VENTURE CAPITAL
FINANCING
VENTURE CAPITAL – Some Views
General Georges Doriot – father of US Venture Capital
“Venture Capital is Patient and Brave M...
VENTURE CAPITAL



Long-term Equity / QUASI Equity finance in
businesses with high growth and profit potential



Return...
VENTURE CAPITAL IS NOT


Development Finance



Term Loan



Conventional Financing



Passive Equity investment suppo...
CONVENTIONAL FINANCING

VENTURE CAPITAL



TERM LOANS



EQUITY / QUASI EQUITY



SECURITY BACKED



UNSECURED



PAS...
VENTURE CAPITAL IN INDIA



STARTED IN MID EIGHTIES BY THREE ALL INDIA
FINANCIAL INSTITUTIONS AND A PRIVATE COMPANY.



...
Stages of Company Evolution &
Primary External Finance Source

Public Issue

Mezzanine /Private
Equity

Venture Capital Fu...
STAGES OF INVESTMENT
SEED



TO GET A COMPANY STARTED.
THE PRODUCT MAY BE IN A R&D PHASE, IT MAY JUST BE
AN IDEA.

START...
Contd…
SECOND ROUND
•  ALSO CALLED “SUBSEQUENT ROUND” - FOR PROMOTING
OR SUSTAINING GROWTH. IT MAY ALSO BE A “SAVING
INVES...
VC PROCESS



DEAL SOURCING



INITIAL EVALUATION



DUE DILIGENCE & APPRAISAL



DEAL STRUCTURING



MONITORING & NU...
Establish fund & Target investment opportunities

Raise Capital for Investment

Generate deal flow. Identify new & Young
c...
WHAT A VENTURE CAPITALIST LOOKS FOR













Promoter of repute and integrity.
Team.
An idea that will add...
VALUE ADDITION BY VENTURE CAPITAL


BUILDING UP SYSTEMS & PROCEDURES, LEGAL &
STATUTORY COMPLIANCES



NEGOTIATION FOR T...
THANK YOU
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Venture capital financing a

  1. 1. VENTURE CAPITAL FINANCING
  2. 2. VENTURE CAPITAL – Some Views General Georges Doriot – father of US Venture Capital “Venture Capital is Patient and Brave Money that seeks new and growing companies and invests for long haul” Gombers & Lerner: Venture capital at crossroads “Independently managed dedicated pools of capital that focus on Equity or Equity linked investments in a privately held, high growth companies”
  3. 3. VENTURE CAPITAL  Long-term Equity / QUASI Equity finance in businesses with high growth and profit potential  Return through capital gains  Risk-reward sharing in nature  Not synonymous to high-tech finance
  4. 4. VENTURE CAPITAL IS NOT  Development Finance  Term Loan  Conventional Financing  Passive Equity investment support  R&D funding sources
  5. 5. CONVENTIONAL FINANCING VENTURE CAPITAL  TERM LOANS  EQUITY / QUASI EQUITY  SECURITY BACKED  UNSECURED  PASSIVE  ACTIVE  FIXED OBLIGATIONS  PAYMENT RELATED TO PERFORMANCE  RISK AVERSE  WILLING TO ASSUME RISKS  LONG TERM CONSIDERATION  PREFERENCE FOR SMALLER START UPS   SHORT-TO-MEDIUM TERM PERSPECTIVE PREFERENCE FOR LARGE AND STABLE BUSINESSES
  6. 6. VENTURE CAPITAL IN INDIA  STARTED IN MID EIGHTIES BY THREE ALL INDIA FINANCIAL INSTITUTIONS AND A PRIVATE COMPANY.  IN 2002 VENTURE CAPITAL FUNDS INVESTED $590.21 MILLION IN INDIAN COMPANIES.  INDUSTRY HUBS :MUMBAI, DELHI, BANGALORE.  IN 2002, INDIA RANKED AS THE SECOND MOST ACTIVE VC MARKET IN ASIA PACIFIC (EXCLUDING JAPAN).  Major VC Companies in India: ICICI Venture, Gujarat Venture Finance Limited, UTI ventures, SIDBI Ventures Etc.
  7. 7. Stages of Company Evolution & Primary External Finance Source Public Issue Mezzanine /Private Equity Venture Capital Funds Angel Investors Incubators Personal Savings SEED START-UP EARLY GROWTH SUSTAINED GROWTH
  8. 8. STAGES OF INVESTMENT SEED   TO GET A COMPANY STARTED. THE PRODUCT MAY BE IN A R&D PHASE, IT MAY JUST BE AN IDEA. START UP  GOES TO COMPANIES, WHICH HAVE A PRODUCT BUT MUST DO SOMETHING WITH IT. FIRST ROUND  GOES TO COMPANIES WHICH HAVE USUALLY PROGRESSED BEYOND A START-UP – USUALLY TO PROMOTE GROWTH.
  9. 9. Contd… SECOND ROUND •  ALSO CALLED “SUBSEQUENT ROUND” - FOR PROMOTING OR SUSTAINING GROWTH. IT MAY ALSO BE A “SAVING INVESTMENT” OR “BAIL OUT” IF THE COMPANY HAS NOT PERFORMED UPTO EXPECTATION.     BRIDGE/ MEZZANINE FINANCING • THIS IS ALSO CALLED “MEZZANINE FINANCING”. THIS CAPITAL IS GIVEN FOR A SPECIFIC PURPOSE, EG., TO COVER EXPENSES INCIDENTAL TO THE RECEIPT OF LARGE PRODUCT ORDER.
  10. 10. VC PROCESS  DEAL SOURCING  INITIAL EVALUATION  DUE DILIGENCE & APPRAISAL  DEAL STRUCTURING  MONITORING & NURTURING  EXIT
  11. 11. Establish fund & Target investment opportunities Raise Capital for Investment Generate deal flow. Identify new & Young companies with high potential Screen & Evaluate deals Due diligence & Appraisal Deal Structuring Monitoring & Nurturing Exit
  12. 12. WHAT A VENTURE CAPITALIST LOOKS FOR             Promoter of repute and integrity. Team. An idea that will address large markets. Attractiveness of technology and fit. Upside potential and down side exposure. Anticipated growth rate. Age and stage of development. Fund requirement. Goal congruence. Additional round of funds. Returns. Exit.
  13. 13. VALUE ADDITION BY VENTURE CAPITAL  BUILDING UP SYSTEMS & PROCEDURES, LEGAL & STATUTORY COMPLIANCES  NEGOTIATION FOR TECHNOLOGY TRANSFER & TIE-UPS  KEY PERSONNEL RECRUITMENT & TEAM BUILDING  MARKETING TIE-UPS  NETWORKING  RESOURCE MOBILIZATION  APPOINTMENT OF EXPERTS & CREATION OF ADVISORY BOARDS  CORPORATE GOVERNANCE  HELPING COMPANIES PARTICIPATE IN VARIOUS FORUMS  ORGANIZING TRAINING, WORKSHOPS FOR COMPANIES
  14. 14. THANK YOU

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