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Talks of financial management for Entrepreneurs. Venture Capital, Debt Finance, Cash Management

Talks of financial management for Entrepreneurs. Venture Capital, Debt Finance, Cash Management

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Entrepreneurial Finance Entrepreneurial Finance Presentation Transcript

  • ENTREPRENEURIAL FINANCE Rajeev Roy
  • Venture capital
    • Long term equity finance
    • Investing as opposed to banks who lend
    • Looking for high gains
    • Accepting high risks
    • Can be involved in management of the invested firm
    • Venture capital investment is illiquid
  • Structure of VCs
    • Mostly funds
      • Charge about 2% + success fee
    • Also companies
    • Limited partnerships expected soon
    • Prevalence of banks
      • Revenue implications
  • VC : Advantages
    • No fixed expense of debt servicing
    • Financial flexibility
    • Sharing of risk
    • Value added investing
      • Attracting talent
      • Networking with service providers/suppliers
      • Accessing markets
    • Enhanced credibility with lenders
  • VC : Disadvantages
    • Dilution of shareholding
    • Increased 3 rd party governance
    • Increased controls
    • Increased commitment to stated strategy
  • Types of VC
    • Early stage financing
    • Seed capital or pre-start up or R&D
    • Start up financing
    • Second round financing
    • Later stage financing
    • Expansion
    • Replacement
    • Turnaround
  • Valuation excersise
    • Get rid of scamsters
    • Hygiene factors – beware of things that can shut down a business
    • Growth & industry considerations
    • Due diligence
      • Physical evaluation
      • Calling in the experts
    • Monetise value
  • Agreement particulars
    • Amount and terms of investment.
    • Dividend policy.
    • Composition of the board of directors.
    • Reporting - management reports, monthly accounts, annual budgets.
    • Liquidity (exit) plans.
    • Rights of sale
    • Warranties.
    • Matters requiring venture capitalist approval
  • Problems
    • Locating players
    • Concerns regarding exchange of info
    • Larger companies look equally attractive with lesser risk
    • Even listed securities are giving great returns
  • India centric problems
    • Indian VC not yet a popular asset class among institutional investors
    • Exit challenges
      • Shallow markets
      • Little M & A activity
    • Brand India, not strong beyond services
  • The road ahead
    • Placement agents (Venture Partners)
    • Trade meets
    • Syndication
      • Getting a larger team / new perspective
      • Spreading risk
      • Eg July systems (wireless content) got $10m from 6 VCs
  • Some VCs in India
    • Jumpstartup – investing
    • Draper Fisher – sector specific
    • Charles River Ventures
    • Sequoia Capital
    • Westbridge – too big?
    • ChrysCapital – certainly too big
  • Others
    • Banks
      • ICICI
      • UTI
      • SIDBI
      • Canara bank
    • Corporates
      • Intel
      • Motorola
      • Nokia
      • cisco
    • Average fund size $50 mil
    • Total deals per annum – 100+
    • Mostly expansion – few seed or early stage
  • Lending strategy of banks
    • Business plan
    • Financial statement
    • Profile of promoter
    • Asset base
      • Gross
      • Net
    • Credit scoring
  • How Banks cover risks
    • Collateral
      • Internal incl. a/c receivable
      • External
    • Personal guarantees
    • Debt covenants
    • Short maturity debt
  • Managing banks
    • Complete paperwork in time
    • Submit financial statements as scheduled
    • Route all transactions through bank
    • Ask for extras – free drafts, alerts, etc
    • Exude confidence and well being
    • Transmit good news
    • Be proactive about inspections
  • SMERA
    • Specifically for SMEs
    • Joint initiative of:
      • SIDBI
      • D & B
      • CIBIL
      • Other banks
    • Office currently only in Mumbai
  • Rating process
    • SME contacts SMERA
    • Questionnaire is filled
    • Documents are submitted
    • Site visit by SMERA representative
    • Rating is announced 15 days after all documents are received
  •  
  • Fee Structure
    • Below 1Cr 7500
    • Upto 5 Cr 25000
    • Upto 20 Cr 37000
    • Above 20 Cr 50000
  • Cash is king
    • Can result form unplanned success
    • Is usually due to lack of planning or tardiness in collections
    • Dissatisfaction among suppliers
      • Higher costs
      • Lower quality
    • Dissatisfied (worried) employees
    • High bad debts – migration of customers
  • Collection strategies
    • Investigate new customers
    • Supply against written orders
    • Sign on a legal contract
    • Maintain close contact with customers
    • Get and repeat positive feedback
    • Send invoice ASAP
    • Contact before sending invoice ( to check particulars)
  • Collection strategies
    • Keep a close watch on customer’s fortunes
    • Immediately contact on any delayed payment
    • Be firm – its your own money
    • Allow a customer to graduate in his credit ratings with you
  • Break-even analysis
    • Identify fixed and variable costs
    • Explore possibilities of changing fixed into variable costs
    • And vice-versa
    • Can be expressed in terms of
      • Capacity utilisation
      • Sales revenue
  • Application of BEA
    • Helps in taking investment decisions
    • Profit optimisation planning
    • Helps in pricing decision
    • Can be modified to calculate profitability at various levels of capacity utilisation / sales