Venture capital


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Venture capital

  1. 1. Group Leader – Abhijeet Sankapal Presented to – Dr.Premraj Alva 1
  2. 2. Roll no. Name 91 Prathamesh Shirsat 92 Ketan Sawant 93 Swapnali More 94 Ruchita Gurav 95 Nikhil Kalamkar 96 Premanand Maharana 97 Abhijeet Sankapal (Group Leader) 98 Manisha More 99 Raghav Gupta 100 Topic Priyanka Dabholkar 2
  3. 3. Meaning – VC is long term risk capital to finance high technology projects which involve risks but at the same time has strong potential for growth .venture capitalist pool their resources including managerial abilities to assist new entrepreneurs in early years of project.  Definition – “A financing institution which joins an entrepreneur as a co-promoter in a project & share the risks & rewards of enterprise ”  3
  4. 4.      In the 1920's & 30's, the wealthy families of and individuals investors provided the start up money for companies Eg. Eastern Airlines and Xerox VC funds set up was the one by the Rockfeller Family which started a special fund called VENROCK in 1950 General Doriot, a professor at Harvard Business School, in 1946 set up the American Research and Development Corporation (ARD) ARD's approach was a classic VC ARD's investment in Digital Equipment Corporation (DEC) in 1957 was a watershed in the history of VC financing 4
  5. 5.         Form of equity participation High risk & high potential projects Commercialization of new idea / new technologies Joins entrepreneur as co- promoter Continuous involvement Disinvestment option VC is not injection of funds Investment in small/medium scale enterprises 5
  6. 6. Advantages to investing public – 1.Reuce risk & stop mal practices of management 2.Venture funds equipped with necessary skills will able to study prospects of business 3.Venture fund having representatives on BOD of company.  Advantages to promoters – 1.Success of IPO – 10 Underwrites , Brokers & Investors 2.Statutory Formalities– sanctions, underwriting , brokers arrangement 3.Cost & expenses – IPO of equity shares 10% to 15% of nominal value of issue ,recurring cost & Stock exchange listing fee.  6
  7. 7.  General- 1.Reduce time between technological innovation & commercial exploitation 2.developing new process/ products . 3.Cushion to support business borrowings 4.Channelise investment in new high tech business / exist of sick unit 5.Economy development 6.VC firms serves as intermediary 7.Sharing responsibility 7
  8. 8.      General Business Strategy Advice Develop a Financing Plan Refine the Business Plan Marketing Advice and Strategies Develop Contingencies 8
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  10. 10. Financial Stage Seed Money Period 7-10 Risk Perception Extreme Activity to be financed For supporting a concept or idea or R&D for product development Initializing operations or developing prototypes Start Up 5-9 Very High Start commercials production and marketing First Stage Second Stage 3-7 3-5 High Sufficiently high Expand market and growing working capital need Market expansion, acquisition & product development for profit making company Third Stage 1-3 Medium Fourth Stage 1-3 Low Facilitating public issue 10
  11. 11.    Deal origination-the VC investor creates a pipeline of deals or investment opportunities that he would consider for investing in. Deal may originate in various ways. referral system, active search system, and intermediaries. Screening-VCFs, before going for an in-depth analysis, carry out initial screening of all projects . Due Diligence-Due diligence is the industry jargon for all the activities. The venture capitalists evaluate the quality of entrepreneur before appraising characteristics of the product, market or technology 1. Preliminary evaluation 2. Detailed evaluation 11
  12. 12.    Deal Structuring- In this process, the venture capitalist and the venture company negotiate the terms of the deals, that is, the amount, form and price of the investment Post Investment Activities1.direction of the venture operation of the venture 3. install a new management team Exit1. Initial Public Offerings (IPOs) 2. Acquisition by another company 3. Purchase of the venture capitalist's shares by the promoter, or 4. Purchase of the venture capitalist's share by an outsider 12
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  15. 15. Introduction - The Indian Private Equity and Venture Capital Association was established in 1993 and is based in New Delhi , the capital of India IVCA is a member based national organization that represents Venture capital and Private equity firms, promotes the industry within India and throughout the world and encourages investment in high growth companies  History of Venture Capital in India1. Venture Capital functions were run by development financial institutions such as the IDBI  ICICI Bank, and State Financial corporations. Publicly raised funds were the main source of Venture Capital   2. Year 1988 marked the establishment of the Technology Development and Information Company of India Ltd.promoted by the ICICI and UTI & was immediately followed by the Gujurat Venture Finance Ltd. 3. In the year 1996, Security Exchange Board of India introduced the Foreign Venture Capital and Private Equity Funds investing in India  15
  16. 16. The Growth of Venture Capital Funds In India In the year 2000, SEBI Year No. of VC Funds registered 13 more VC funds 2001 77 & their number increases to 32 . 2002 78 The SEBI has permitted VC funds to invite in real estate. 2003 81 This has open the doors for 2004 86 organized debt & equity instrument in real estate 2005 105 sector . VC firm invited 2006 146 $ 117 million over 27 deals in India 2008 160 during 6 months 2013 333 Ending june 2009. 16
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  18. 18.      The guidelines issued by the Govt. of India were meant to encourage private promoters. their holding could not exceed 20% of the equity of such a joint effort The guidelines of funding relatively new projects with no proven record in market acceptability. Section 372 of the Companies Act prohibits investment in a single company beyond 10% of the paid up capital of a company Indian educational system fails to march laboratory research with commercial application. Lack of entrepreneurial tradition 18
  19. 19.     Venture capital funds, as the position stands today mostly operate from metropolitan town The venture capital has not been given tax incentives Section 372 of the Companies Act places restrictions on inter-corporate investments. Section 369,309 and 387 of the Companies Act place restrictions on the remuneration of managing directors, directors and managers. 19
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  21. 21.      Finance-The venture capitalist injects long-term equity finance, which provides a solid capital base for future grow Business Partner-share the risks and rewards. Mentoring-The venture capitalist is able to provide strategic, operational and financial advice to the company Alliances-The venture capitalist also has a network of contacts in many areas that can add value to the company Facilitation of Exit-Venture capitalists are experienced in the process of preparing a company for an initial public offering (IPO) of its shares onto the stock exchanges 21
  22. 22.       Product Risk: The products concerned may have little or no track record in the markets as they are largely untested and usually have high obsolescence rates. Entrepreneur risk: another of the disadvantages of venture capital funding is that it is difficult to evaluate the new management and new business application without any prior track record Concentration risk: Focusing on small market, which can relate to either the product or in geographical terms, raises exposure to sectoral downturn Technology risk: hard to assess new technology on small set of products Duration risk: Generally a longer long-gestation period for funding is needed. Asset risk: Due to a high percentage of fixed assets with high obsolescence, along with a high fraction of human capital, there is a lack of collateralizable assets, which is one of the drawbacks in venture capital funding 22
  23. 23.      Debt-business loans, government-backed Small Business Administration (SBA) loans, and factoring loans Friends and family Angel investors-like venture capitalists in that they invest in early-stage companies to get a large return on investment Crowdfunding- Crowdfunding is a great way to presell your product before it’s ready to ship to customers Growing organically-When you grow your company organically, you take out only what you need to survive and put the rest of your profits back into the company as an investment. 23
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  25. 25.       Introduction – A committee on technology innovation & Venture capital headed by former finance secretary Nitin Desai was appointed by Planning Commission in 2006 to suggest measures to rise the flow of VC funds. SuggestionsTo set up an Early Stage Venture Fund (ESVF) through public-private partnership (PPP). To provide fiscal incentive by way of set-off against taxable income for those individuals who invest in start up To extend same fiscal incentive to those who invest in domestic venture capital funds with corpus less than Rs.250 cr. To create Limited Liability Corporations(CLCs) 25
  26. 26.     To extend applicability of such LLCs & the proposed Limited Liability Partnership (LLP) structure to VC funds. To grant tax exemption of capital gain for registered VCF’s on exit To remove the restriction on investment of 25% in single VC undertaking by domestic & foreign VCF’s To remove the minimum capitalization requirement of Indian subsidiaries of SEBI registered foreign VC investors. 26
  27. 27.     Intro- Druva provides integrated data protection and governance solutions for enterprise laptops, PCs, smartphones and tablets. Its headquarters located in Sunnyvale, caliotnia & pune. It’s a private company Founded in 2007, Druva is one of the fastest growing backup/storage startups Case Study Druva Software, a Pune-based start-up that makes proprietary backup software solutions for laptops, has raised $5 million in Series A funding (funding that follows seed funding) from Sequoia Capital India and Indian Angel Network (IAN). The money will be used to expand the three-year old company’s marketing and sales footprint overseas, including in Europe and the US. So far, it has relied largely on Webbased channels to sell its products in those markets.  27
  28. 28.     80 per cent of data is duplicated,”. Druva, therefore, developed a software that would allow companies to cut out this duplication and enable laptops to work faster as well as increase storage capacity Druva had earlier raised seed funding from the Delhi-based Indian Angel Network and Hong Kong-based Accord International. Druva was developing a continuous data protection product, which is the next level of back-up technology, we decided to fund them,” says Rehan Yar Khan, who represents IAN on the Druva board. Some of the company’s earliest clients include NASA and the US Marine Corps. Druva Phoenix, Khan says, is now beginning to gain traction in the market Jaspreet Singh 28 Co-founder and CEO
  29. 29. Source: 5 July 2010 29
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  32. 32. Source – Thomson Reuters 32
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