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VENTURE CAPITALVENTURE CAPITAL


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Presented by

DALJIT ARORA 03

JAY BHATT 14

DHARAMVEER SINGH

SIMRAT SINGH

ROHIT DUTT 28

DEEPAK JAIN 34

NIKHIL JAIN 35


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y Venture Capital is a form of "risk capital".

y Risk capital is invested as shares (equity)

y Equity stake in the business is exchanged againststake.

MEANING


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Venture Capitalists generally:

y Finance new and rapidly growing companies

y Purchase equity securities

y Assist in the development of new products orservices

y Add value to the company through activeparticipation

y Provide additional funding, if required


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Characteristics

y Long time horizon

y Lack of liquidity

y High risk

y Equity participation

y Participation in management


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How does the Venture Capital

work? Venture capital firms typically source the majority

of their funding from large investmentinstitutions.

Investment institutions expect very high RoI

VCs invest in companies with high potentialwhere they are able to exit through either an IPOor a merger/acquisition.

Their primary RoI comes from capital gainsalthough they also receive some return throughdividend.


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What do VC look for in business

y Is the product or service commercially viable?

y Does the company have potential for sustainedgrowth?

y Does management have the ability to exploit thispotential and control the company through thegrowth phases?

y Does the possible reward justify the risk?

y

Does the potential financial return on theinvestment meet their investment criteria?


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Difference between

Venture Capital & Angel investorsPoint Venture capital Angel Investors

1)Sources of funds Pool money from otherpeople

Uses own funds

2)Stage ofdevelopment

Invests in differentstage of businessdevelopment

Invest in earlier stageof businessdevelopment

3)Role Desire an active role in

business

Do not play an active

role

4)Ease ofobtainingfinancing

Highly rigorous process Relatively easy toidentify


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STAGES OF VENTURE CAPITAL FUNDING

EARLY STAGEDEVELOPMENT

SEED CAPITAL

START -UP

OTHER EARLYSTAGE

EXPANSION

EXPANSIONFINANCING

TURNAROUNDS

REFINANCINGBANK DEBT

SECONDARYPURCHASE

LEVERAGEDBUYOUTS &

BUY-INS

MBO

BUY-IN

COMBINED BUY-IN/MBO

INSTITUTIONALBUY-OUT


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Advantages

y It injects long term equity finance.

y It shares both the risks and rewards.

y It provides practical advice and advantages tothe entrepreneur.

y

Has a network of contacts in many areas that canadd value to the company.


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Advantages (Cont.)

Experienced in the process of preparing acompany for an initial public offering (IPO)

They can also facilitate a trade sale

Capable of providing additional rounds of funding,

if needed


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1.

IDENTIFYING A OPPORTUNITY

2.

Screening

3. Due diligence (Evaluation)

4. Deal structuring

5. FUNDING


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Identifying an opportunity

y Conceptualising a product or service tooffer

y Recognising the market available for it

y Recognising the acceptance of the product

of service


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Screening

Venture capitalists tend to focus on fivespecific areas when evaluating a company

Areas of Focus:

Management

Marketplace

Competition

Business Economics Risks


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Due Diligence

The heavy lifting for the venture capitalist starts

with the due diligence process.

y Management information systems

y Forecasting techniques and accuracy of past forecasting

y Assumptions on which financial assumptions are based

y The latest available management accounts, including the

company's cash/debtor positionsy Bank facilities and leasing agreements

y Pensions funding

y Employee contracts, etc.


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Deal structuring

y Second most important part of the deal

y Various issues are finalised at this pointwhich are as follows:

The amount of money that will beinfused

- The board composition

- Various contracts such as leasing,financing etc.


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Funding

y The final round of deal

y At this stage entrepreneurs will receiveactual capital decided by the venturecapital

y It will also decide the level of funding thatit might offer in coming stages, if needed


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Some interesting facts

y 6 in 1000 business plans get funded on anaverage

y 5% of the business plans are read

beyond executive summary.

y 10% of business proposal pass initialscreening.

y

10% of pre screened funding pass duediligence and receive funding


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Methods of Venture Financing

EQUITY SHARES

LOAN CAPITAL

PREFERENCE SHARES

PREFERRED ORDINARY SHARES


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VENTURE CAPITAL RETURNS

Dividend on share

Interest on loan

Profits from realization

Advisory fees


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EXIT ROUTESFOR VC

EXIT

ROUTES

TRADE SALE

IPO

RE-FINANCING

INVOUNTARYEXIT

REPURCHASE


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DEVELPOMENT OFDEVELPOMENT OF

VENTURE CAPITALVENTURE CAPITALIN INDIAIN INDIA


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VENTURE CAPITAL IN INDIA

y The concept of venture capital was formallyintroduced in India in 1987 by IDBI.

y ICICI started VC activity in the same year

y Later on ICICI floated a separate VCcompany Technology Development InformationCompany of India (TDICI)


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Venture capital funds in India

VCFs in India can be categorized intofollowing five groups:

1) Promoted by the Central GovernmentFor example:

- ICICI Venture Funds Ltd.- IFCI Venture Capital Funds Ltd (IVCF)

- SIDBI Venture Capital Ltd (SVCL)


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2) Promoted by State Government

For example:- Punjab InfoTech Venture Fund- Gujarat Venture Finance Ltd (GVFL)- Kerala Venture Capital Fund Pvt Ltd.

3) Promoted by public banks.For example:- Canbank Venture Capital Fund

- SBI Capital Market Ltd


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4) Promoted by private sector companies.

For example:- IL&FS Trust Company Ltd- Infinity Venture India Fund

5) Established as an overseas venture capital fund.

For example:- Walden International Investment Group- HSBC Private Equitymanagement Mauritius Ltd

At present there are 144 Foreign Venture Capital firmsand 157 Domestic Capital Venture firms registeredwith SEBI.


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Venture Capital industry wise-segmentation

Percentagecalculated onthetotal VC investment- Rs.43,686 Cr. (as on30th June 2010)

8%

15%

3%

1%

3%6%

4%

22%

38%

Total Invesments IT

TELECOM

PHARMA

BOITECH

MEDIA

SERVICES

INDUSTRIAL

PRODUCTS

REAL ESTATE

OTHERS


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Impact of recession on the VC

industryThe down market virtually closed the IPO market

for emerging companies.

With less opportunities for getting ROI investorstend to scale back, adjust their investment focusand/or get more picky in funding companies.

The investors that put money into their funds

became less aggressive during recession so itwas harder for the VCs to raise money.


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Future prospects of VC in India

y VC can help in the rehabilitation of sick units.y VC can assist small ancillary units to upgrade

their technologiesy

VCFs can play a significant role in developingcountries in the service sector includingtourism, publishing, health care etc.

y They can provide financial assistance topeople coming out of universities, technicalinstitutes, etc thus promoting entrepreneurialspirits


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CASE STUDY

y SUBHIKSHA DOWNFALL


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