Venture capital financing

Venture capital financing

1. Venture Capital Financing BY :- AASTHA CHAUDHARY 15/IMB/001 ABHAY PRAKASH DUBEY 15/IMB/002

2. What is Venture Capital? It is the money provided by an outside investor to finance a new, growing, or troubled business. The venture capitalist provides the funding knowing that there’s a significant risk associated with the company’s future profits and cash flow. Capital is invested in exchange for an equity stake in the business rather than given as a loan. Venture Capital is the most suitable option for funding a costly capital source for companies and most for businesses having large up-front capital requirements which have no other cheap alternatives.

3. Features of Venture Capital investments 1) Equity Participation Venture financing is actual or potential equity participation through direct purchase of shares, options or convertible securities. The objective is to make capital gains by selling-off the investment, once the enterprise becomes profitable.

4. 2) Long-term Investment Venture financing is a long term, illiquid investment; it is not repayable on demand. It requires long-term investment attitude that necessitates the venture capital firms to wait for a long period, say 5-10 years, to make large profits. 3) Participation in management Venture financing continuing participation of the venture capitalist in the management of the entrepreneur’s business. This hands on management Approach helps him to protect and enhance his investment by actively involving and supporting the entrepreneur. More than finance, technology, planning and management skills to new firm.

5. Advantages of Venture Capital They bring wealth and expertise to the company Large sum of equity finance can be provided The business does not stand the obligation to repay the money In addition to capital, it provides valuable information, resources, technical assistance to make a business successful

6. Disadvantages of Venture Capital As the investors become part owners, the autonomy and control of the founder is lost It is a lengthy and complex process It is an uncertain form of financing Benefit from such financing can be realized in long run only

7. Methods of Venture capital financing Equity participating debentures conditional loan

8. Types of Venture Capital funding The various types of venture capital are classified as per their applications at various stages of a business. The three principal types of venture capital are early stage financing, expansion financing and acquisition/buyout financing. The venture capital funding procedure gets complete in six stages of financing corresponding to the periods of a company's development Seed money: Low level financing for proving and fructifying a new idea Start-up: New firms needing funds for expenses related with marketingand product development

9. First-Round: Manufacturing and early sales funding Second-Round: Operational capital given for early stage companies which are selling products, but not returning a profit Third-Round: Also known as Mezzanine financing, this is the money for expanding a newly beneficial company Fourth-Round: Also called bridge financing, 4th round is proposed for financing the "going public" process CONTD..

10. A) Early Stage Financing: Early stage financing has three sub divisions seed financing, start up financing and first stage financing. Seed financing is defined as a small amount that an entrepreneur receives for the purpose of being eligible for a start up loan. Start up financing is given to companies for the purpose of finishing the development of products and services. First Stage financing: Companies that have spent all their starting capital and need finance for beginning business activities at the full-scale are the major beneficiaries of the First Stage Financing.

11. B) Expansion Financing: Expansion financing may be categorized into second-stage financing, bridge financing and third stage financing or mezzanine financing. Second-stage financing is provided to companies for the purpose of beginning their expansion. It is also known as mezzanine financing. It is provided for the purpose of assisting a particular company to expand in a major way. Bridge financing may be provided as a short term interest only finance option as well as a form of monetary assistance to companies that employ the Initial Public Offers as a major business strategy.

12. C) Acquisition or Buyout Financing: Acquisition or buyout financing is categorized into acquisition finance and management or leveraged buyout financing. Acquisition financing assists a company to acquire certain parts or an entire company. Management or leveraged buyout financing helps a particular management group to obtain a particular product of another company.

13. The process of venture capital financing The venture capital activity is a sequential process involving the following six steps: Deal origination Screening Evaluation Deal structuring Post-investment activity Exit Plan

14. Deal Origination In Deal Origination there is a continuous flow of deals is essential for venture capital business. Deal may originate in various ways :( i ) Referral System (ii) Active search and (iii) Intermediaries. Referral system is an important source of deals. Deals may be referred to VCF by their parent organizations, trade partners, industry associations, friends, etc. Yet important source of deal flow is the active search through networks, trade fairs, conferences. A third source used by venture capitalist in developed countries like USA, is certain intermediaries who match VCF and the potential entrepreneurs.

15. Screening Venture capitalist in his endeavour to choose the best ventures first of all undertakes preliminary scrutiny of all projects on the basis of certain broad criteria, such as technology or product, market scope, size of investment, geographical location and stage of financing. Venture capitalists in India ask the applicant to provide a brief profile of the proposed venture to establish prime facie eligibility. Entrepreneurs are also invited for face-to-face discussion for seeking certain clarifications.

16. Evaluation After a proposal has passed the preliminary screening, a detailed evaluation of the proposal takes place. A detailed study of project profile, track record of the entrepreneur, market potential, technological feasibility future turnover, profitability, etc. is undertaken. Venture capitalists in Indian factor in the entrepreneur’s background, especially in terms of integrity, long-term vision, urge to grow managerial skills and business orientation. They also consider the entrepreneur’s entrepreneurital skills, technical competence, manufacturing and marketing abilities and experience. Further, the project’s viability in terms of product, market and technology is examined. Besides, venture capitalists in India undertake thorough risk analysis of the proposal to ascertain product risk, market risk, technological and entrepreneurial risk. After considering in detail various aspects of the proposal, venture capitalist takes a final decision in terms of risk return spectrum, as brought in figure 31.1.

17. Deal Negotiation Once the venture is found viable, the venture capitalist negotiates the terms of the deal with the entrepreneur. This it does so as to protect its interest. Terms of the deal include amount, form and price of the investment. It also contains protective covenants such as venture capitalists right to control the venture company and to change its management, if necessary, buy back arrangements, acquisition, making IPOs. Terms of the deal should be mutually beneficial to both venture capitalist and the entrepreneur. It should be flexible and its structure should safeguard interests of both the parties.

18. Post Investment Activity Once the deal is financed and the venture begins working, the venture capitalist associates himself with the enterprise as a partner and collaborator in order to ensure that the enterprise is operating as per the plan. The venture capitalists participation in the enterprise is generally through a representation in the Board of Directors or informal influence in improving the quality of marketing, finance and other managerial functions. Generally, the venture capitalist does not meddle in the day-to-day working of the enterprise, it intervenes when a financial or managerial crisis takes place.

19. Exit Plan The last stage of venture capital financing is the exit to realise the investment so as to make a profit/minimize losses. The venture capitalist should make exit plan, determining precise timing of exit that would depend on an a myriad of factors, such as nature of the venture, the extent and type of financial stake, the state of actual and potential competition, market conditions, etc. At exit stage of venture capital financing, venture capitalist decides about disinvestments/realisation alternatives which are related to the type of investment, equity/quasi-equity and debt instruments. Thus, venture capitalize may exit through IPOs, acquisition by another company, purchase of the venture capitalist’s share by the promoter and purchase of the venture capitalist’s share by an outsider.

20. Venture Capital Investment Process Market Product Entrepreneurial (Managerial) Product Expected Return Expected Return Decision Screening Evaluation Approval

21. Examples of venture capital funding Pepperfry.com , India’s largest furniture e-marketplace, has raised USD100 million in a fresh round of funding led by Goldman Sachs and Zodius Technology Fund. Pepperfry will use the funds to expand its footprint in Tier III and Tier IV cities by adding to its growing fleet of delivery vehicles. It will also open new distribution centres and expand its carpenter and assembly service network. This is the largest quantum of investment raised by a sector focused e-commerce player in India.

22. Examples of venture capital funding Kohlberg Kravis & Roberts (KKR) , one of the top-tier alternative investment asset managers in the world, has entered into a definitive agreement to invest USD150 million ( Rs 962crore) in Mumbai-based listed polyester maker JBF Industries Ltd. The firm will acquire 20% stake in JBF Industries and will also invest in zero-coupon compulsorily convertible preference shares with 14.5% voting rights in its Singapore-based wholly owned subsidiary JBF Global Pte Ltd. The fundingprovided by KKR will help JBF complete the ongoing projects.

23. Conclusion: Considering the high risk involved in the venture capital investments complimenting the high returns expected, one should do a thorough study of the project being considered, weighing the risk return ratio expected. One needs to do the homework both on the Venture Capital being targeted and on the business requirements.

24. India's Top 5 Early Stage VC Firms Helion Venture Partners Accel Partners   Blume Ventures   Sequoia Capital India   Nexus Venture Partners  

25. Helion Venture Partners   Investing in technology-powered and consumer service businesses, Helion Ventures Partners is a $605 Mn Indian-focused, an early to mid-stage venture fund participating in future rounds of financing in syndication with other venture partners. People You Should Know:  Sandeep Fakun , Kanwaljit Singh. Investment Structure:  Invests between $2 Mn to $10 Mn in each company with less than $10 Mn in revenues. Industries:  Outsourcing, Mobile, Internet, Retail Services, Healthcare, Education and Financial Services. Startups Funded:   Yepme ,   MakemyTrip ,   NetAmbit ,   Komli ,  TAXI For Sure , PubMatic .

26. Accel Partners   Accel Partners founded in 1983 has global presence in Palo Alto, London , New York, China and India. Typical multi-stage investments in internet technology companies are made by Accel partners. People You Should Know:   Subrata Mitra , Prashanth Prakash and Mahendran Balachandran Investment Structure:  Invests between $0.5 Mn and $50 Mn in its portfolio companies. Industries:  Internet and Consumer Services, Infrastructure, Cloud -Enabled Services, Mobile and Software. Startups Funded:   Flipkart ,  BabyOye ,   Freshdesk ,  Book My Show ,   Zansaar , Probe ,   Myntra ,   CommonFloor .

27. Blume Ventures Venture capital firm, Blume Venture Advisor funds early-stage seed, startups , pre-series A, series B and late stage investments. Blume backs startups with both funding as well as active mentoring and support. People You Should Know:   Karthik Reddy and Sanjay Nath. Investment Structure:  Provides seed funding investments between $0.05 Mn – $0.3 Mn in seed stage. Also, provides follow-on investments to portfolio companies ranging from $.5Mn to $1.5Mn. Industries:  Mobile Applications, Telecommunications Equipment, Data Infrastructure, Internet and Software Sectors, Consumer Internet, Media, Research and Development Startups Funded:  Carbon Clean Solutions ,  EKI Communications ,  Audio Compass ,   Exotel ,   Printo .

28. Sequoia Capital India Sequoia Capital India specializes in investments in startup seed, early, mid, late, expansion, public and growth stage companies. People You Should Know:  Shailesh Lakhani and Shailendra Singh. Investment Structure:  SCI invests between $100,000 and $1 Mn in seed stage, between $1 Mn and $10 Mn in early stage and between $10 Mn and $100 Mn in growth stage companies. Industries:  Consumer, Energy, Financial, Healthcare, Outsourcing, Technology. Startups Funded:   JustDial ,  Knowlarity ,  Practo ,   iYogi ,  bankbazaar.com

29. Nexus Venture Partners Nexus Venture Partners is a venture capital firm investing in early stage and growth stage startups across sectors in India and US. People You Should Know:   Suvir Sujan and Anup Gupta Investment Structure:  Invests between $0.5 Mn and $10 Mn in early growth stage companies. Also, makes investments upto $0.5 Mn in their seed program. Industries:  Mobile, Data Security, Big Data analytics, Infrastructure, Cloud, Storage, Internet, Rural Sector, Outsourced Services, Agribusiness, Energy, Media, Consumer and Business services, Technology. Startups Funded:   Snapdeal ,  Housing ,  Komli ,   ScaleArc ,   PubMatic , Delhivery .

30. “A Study on Venture Capital Financing for Micro Small & Medium Enterprises ( Msme ) in India” Prof.B . Vijayalakshmi - Head of the department, Sri Padmavathi Mahila Viswavidyalaya , Tirupati. & Dr. K. Tirumalaiah - Associate Professor, SV Colleges, Tirupati Mrs. W. R. Sony - Assistant Professor, SV Colleges, Tirupati

31. Abstract The venture capital (VC) finance focuses on companies, which are not listed in a stock exchange. The VC- finance is usually equity finance, which can be directly placed on the share capital or through mezzanine finance form indirectly to shares. Venture capital investment is timely limited, in general for 3 - 5 years. Venture capital financier has a target to bring with capital also the know- how which investor supplies to the company in a form of consulting or advising the company. The venture capital investment is based on the shareholders agreement between investor and the company. The agreement includes of the pricing principles of the shares from the start phase to the exit stage. ABSTRACT KEYWORDS : MSME, F

32. “Study of Venture Capital In India” Author:- Prashant Jadhav

33. Abstract In India , a Revolution is ushering in an economy where in major investment are being made in knowledge based industries with Substantially low investment in land, building, plant and machinery . The asset backed lending instruments adopted for hard core manufacturing industries are provided to be inadequate for knowledge based industries that often start with just Idea. The only way to finish Such industries is through venture capital. Venture capital is instrumental is bringing about industrial development for it exploits the vast and untapped potentialities and promote the growth of the knowledge based industries worldwide. In India too it has become popular in different parts of the country. Thus the role of the venture capitalist is very crucial different and distinguishable to the role of traditional finance as it deals with others money. In view of globalisation, venture capital has turned out to be boon to both business and industry. This report which contains in depth study of venture capital industry in India is made with an intension to get through all aspects related to the topic and to become able to make some suggestion at the industry. This report deals with the concept of venture capital with particular reference to India. The reports include all facts, rules and regulation regarding venture capital.

34. VENTURE CAPITAL IN INDIA: SECTOR-WISE ANALYSIS Pallvi Rani | Assistant Professor | DAV College, Hoshiarpur & Dr. Hitesh Katyal | Principal | Chandigarh Business School, Landran

35. ABSTRACT Venture Capital is money provided by professionals who invest and manage young rapidly increasing companies that have the probable to develop into significant economic contributors. The Government of India in an attempt to bring the nation at par and above the developed nations has been promoting venture capital financing to new, innovative concepts & ideas. Venture Capitalists in India are biased toward technology companies with 68.0% of investments made in this sector. Other sectors include healthcare and education accounting for 9.0% and 7.0% of total investments respectively. The VC industry in India has had a somewhat frustrating run. With too much money chasing too few deals, Indian venture capital is struggling. Venture Capital firms invested over 206 deals in India during 2013, registering a fall of about 18 percent over the corresponding period a year ago. Of the 184 exits in the Industry, the technology sector accounted for about 137 of them. This study would be an exploratory study. Venture Capital Investments in various sectors like Real Estate, Telecom, InfoTech, Media, Biotech and Pharmacy will also be compared. VC growth in top sectors will also be talked about. Various Companies that invested in India will also be contrasted on various factors like size of investments, location and number of deals.

36. An Overview on “Venture Capital Financing” in India Prof. Viren Chavda , Lecturer, N. C. Bodiwala Commerce College, Ahmedabad, Gujarat India

37. Abstract: The concept of venture capital deals with the great amount of financing to undertake big projects. Venture Capital is money provided by professionals who invest in rapidly growing companies that have the potential to develop into significant economic contributors. According to SEBI regulations, venture capital fund means a fund established in the form of a company or trust, which enhances capital in the form of money through loans, issue of securities, donations or and makes or proposes, to make investments in accordance with these regulations. The funds so collected are available for investment in potentially highly profitable projects at a high financial risk of loss. A Venture Capitalist is an individual or a company who provides. Investment Capital, intellectual management expertise while funding and running highly innovative & prospective areas of products as well as services. . In India, presently, there are many institutions which provide venture capital finance. There is an urgent need for encouragement of risk capital in India, as this will widen the industrial base of, high tech industries and promote the growth of technology. This research paper is an aiming to highlight the issues and challenges faced by Indian venture capital companies while financing.

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