Private equity , venture capital , REITS & InvIT's

1. Emerging Sources Of Finance

2. Sr. No. Topics
1 Introduction
2 Relevance
3 Private Equity
4 Venture Capital
5 Difference between PE & VC
6 REITS( Real Estate Investment Trust)
7 InvITs (Infrastructure Investment Trust)

3. Introduction & Need
Finance is the process of creating, moving and using money, enabling the flow
of money through a company in much the same way it facilitates global
money flow.
 Businesses need finances for daily operations and to meet essential
expenses and payments.
 Funds for business growth, market competition, and to keep your business
operational and maintain your customer base..
 Inefficient management of finances could lead to liquidity shortages.

4. Sources Of Finance
Main sources of funding for a
business :
1. Revenues from business
operations
2. Investor finances such as owner’s,
partner’s or venture capital
3. Loans from individuals or
financial institutions.
4. Short-term sources of finance,
such as cash revenue and advance
receipts, must be obtained
sufficiently through effective debt
and discount policies.
5. Long-term sources of finance must
be available for achievement of
long-term goals, such as
purchasing new machines.

5. Private equity is capital that is not noted on a public
exchange. Private equity is composed of funds and
investors that directly invest in private companies, or that
engage in buyouts of public companies, resulting in the
delisting of public equity.

6. What drives private equity?
Raising Capital Increasing
Regulation of Public
Markets
Effect on Public
Markets
Financing the
Private Equity
Boom

7. EXIT ROUTES IN PRIVATE EQUITY:
• Initial Public Offering
• Trade Sale
• Secondary Buyout
• Leveraged
Recapitalization

8. DisadvantagesLarge Amounts of
Funding
Active
Involvement
Incentives
High Returns
Dilution/Loss of Your
Ownership Stake
Loss of Management
Control
Different Definitions of
Value
Eligibility
Advantages

9. Venture Capital
• Venture capitalrefers to equity investments made, typically in
less mature companies, for the launch of a seed or start-up
company, early stage development, or expansion of a business.
Venture investment is most often found in the application of
new technology, new marketing concepts and new products
that do not have a proven track record or stable revenue
streams.

10. IMPORTANCE OF VENTURE CAPITAL
 Promotes entrepreneurs
 Promotes products
 Encourages customers
 Brings out latent talent
 Promotes exports
 As catalyst
 Creates more employment
opportunities
 Brings financial viability
 Helps technological growth
 Helps growth of economy

12. Application of private equity (with simple example)
There is an owner of an
eastablished Cycle
company.
His company running
well but he needs
investment to buy new
equipments for his
company .
He finds an investor
willing to give $500000
in exchange of 40% of
the company.
With the investment
owner able to buy new
equipments for orders.
Therefor increase in the
sales and profit.
After 2 years owner
purchased his 40%
share from investor with
the help of profit
earned and investor also
earned profit on his
investment.

13. Application of private equity ( with real life example)
• In 2006, TPG done private equity investment of $100
Million into “shriram city union finance”.
• In 2008, TPG earned 4 times of its original investment
by selling 20% stake to “Apax group”.
)
• APAX entered in indian market in 2007, done investment
of $104 Million in health care industry.
• APAX earned $4 billion upon the sale of IT firm I GATE
and enable return of 1.3 billion on 2011 investment.
APAX
Group
Texas pacific group

14. Application of Venture capital (with simple example)
Andy an investment banker
involved in venture capital
investment. He likes to invest in
high risk company with a high
growth potential.
Andy invested $2 billion in
ABC LTD. Against the share
of 25%. His investment
horizon is 5-7 years in which
he expect high return.
ABC LTD. A small
company of a pharma
industry at a
developing stage.
It helps the ABC LTD to
expand its business
globally.
And after 5 years Andy
earned 1.5 times of
what he is invested.

15. Application of venture capital(with real life example)
• Alibaba and saif partners invested
$200 million in paytm.
• Alibaba has a goal of deriving 20-
30% revenue from india with this
investment.
• In september 2008, it receives
venture capital investment of 20
crores from Infoedge.
• It again receives investment of 67
crores from Intel capital and
Inventus capital.

16. Differences
Sr. No. Private Equity Venture Capital
1. Target
Companies
Mature companies, often
under-performing or
under-valued
Startups, early-stage
companies, usually pre-
revenue
2. Target
Industries
All industries, usually
with established
marketplace for the
product or service
High-growth industries like
high-tech, biomedical,
alternative energy
3. ROI
Expectations
Depends on the inherent
risk of particular firm
and industry. Target can
be 20%/yr over five
years, more likely
10%/yr or less
Many failures, some solid
returns, a few spectacular
successes. Expectations
must reflect the risks.

17. 4. Investment Size ($) 100 million to 10’s of
billions for big PE
funds; 10+ million for
small funds &
individuals
Less than 10 million
5. Liquidity Horizon 6 to 10 years 4 to 7 years
6. Share acquired by
Investor/ Fund
Control (often 100%) of
company
Usually minority stake
in company
7. Usually minority stake
in company
Equity and debt Often equity only, but
can be structured to fit
needs of both parties.
8. Investor Active Investors may be
passive concerning
management, unless
purpose of acquisition is
to improve company
performance
Investors provide
advice, connections,
distribution; monitor
cash burn; etc.

18. Real Estate Investment TrustS
• Created by Congress in 1960
• Company that own or income producing real Estate
How it Works ?
• Allows everyone to invest in large scale property,
• In the same way they invest in the other industry through purchase of
stock.
• Create revenue from the rent received or the interest received
• Majorly Traded on public stock exchange
• Private & Public Non listed

19. TYPES OF REITS
• Equity REITS:-
Rent or Sale of property
• Mortgage REITS:-
deals in investment or ownership of mortgage
• HYBRID REITS
ADVANTAGES
• DIVEDENDS
• LIQUIDITY
• TRASPARANCY
• No personal
liabities
DISADVANTAGE
• SLOWER GROWTH
RATE
• HIGHER TAX RATE ON
DIVIDEND
• HIGH MANAGEMENT
& TRANSACTION
CHARGES

20. Success Of REITS
• USA – 1960 , 2001 (LEGALIZED)
• UK- 2003
• AUSTRALIA - 1997
• SINGAPORE – 2007
• INDIA - 2013

21. Infrastructure Investment Trusts(InvIT’s)
• Infrastructure Investment
Trusts (InvITs) are mutual
fund like institutions that
enable investments into the
infrastructure sector by
pooling small sums of money
from multitude of individual
investors for directly investing
in infrastructure so as to return
a portion of the income (after
deducting expenditures) to
unit holders of InvITs, who
pooled in the money.

22. How do InvITs work?
• InvITs raise funds from a large number of
investors and directly invest in infrastructure
projects.
• Two types of InvITs have been allowed:
 which invests in completed and revenue
generation infrastructure projects;
 which has the flexibility to invest in
completed or under-construction projects.
What is the structure of InvITs?
InvITs are registered as trusts with SEBI and there are
four parties:
•Sponsors: Firms which set up the InvITs.
•Investment managers: Manage assets and investments of
InvITs and undertake activities of the InvIT.
•Project manager: Executes the projects.
•Trustee oversees the role of InvIT investment managers
and project manager and ensures that all rules are
complied with.

23. Advantages
SPONSOR
• It helps companies monetize
healthy infrastructure assets and
provide a channel for investors
to buy a stake in infrastructure
projects.
• Funds raised can be used to
reduce debt and invest in their
other projects that could be
stuck due to lack of funds.
Investor
• InvITs are positioned as high-dividend
paying investments suitable for investors
who are especially looking for long-term,
stable cash flows with moderate capital
appreciation.
• Investors of InvITs can draw comfort from
a favorable tax-regime. Dividend income is
tax exempt and no capital gains are levied
if units are held for over 3 years and sold
through the bourses. There is a small
withholding tax for interest income to NRI
unit holders.
• Further, there is the pass-through
structure of InvITs mandating distribution
of a minimum 90% of net-distributable
cash and nil dividend distribution tax.