Venture capital refers to investments made in startup companies and small businesses with high growth potential. The concept originated in the United States in the 1940s. Venture capital is typically invested in stages from seed funding to later expansion rounds. It is a high-risk investment that provides capital as well as management expertise to growing companies. While the venture capital industry has grown in South Asia, Bangladesh has relatively few venture capital funds to support its small and medium enterprises. The document recommends expanding venture capital availability and support for entrepreneurs in Bangladesh.

1. Venture Capital
By
Md.Masud Hossen

2. Agenda
Concept
Definition
Origin And Development
Characteristics
Features
 Stages
Eligibility To Seek Venture Capital Funding
The Venture Capital Investment Process
South Asian Venture Capital Scenario

3. Cont….
Bangladesh’s Scenario
Venture Capital Fund In Bangladesh
Advantages Of Venture Capital
Disadvantages Of Venture Financing
Recommendations

4. Concept Of Venture Capital
 Venture capital is the capital invested in a business where the
chances of success are uncertain.
 It is term to describe the financing of startup and early stage
business as well as businesses in “ turn around” situations

5. Definition
Venture capital is a subset of
private equity and refers to
equity investments made for the
launch, early development, or
expansion of a business
Venture capital means funds made available for startup firms and small
businesses with exceptional growth potential.

6. Cont….
wealth available for investment in new or speculative enterprises
“ Venture Capital is defined as long-term equity investment in
novel technology based projects with display potential for
significant growth and financial return.”
- According to 1995 Finance Bill

7. Origin And Development Of Venture Capital
Concept
• VC concept is a US origin concept.
• Organized VC fund was started in 1946 when American research
and development corporation (ARD), a publicly traded, closed-end
investment company was formed.
• In 1958 for computer maker digital equipment corp was provided
with start-up financing by ARD.
• ARD was eventually profitable, providing its original investors with
a 15.8% annual rate of return over its 25 year as an independent firm

8. Characteristics
Long time horizon
Lack of liquidity
High risk
Equity participation
Participation in management

9. Features Of Venture Capital
 Venture capital is usually in the form of equity or mix of
equity debt.
 Commercial success of funded venture is not tested and hence
VC is a risk investment.
 If successful, VCs can get extraordinary returns.
 VC is not just a fund provider but also is involved in managing
the envisaged growth of the firm.
 VC are interested in capital gains and cash gains.

10. Stages of Financing
1. Seed Money:
Low level financing needed to prove a new idea.
2. Start-up:
Early stage firms that need funding for expenses
associated with marketing and product development.
3. First-Round:
Early sales and manufacturing funds.
4. Second-Round:
Working capital for early stage companies that are selling
product, but not yet turning a profit .

11. 5. Third-Round:
Also called Mezzanine financing, this is expansion
money for a newly profitable company
6. Fourth-Round:
Also called bridge financing, it is intended to finance the
"going public" process

12. Risk in each stage
Financial Stage Period (Funds
locked in years)
Risk Perception Activity to be
financed
Seed Money 7-10 Extreme
For supporting a
concept or idea or
R&D for product
development
Start Up 5-9 Very High
Initializing
operations or
developing
prototypes
Start commercials

13. Financial Stage Period (Funds
locked in years)
Risk Perception Activity to be
financed
Second Stage 3-5 Sufficiently high
Expand market and
growing working
capital need
Third Stage 1-3 Medium
Market expansion,
acquisition &
product
development for
profit making
company

14. Eligibility To Seek Venture Capital
Funding
 Strength and motivation of management teams
 Clarity on product development strategies
 Carefully defined target markets with possibility to scale-
up in a big way
 Innovation quotient in proposed product or idea

15. VC investment process
Deal origination
Screening
Due diligence (Evaluation)
Deal structuring
Post investment activity
Exit plan

16. South Asian Venture Capital
Scenario
South Asia includes venture capital managers based in
Bangladesh, India, Pakistan, Nepal and Sri Lanka. Compared
to other regions in Asia, there are more South Asia-based fund
managers with vehicles in market currently targeting
infrastructure and real estate investments.
In 1973 a committee on development of small and medium
enterprises highlighted the need to foster venture capital as a
source of funding new entrepreneurs and technology in the
south Asian region.

17. 31 31
24
23
22 22
4
5.4
7.2
4.3
2.8
3.4
2
0.9
0
5
10
15
20
25
30
35
2007 2008 2009 2010 2011 2012 2013YTD
No.of Funds Closed
Aggregate Capital Raised ($bn)

18. Bangladesh’s Scenario
 Asian Tiger Capital Partners is one of the first financial
institutions in Bangladesh focusing on private equity and
venture capital.
 Buoyed by the inclusion of Bangladesh in J P Morgan’s
“Frontier Five” group of countries and also Goldman Sach’s
“Next Eleven” group, Asian Tiger Capital Partners have
launched themselves in Bangladesh complete with a Bengal
tiger as logo.

19. Cont…
It is stated earlier that a systematic problem exists within the major
segments of the financial system in Bangladesh in catering to the
financing needs of SMEs. Therefore, it is argued that the venture
capital industry may be developed as an additional financial
intermediary for catering to the financing and non-financing needs of
the SMEs, as it can participate in the management of the investee firms
actively and exercise those are……
 due diligence process
 participative management approach
 information asymmetry and transactions costs
 bounded rational

20. Venture Capital Fund In Bangladesh
• Venture Investment Partners
Bangladesh Limited (VIPB)
• BD Venture Limited

21. ADVANTAGES OF VENTURE CAPITAL
 provide large sum of equity finance.
 Venture Capitalist are rewarded by business success
& the capital gain.
 Able to bring wealth and expertise to your company
 The Venture Capitalist also has a wide network of
contacts.
 Providing additional funds.

22. DISADVANTAGES OF VC
 Lengthy and complex process (needs detailed business plan,
financial projections and etc.)
 In the deal negotiation stage, you will have to pay for legal and
accounting fees
 Investors become part owners of your business - founder loss
of autonomy or control

23. Recommendations
 The company will invest in small and medium size
enterprises across the country, with a special focus on
promising rural ventures. Each firm must have annual
revenue of at least TK 4.0 Million.
 Venture capitalists will help companies grow, but they
eventually seek to exit the investment in three to seven years.
 Venture capitalists may be generalist or specialist investors,
depending on their investment strategy. Venture capitalists
can be generalists, investing in various industry sectors

24. Cont….
 Investment made on development of management and
employees through training, improving skills.
 Avoid venture capitalist in interference in Business activity.
 Increasing market facilities.
 Provide more infrastructure facilities.

26. Quarries??????????????????