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Submitted by nitish s harma presentation

  2. 2.  Once your company has decided to explore the venture capital funding route, it is very important for your company to follow the appropriate process to raise funds.  In India, the typical venture capital fund raising process involves the following steps:
  3. 3. IDENTIFYING THE RIGHT INVESTMENT BANKER  Very good understanding of venture capital business  Good understanding of company’s industry and business  Ability to tell a good and true story about the company  Experience of dealing with the VCs  Good network in the VC community Skill Sets
  4. 4. INVESTMENT MEMORANDUM AND FINANCIAL MODEL Investment Memorandum (IM) • captures the company’s business in such a manner that it addresses most of the investor’s key questions and helps the investor make his mind about the company. Financial Model (FM) • captures various business variables like revenue drivers, cost drivers, capital expenditure etc. in a Microsoft Excel file and projects the company revenues, profitability, cash flows and fund requirements for next 5 to 7 years.
  5. 5.  Short listed investors should be comfortable with the company’s industry, stage of business (seed stage, early stage, growth stage, pre-IPO etc.), and the company’s fund requirements. Short listing and approaching the venture capital funds
  6. 6. MEETING THE VENTURE CAPITAL FUNDS  The investment banker approaches the venture capital funds and starts making presentation to them.  The purpose of these presentations is to get the first meeting between the promoters of the company and the investors.  In the follow-up meetings, the company tries to convince the investors about the investment.  Once the investors are convinced then they issue a Term Sheet.
  7. 7. SIGNING THE TERM SHEET  A Term Sheet (TS) covers the key terms of the investment.  Two of the most important terms in the TS are the valuation of the company (price) and the transaction structure.  There are a number of other important terms related to investor’s exit, board memberships etc, which are also covered in the Term Sheet.  Once there is an agreement on all the terms, a non- binding Term Sheet is signed between the company and the investors.
  8. 8. Generally investor’s due diligence process focuses on the following aspects of the company and its expansion plans:  a. Financial  b. Business  c. Technological Due Diligence by the Investors
  9. 9. SIGNING THE SHAREHOLDER’S AGREEMENTS AND FUNDS TRANSFER  Once the investors are satisfied with the outcome of the due diligence process, they issue a Shareholder’s Agreement (SHA).  SHA covers all the terms of the Term Sheet and, in addition, it has a number of other important terms and conditions regarding dispute resolution, non-compete, lock-in, share transfer process etc.  Generally lawyers from the company’s side and the investor’s side also get involved in this process.  Once there is an agreement, all the shareholders of the company and the investors sign the SHA and investor transfers funds to the company.
  10. 10. OBLIGATIONS OF VENTURE CAPITAL FUND  Venture Capital fund shall not carry out any other activity than that of venture capital fund  Venture capital shall disclose investment strategy at the time of making investments  VCF shall disclose the duration of the life cycle of the fund  VCF shall not get its units listed on any recognized stock exchange till the expiry of three years from the date of issuance of units by VCF  VCF cannot invite offers from the public for subscribing for its units and shall only receive monies by the way of private placement of the units  VCF shall enter into the placement memorandum and subscription agreement which contains terms and conditions subject to which monies is proposed to be raised from the investors.  A copy of the placement memorandum and subscription agreement will be placed with the Board along with the actual money collected  VCF shall maintain its books of accounts, records and documents for a period of 8 years
  11. 11. MINIMUM INVESTMENT IN VENTURE CAPITAL  Venture Capital Fund may raise money from Indian, foreign, non-resident Indian, by way of issue of units  Investments below Rs.5 lakhs from any investor shall not be accepted other than employees, principal officer, directors of venture capital fund or employees of fund manager or asset management company  Venture capital fund shall invest minimum of Rs.5 crores in each of the schemes launched or fund set up
  12. 12. INVESTMENT RESTRICTIONS Not more than 25% corpus can be invested in one VCU Investment in securities of foreign companies subject to RBI and SEBI guidelines No investment in associated companies
  13. 13. INVESTMENT RESTRICTIONS Investment Structure At least 66.67% of investible funds in unlisted equity shares or equity linked instruments of VCUs. Not more than 33.33% of investible funds Subscribe to IPO of a VCU proposed to be listed Debt instrument of a VCU which the VCF already has equity investment Preferential allotment of equity shares of listed company subjected to 1 year lock in Equity shares or equity linked instruments of financially weak company or sick company-listed SPV