either two-tier or three tier Has either two-tier or three tier

structure.structure.► In two-tier structure, an AMC is formed, In two-tier structure, an AMC is formed,

which act as trustee to fundswhich act as trustee to funds► In three-tier structure,an AMC and a In three-tier structure,an AMC and a

separate Trustee company are formed to separate Trustee company are formed to provide guidelines for investment and provide guidelines for investment and disinvestment.disinvestment.

TYPES OF VENTURE CAPITAL FUNDSTYPES OF VENTURE CAPITAL FUNDS

OFFSHORE FUNDSOFFSHORE FUNDS► Increase mobility post liberalisation.Increase mobility post liberalisation.►Funds setup outside India.Funds setup outside India.► Invest in existing big Companies.Invest in existing big Companies.►Most of funds have AMC’s based in Most of funds have AMC’s based in

Mauritius to save tax due to double tax Mauritius to save tax due to double tax treaty between India and Mauritius.treaty between India and Mauritius.

►Have own advisory board to make Have own advisory board to make investment and disinvestment decisions.investment and disinvestment decisions.

Lending strategy of banksLending strategy of banks

►Business planBusiness plan►Financial statementFinancial statement►Profile of promoterProfile of promoter►Asset baseAsset base

Gross Gross NetNet

►Credit scoringCredit scoring

VC & INDIAVC & INDIA

►Hyderabad Information Technology Hyderabad Information Technology venture Fund.venture Fund.

►SIDBISIDBI►Kerala Venture Capital FundKerala Venture Capital Fund►Punjab Infotech Venture FundPunjab Infotech Venture Fund►Rajasthan venture capital FundRajasthan venture capital Fund

Collection strategiesCollection strategies

► Investigate new customersInvestigate new customers►Supply against written ordersSupply against written orders►Sign on a legal contractSign on a legal contract►Maintain close contact with customersMaintain close contact with customers►Get and repeat positive feedbackGet and repeat positive feedback►Send invoice ASAPSend invoice ASAP►Contact before sending invoice ( to Contact before sending invoice ( to

check particulars)check particulars)

Collection strategiesCollection strategies

►Keep a close watch on customer’s Keep a close watch on customer’s fortunesfortunes

► Immediately contact on any delayed Immediately contact on any delayed paymentpayment

►Be firm – its your own moneyBe firm – its your own money►Allow a customer to graduate in his Allow a customer to graduate in his

credit ratings with youcredit ratings with you

SMERASMERA

►Specifically for SMEsSpecifically for SMEs► Joint initiative of:Joint initiative of:

SIDBISIDBI D & BD & B CIBILCIBIL Other banksOther banks

►Office currently only in MumbaiOffice currently only in Mumbai

Rating processRating process

►SME contacts SMERASME contacts SMERA►Questionnaire is filledQuestionnaire is filled►Documents are submittedDocuments are submitted►Site visit by SMERA representativeSite visit by SMERA representative►Rating is announced 15 days after all Rating is announced 15 days after all

documents are receiveddocuments are received

THANK YOUTHANK YOU