Entrepreneurial Finance

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Entrepreneurial Finance - Presentation Transcript

  1. ENTREPRENEURIAL FINANCE Rajeev Roy
  2. 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
  3. Structure of VCs
    • Mostly funds
      • Charge about 2% + success fee
    • Also companies
    • Limited partnerships expected soon
    • Prevalence of banks
      • Revenue implications
  4. 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
  5. VC : Disadvantages
    • Dilution of shareholding
    • Increased 3 rd party governance
    • Increased controls
    • Increased commitment to stated strategy
  6. 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
  7. 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
  8. 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
  9. Problems
    • Locating players
    • Concerns regarding exchange of info
    • Larger companies look equally attractive with lesser risk
    • Even listed securities are giving great returns
  10. 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
  11. 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
  12. Some VCs in India
    • Jumpstartup – investing
    • Draper Fisher – sector specific
    • Charles River Ventures
    • Sequoia Capital
    • Westbridge – too big?
    • ChrysCapital – certainly too big
  13. 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
  14. Lending strategy of banks
    • Business plan
    • Financial statement
    • Profile of promoter
    • Asset base
      • Gross
      • Net
    • Credit scoring
  15. How Banks cover risks
    • Collateral
      • Internal incl. a/c receivable
      • External
    • Personal guarantees
    • Debt covenants
    • Short maturity debt
  16. 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
  17. SMERA
    • Specifically for SMEs
    • Joint initiative of:
      • SIDBI
      • D & B
      • CIBIL
      • Other banks
    • Office currently only in Mumbai
  18. 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
  19.  
  20. Fee Structure
    • Below 1Cr 7500
    • Upto 5 Cr 25000
    • Upto 20 Cr 37000
    • Above 20 Cr 50000
  21. 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
  22. 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)
  23. 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
  24. 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
  25. 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

+ rajeev royrajeev roy, 3 years ago

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