PRIVATE EQUITY FIRMS AND VENTURECAPITALISTS Group 17 Saurabh Chaubey (Roll No 56) Vinay Prabhakar (Roll No 67)
PRIVATE EQUITY Private Equity Venture Growth Mezzanine Buyouts Capital Capital Capital
DEFINITIONS Private Equity can be defined as the provision of equity capital by financial investors to non quoted companies with high growth potential. Venture Capital is strictly speaking a subset of private equity and refers to equity investments made for launch, early development or expansion of business. It has special emphasis on entrepreneurial undertakings rather than mature business.
MAIN OBJECTIVES OF PE FIRM Seek out companies with the potential for growth and with the aim to put in place the capital, talent and strategy needed to permanently strengthen the company and raise its value.
EQUITY FIRMS BRINGS Long term capital, solidly underpinning your company’s growth Increased visibility with bankers, suppliers and clients A partnership, sharing of risk and rewards An investment fixed within the framework of a negotiated contract The adoption of high-performance management standards Strategic and operational support along with financial advice in times of crisis Assistance with subsequent financing operations Alliance due to investor’s network of contacts and portfolio of investments A partial or total exit strategy
EQUITY FIRMS LOOK FOR High growth ,competitive product or services In the case of disposal or transfer, recurring profits A stable and qualified management team , capable of turning the negotiated goals into reality Solid management procedures, either already in place or able to be quickly put in place An agreement on the investor’s exists
PRIVATE EQUITY MODEL Private Government Institutional Investors Corporates Others Individuals/Family $ Portfolio Company 2 Advices Private equity investmet fund Private Equity(Investment Fund) Management Portfolio Company 1 company
PRIVATE EQUITY MODEL Creation of fund and underwriting by professional investors Investing the fund Managing the Investment Redistribution How Do PE Fund Works • Funds with Limited Life Span • Funds with unlimited life span
DIFFERENT TYPE OF PV INVESTMENT FUNDS Independent private equity Captive funds Semi-captive funds
WHAT VC IS AND WHAT IT IS NOT WHAT IT IS WHAT IT IS NOT A source of capital for high risk businesses Right for “lifestyle” businesses or those without strong potential for growth A source of “patient” capital Money without strings or cost An investment in the business Money to repay nonbusiness-related debts and expenses Money to drive business growth and development An inexhaustible supply of money that will continue indefinitely A validation of the business by outsiders Free from restrictions and conditions imposed by the investors A way to get access to the investors’ contacts and A loan that you can prepay at a low cost if things resources go well A source of strategic planning, management and An end in itself; rather it is just the beginning of recruiting assistance the relationship A way to get help raising funds in the future A guarantee that the free market will reward the business and investors Money that does not have to be paid back by the Available unless the investors can see a way to entrepreneur if the business fails liquidate their investment in 5-7 years. Investment looking for a “liquidity event” so Right for entrepreneurs who want to keep investors ownership can cash out and control indefinitely
HOW VC FIRMS SELECT INVESTMENTS Being highly selective. Seek companies with innovative products and “unfair” advantages in large, ripe markets. Back outstanding management teams. Invest in companies with a clear and realistic exit strategy. Add value to the development of the business and play a significant role in the ongoing management of the company. Make sure that companies have access to enough cash to get to cash flow breakeven. Build a diverse investment portfolio.
HOW TO APPROACH VCS The best way to be successful in approaching venture investors is to offer them a well-constructed investment opportunity that meets their goals and objectives. The easier it is for the investor to see how attractive the opportunity is, the more likely he or she is to invest. Executive Summary, backed up by Business Plan
BUSINESS PLAN SHOULD COVER FOLLOWINGPOINTS WHILE PRESENTING TO VC’S The mission of the business and the objectives of the management team; A description of the product or service, its history, and an explanation of what problem it solves or what is unique or exciting about it; Objectives of any ongoing research and development activities; The ownership structure and capitalization; The amount of investment needed and what it will be used for; A description of the market and the competition, and where the company fits into the market; Whether the product or service has any proprietary advantage or other protection from competition; A description of the industry, its growth trends, prospects, and its major challenges;
DIFFERENT STEPS IN PRIVATE EQUITYINVESTMENT PROCESS • Entrepreneur – a) Appoint Advisors b) Prepare Business Plan c) Approaching PE Firm Contacting PE Firm • PE Firm – Review Business Plan • Entrepreneur- Provide additional Information • Entrepreneur and PE firm- Meet to discuss business plan, Build Relationship, Negotiate outline terms Initial Enquiries and • PE Firm- Conduct initial enquiries, Value the business, Consider Financing Structure, Negotiation • Entrepreneur and PE Firm – Liaise with accountants, Liaise with other external consultants, • PE Firm- Initiate External Due Diligence Due Diligence
The operations plan with an explanation of challenges, solutions, and strategic relationships; The marketing and sales strategy, with the names and size of principal customers; The organizational chart, with track records, compensation packages, and resumes of key management and board members, and hiring plans for unfilled positions; The historical financial data, along with financial objectives and projections, with assumptions, showing cash flow needs of the business and how they will be met; and A discussion of exit opportunities and strategies.
DIFFERENT STEPS IN PRIVATE EQUITYINVESTMENT PROCESS • Entrepreneur-Disclose all relevant business Information. Final • Entrepreneur and PE Fund- Negotiate financial terms, Document constitutionNegotiation and and voting rights. Completion • PE Fund – Draw up completion documents. • Entrepreneur- Provide periodic management accounts, Communicate regularly with investors. • PE Fund- Seat on board, Monitor investment, Constructive input, InvolvementMonitoring in major decisions. • PE Fund – Evaluate and Decide to exit or to continue EXIT
CONCLUSION Before you approach a VC for funding, examine your goals. Do your Homework Know your ultimate business objectives, and be honest about those goals with your prospective investors.