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STARTING A BUSINESS
SOLE PROPREITORSHIP
PARTNERSHIP
PRIVATE LIMITED COMPANY
PUBLIC LIMITED COMPANY
FINANCING FOR THE BUSINESS
ANGEL INVESTOR• Invest money in seed,
startup and early stage companies
• Invest time in Entrepreneurs and their companies
• Business acumen• Mentoring and
coaching• Serve on boards• Make business
introductions
ANGEL INVESTOR
• Often successful, exited entrepreneurs or retired business persons – active investors
• Accredited Investors• Angels invest their
own money
VENTURE CAPITAL
• Money provided by investors to start-up firms and small businesses with perceived long-term growth potential.
• This is a very important source of funding for start-ups that do not have access to capital markets.
• It typically entails high risk for the investor, but it has the potential for above-average returns.
• Success Rate is around 10%
VENTURE CAPITAL
• Venture capital can also include managerial and technical expertise.
• Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships.
• This form of raising capital is popular among new companies or ventures with limited operating history, which cannot raise funds by issuing debt.
• The downside for entrepreneurs is that venture capitalists usually get a say in company decisions, in addition to a portion of the equity.
PRIVATE EQUITY
• Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity.
• Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet.
PRIVATE EQUITY
• The majority of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time.
• Private equity investments often demand long holding periods to allow for a turnaround of a distressed company or a liquidity event such as an IPO or sale to a public company.
SHARES/EQUITY
SHARESTypes
Authorised Share Capital Authorised share capital is the number
of ordinary shares capital that a firm can raise without further
shareholder approval.
Issued Capital The portion of the authorised capital offered by the
company to the investors is the issued capital.
Subscribed Share Capital Subscribed share capital is the number
of share (capital) outstanding.
Paid-up Capital The actual amount paid by the shareholders is the
paid-up capital.
Par (face) Value Par (face) value is a value arbitrarily placed on the
shares.
FEATURES OF SHARES
Residual claim to income
Residual claim on assets
Right to control
Pre-emptive rights
Limited liability.
ISSUE OF SHARES
IPO
FPO
RIGHTS ISSUE
PREFERENCE SHARES
QIB
IMPORTANT POINTS IN ISSUE OF SHARES
BOOKBUILDING
SEBI
MERCHANT BANKERS
STOCK EXCHANGES
DEBT
FEATURES OF TERM LOANS
MATURITY
NEGOTIATED
SECURITY / COLLATERAL
COVENANTS
TYPES OF COVENANTS
• ASSET RELATED
• LIBILITY RELATED
• CASH FLOW RELATED
• CONTROL RELATEDNEGATIVE
• PROVIDING INFORMATION
• MAINTAINENCE
• SINKING FUNDPOSITIVE
FEATURES OF BOND / DEBENTURE
Attributes
As a long-term source of borrowing, debentures have some
contrasting features compared to equities .
Trust Indenture When a debenture is sold to investing public, a trustee
is appointed through an indenture/trust deed.
Trust (bond) indenture is a complex and lengthy legal document
stating the conditions under which a bond has been issued.
Trustee is a bank/financial institution/insurance company/ firm of
attorneys that acts as the third party to a bond/debenture indenture to
ensure that the issue does not default on its contractual responsibility
to the bond/ debentureholders.
Interest The debentures carry a fixed (coupon) rate of interest, the
payment of which is legally binding/enforceable. The debenture
interest is tax-deductible and is payable annually/semi-
annually/quarterly.
IMPORTANT POINTS ABOUT BONDS / DEBENTURE
MATURITY
SINKING FUND
CALL / PUT OPTION
SECURITY
CONVERTIBILITY
CREDIT RATING
CLAIM ON INCOME AND ASSETS
INNOVATIVE DEBT INSTRUMENTS
ZERO COUPON BONDS
DEEP DISCOUNT BONDS
SECURED PREMIUM NOTES
FLOATING RATE BOND
CALL / PUT BONDS
FCCB