Venture capital

1. Unit :V - Venture Capital
Bharati Vidyapeeth (Deemed to be) University, Pune
Abhijit Kadam Institute of Management & Social Sciences,Solapur

2. Introduction
 To promote Industrial development sector may
Financial institutions set up in India, they are
undertaken by new or unknown entrepreneurs.
 They evaluate projects, extend financial assistance by
follow-up the criteria of Safety, Liquidity and
Profitability and security but not potentiality.
 These institution do not mitigate the problems of
new entrepreneurs who are risky and innovate
ventures.

3. Introduction
 In India /world technological revaluation with emergence
which required professional temperament and technical
know –how.
 To support technological entrepreneurs support in all
aspect but specially financial assistance is more essential.
 Venture capital : made investment in new and tried
enterprises that are lacking a stable record of growth.

4. Introduction
 Commitment of Capital as shareholding for formulation
and setting up small firms in new ideas or technology.
 VCC not only assist the finance but input the skilled to;
1. To set up finance
2. Design market strategy
3. Organize and manage it
It is an association who assist every development stage of
project.

5. Meaning
• Innovation
VEN
• Innovation +
Risk
VENTURE
• Risk
TURE

6. Meaning
VENTURE CAPITAL
• The capital invested in a project in which
there is a substantial element of risk,
typically a new or expanding business
VENTURE
• Project Or Activity which
involve risk
CAPITAL
• The Money or Fund require
for Business

7. Venture capital
 Long term risk capital to finance high technology
project which involve high risk but have strong
potential for growth.
 Pool their resources including managerial abilities to
assist new entrepreneurs in early years / stage of the
project.
 Once project reaches profitability they sell
shareholding @ high premium.

8. Venture Capital Company
Defined as;
 “Financial institution which join as a co-promoter in
project and share the risk and rewards of the
enterprises”.
 A venture capitalist (VC) is a person who makes such
investments, these include wealthy investors,
investment banks, other financial institutions other
partnerships

9. 1. FINANCE NEW AND RAPIDLY GROWING COMPANIES
1. PURCHASE EQUITY SECURITIES
2. ASSIST IN THE DEVELOPMENT OF NEW PRODUCTS
OR SERVICES
3. ADD VALUE TO THE COMPANY THROUGH ACTIVE
PARTICIPATION.
Venture Capitalists
generally;

10. Features of Venture Capital
1. Venture capital is usually in the form of an equity participation. It may
also take the form of convertible debt or long term loan.
2. Investment is made only in high risk but high growth potential
projects.
1. Venture capital is available only for commercialization of new ideas or
new technologies and not for enterprises which are engaged in trading
,booking , financial services, agency, liaison work or research
development .
2. Venture capitalist joins the entrepreneur as a co-promoter in projects
and share the risks and rewards of the enterprises.
3. The is continuous involvement in business after making an investment
by the investor.

11. Features of Venture Capital ….
 Once the venture has reached the full potential, the venture
capitalist disinvest his holding either to the promoters or in
the market.
 The basic objective of investment is not profit but capital
appreciation at the time of disinvestment.
 Venture capital is not just injection of money but also an
input needed to setup the , design its marketing strategy
and organized and manage it.
 Investment is usually made in small and medium scale
enterprises.

12. History – Origin of VC
Venture Capital as new phenomenon
originated in USA and developed
spectacularly world wide since the second
half of the seventies.
American Research and Development
corporation, founded by Gen. Doriot soon
after the second World war, is believed to
have heralded the institutionalization of
venture capital in the USA.
The real development of VC took place in
1958.When the Business Administration
Act was passed by US Congress.
Present day like Apple, Microsoft, Xerox et
are the beneficiaries of Venture capital.
Eugene Kleiner (third from left), one of
Fairchild Semiconductor’s “traitorous
eight”, went on to found Kleiner
Perkins Caufield & Byers, the “largest
and most established” venture capital
firm in Silicon Valley

13. Railway Mania: many investors lost
money, but Victorian Britain
inherited railroads
The Mississippi Company: the first
stock bubble

14. History of VC IN INDIA
 Indian tradition of VC for industry goes back more than 150
years when many of the managing agency houses acted as
venture capitalists providing both finance and management skill
to risky projects.
 It was the managing agency system through which TATA IRON
and STEELS AND EMPRESS MILLS were able to raise
equity capital from the investing public.
 The TATA also initiated a managing agency house , named
investment corporation of India in 1937 which by acting as
venture capitalist, successfully promoted hi-tech enterprises such
as CEAT tyres , Associated Bearings, National Rayon etc.

15. Stages of VC
I
Development
of an Idea
Seed
Finance
II
Implementati
on Stage
Start up
Finance
III
Fledging
Stage
Additional
Finance
IV
Establishmen
t Stage
Establish
ment
Finance

16. • Translating an idea into business proposition
• Making investigation is made in-depth which
normally takes a year or more
Seed Finance
• Set up to manufacture a product or a service
• The first and Second stage of capital used for full
scale manufacturing and further business
growth
Start-up Finance
• Established in the market and expected to expand at
a rapid pace.
• Need finance for expansion & Diversification to
reap economies of scale and attain stability
Additional Finance
• Made some headway and entered the stage of
manufacturing a product
• Generating adequate funds for financing to develop the
marking infrastructure
Establishment
Finance

17. Importance And Advantages of VC
Importance
Advantages
to Investing
Public
Advantages to
Promoters
Business
Partner
Alliance
Mentoring

18. Process of Venture Financing
Deal origination
Screening
Due Diligence
Deal Structuring
Post Investment
Activity
Exit Plan

19. Guidelines of Venture Capitalist
Public Sector Financial institutions, SBI, Scheduled Bank,
foreign Bank &their subsidiaries are eligible
• Minimum Size Rs-10 cr.
• Debt –Equity ratio 1:1.5
VCC and VCF can be set up as joint venture between
stipulated agencies
• Equity holding not exceed 20% and should not be largest single holder

20. VC assistance should go the enterprises with total investment not
more than Rs-10cr
The VCC/VCF should be managed by professionals should be
independent of the parent organization
The VCC will not be allowed to undertake activities such as
trading , broking, money market operations, bill discounting.
A person holding a position or full time
chairman/President/CEO/MD in company will not be allowed
to hold same position in VCC/VCF

21. Venture Capital in India
 The concept of venture capital was formally introduced
in India in 1987 by IDBI.
 •The government levied a 5 per cent cess on all know-
how import payments to create the venture fund.
 •ICICI started VC activity in the same year.
 •Later on ICICI floated a separate VC company – TDICI.

22. Those promoted by public banks.
e.g. : -SBI Capital Market Ltd
4)Those promoted by private sector
companies.
 e.g.: - IL&FS Trust Company Ltd
 Infinity Venture India Fund
5)Those established as an overseas venture
capital fund.
e.g.: - Walden International Investment Group
- HSBC Private Equity management Mauritius Ltd

23. Process -
 Stage –I ABC- 10 cr
 Stage - IDBI – Financial Institution
 Stage-III –IDBI-ABC by shareholding pattern
 IDBI- Rs- 1000 =1 share
 IDBI- Total no of Share purchase of ABC =1,00,000*1000= 10 cr.
 STAGE – ABC- - Primary Market – IPO
 IDBI – Rs- 1000
 Bid Share – 1600/- Per Share
 Disinvestment – Rs-1000 Share Purchase
- Rs- 1600 share selling
Profit against 1 share = 600/-
Total investment =10 cr
Disinvestment = 1,00,000*1600= 16 cr
Net profit = 6 cr