Introduction Venture Capital – as a name suggest it implies capital provided to start a new venture For a small entrepreneur with enthusiasm and dynamism but inadequate or lack of finance, venture capital or seed capital is a boom making it a launching pad for financial growth
Contd.. VC invested usually in companies with very little track record. The investment is in new, small companies and the investor – investee relationships is more intimate then in case of opening equity financing There is no short term liquidity for the venture capital investments.
Origin of Venture Capital The concept of VC started in US. in 1946 American Research and Development ( AR & D) was formed as the first venture organization which financed nearly for 11 years about 100 companies and made 35 times its investments Most famous of them is Apple computer, which started in US in 1977 with capital provided by an Arthur Rock & Co.
Contd.. VC also includes supplying funds for product development and marketing expenditure To extend bridge finance prior to an IPO VC broadly implies an investment of long term, equity finance in high risk projects with high reward possibilities . VC essentially provides finance to businesses promoted by individuals. Group of individuals who have sound project ideas but lack financial resources to implement them.
Vision of VC Vision of VC is focused on new projects, seed capital , technology and innovations VC aims at Fuels ambitions and dreams Breathes life into promising business ventures Inspires enterprises to script thrilling success.
Features of VCa. It is a high risk venture. The success rate in developed economies like USA is around 60%, whereas in a developing country like ours, the success rate is expected to be around 20%-30%.b. It finances high-tech projects.c. The development period is long. The benefit or profit from the venture capital investment will start accruing only after an average period of 4 to 5 years.d. Venture capitalist also makes available to the assisted units the managerial and marketing assistance.
Contd.. When the assisted company has reached a certain stage of profitability, the venture capitalist sells his shares in the stock market at a hefty premium. He thus makes good profit as well as gets his locked up funds released for redeployment in some other ventures.
Contd.. Provision to have conditional loans which doesn’t bear interest charges, rather it carries royalty linked to sales generated by the company after commercialization. The rate of royalty is fixed depending upon the profitability of the business and the fund’s requirement of a reasonable return It is a long term investment and return are in form of capital gains
Functions of VC It provides finance as well as skills to new enterprise and new ventures of existing firm based on high technology It provides seed capital to finance innovations in pre start stage In development stage they develop a business plan which will detail the market opportunity, the product and financial needs VC helps the firm to move the exploitation stage, i.e. launching the innovation
Contd.. VC role is just not restricted to supplier of funds but that of an active partner with total investment in the assisted project It act as a generate and launching new business and method in stimulating existing firms to achieve optimum performance. Their duty also expands to the level of checking whether firm has proper and adequate commercial banking
Contd.. VC assistance provided by the financial institutions is in the form of project loans, equity, conditional loans, a comprehensive techno commercial support and guidance service including technology information service
Classification of VC Funds Incubators Hardcore technocrat who works with an entrepreneur to develop a business idea. Prepare a company for subsequent round of growth and funding. E ventures and infinity are examples in India Angel Investors They are experienced industry bred individual with high net worth.
Contd.. They take active participation in day to day routine activities. They provide first round of financing to young / start up company or a company with unstable financial record Example: Sailesh Mehta, Vinod Dham, Kanewal Rekhi etc
Contd.. Venture Capitalists VCs are organizations raising funds from numerous investors and hiring experienced professional managers to deploy the same Insist on detailed business plan, invest into proven ideas and business, provide brand value to the investee. They sow the capital, take care of it and when grow sell, take the profit and get out of the business
Contd.. Private Equity Players They are established investment bankers. Typically invest into proven/ established businesses Have financial partner approach Example: ICICI Ventures
Advantages of VC Economy oriented Investor oriented Entrepreneur oriented