Chapter 08 entrepreneurial finance
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Chapter 08 entrepreneurial finance






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Chapter 08 entrepreneurial finance Chapter 08 entrepreneurial finance Presentation Transcript

  • Chapter Objectives
    • To list the various sources of debt finance
    • To understand the process of securing debt finance
    • To discuss the importance of collateral security
    • To tabulate the lending strategies of banks
    • To discuss the characteristics of venture capital
    • To understand the structure of venture funds
    • To list the various roles within a venture fund
    • To understand how venture capitalists get compensated for their efforts
    • To describe a step by step screening process followed by venture funds while making an investment
    • To list the elements of a termsheet
    • To understand the current scenario of VC funding in India
  • Disadvantages of Equity Finance
    • Dilution of shareholding
    • Increased 3rd party governance
    • Increased external controls
    • Increased commitment to stated strategy
  • Sources of Debt
    • State Finance Corporations
    • NBFC
    • Banks
  • Securing Debt
    • Drawing up the business plan.
    • Identifying sources of debt finance.
    • Presenting the proposal to the bank.
    • If the manager is considering your proposal favourably, you will have to go for further talks
    • Once the two parties have broadly agreed, details have to be worked out.
  • Principles of Good Lending
    • Purpose
    • Safety
    • Profitability
    • Other considerations
  • Security
    • Collateral
      • Inside
      • Outside
    • Personal guarantee
    • Maturity
    • Covenants
    • Menu pricing
  • Lending Strategies
    • Financial statements
    • Relationship lending
      • Length of relationship
      • Breadth of relationship
      • Degree of trust
    • Credit scoring
  • Venture Capital
    • Venture capital is characterized by:
    • Financing of new and potentially high growth companies
    • Investments primarily in the form of equity participation
    • Assistance in the early days of the enterprise
    • Adding value to the company through active participation, even joining the management on occasions
    • Willingness to take on higher risk
    • Expectation of higher rewards
    • A long-term outlook regarding the investment
  • Roles in a Venture Fund
    • General partner
    • Investor
    • Venture partner
    • Entrepreneur-in-residence
    • Others
  • Screening by VCs
    • Get rid of scamsters
    • Major broad concerns
    • Growth and industry considerations
    • Monetising value
  • Important Considerations
    • The entrepreneurial team
      • Personal or individual characteristics
      • Experience of the individual
    • Ease of exit
      • Via IPO
      • Sale to PE, etc
  • The Termsheet
    • Amount and terms of investment
    • Dividend policy
    • Composition of the board of directors
    • Reporting
    • Liquidity (exit) plans
    • Rights of sale
    • Warranties
    • Matters requiring venture capitalist approval
  • Problems Facing VCs in India
    • Large established firms with strong growth figures look like a very attractive proposition.
    • Investments in public listed firms are giving returns in excess of 30%, at far lesser perceived risk
    • Small firms in India are informationally opaque.
    • Indian entrepreneurs are perceived as lacking in marketing and management skills.
    • Indian entrepreneurs are more reluctant to give up controls than their western counterparts.
    • VCs face an exit challenge as the capital markets in India are still shallow
    • Brand ‘India’ is strong only in some manpower driven services sectors like IT and ITES.
  • Sectors Favored by VCs
    • IT and IT-enabled services
    • Software Products
    • Wireless and telecom
    • Banking and financial services
    • Divestments in public sector units
    • Media and entertainment
    • Biotechnology
    • Pharma and diagnostics
    • High technology Manufacturing
    • Retail