Download - Venture Capital
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What is VC? Investment in High risk projects High return potential projects Equity related instruments Unlisted companies
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Types of risk financiers Regular VCs Corporate VCs Angel investors Incubators
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Stages of VCs investment
Seed Stage Early stage Later stage Turnaround
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US environment Gap not met by debt recognised in late
1940s Industry - institutes initiatives Less of
regulatory hurdles, Stanford, Harvard etc
SBICs most successful Entrepreneriul spirit encouraged, ie
failure not negative for next round of financing
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Other countries Israel - strong US tie Singapore - initiatives like NSTB Other countries in Europe, Asia
trying to replicate success in US recognising the role played by VC investment in promoting growth of economy
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Changing trends Successful entrepreneurs in US turned
financiers, TiE Successful Indians Foreign VCs directly investing in India NRI entrepreneurs tapping Indian VC
funds Banks and other institutions also looking
at innovative ways to fund SMEs
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VC investment & exit
InitialMeetings
PrelimnaryProjectReview byVentureCapitalist
Term SheetSigned byVentureCapitalist &Promoters
DueDiligenceReview ofProject
VentureCapitalistwith Funds
PromoterswithProject
LegalDocuments/AgreementSigned
Investmentmade byVentureCapitalistin Project
Mentoring&Monitoringof Project
Divestment& ExitfromProject
Promoters
VentureCapitalist
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What a project must have High upside potential Potential for extraordinary returns
to investor Exit route plan
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VC looks for
Team – leadership, multidisciplinary, integrity, competence, domain knowledge
Project, product, USP Market, opportunity, growth
expected, barriers to competition Exit avenue
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Business Plans
Business plans… are to be forward looking, based
on past knowledge of promoters and their work experience in the existing or new company
Must discount revenues expected, account for all expected costs and project expected cash flows
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Due diligence reviews
Investment decision based on DDR Business Market Accounting Tax and Legal Technical HR
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Term Sheet Term sheet is a letter of intent and
may or may not be legally binding Term sheet terms give a summary
of proposed principal terms of investment
Term sheet is usually subject to satisfactory completion of due diligence reviews
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Term Sheet extract
Type of security Equity Shares
Pre-money valuation Rs. 300 million
Post-money valuation Rs. 400 million
Equity shareholding ofthe company postinvestment
Existing holders ofequity
Stock options pool
VC Investor Limited
abcdef
15%15%10%10% 5% 5%
15%
25%
Amount of investment Rs. 100 million
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Post VC investment Is a partner in the project Mentors and monitors the project Hand holds through the investment
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Post VC investment Networks on behalf of the
investee, provides contacts, opens doors…
flip side could be perceived as interfering, this depends on VC/entrepreneur relationship
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What a VC does Each fund manager mentors only
a handful of projects While fund size is big, no. of
investments cannot be too much, hence project size increases
Unlike debt/other investor, VC is not silent spectator,often is on the Board of investee company
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VC investment Some VCs therefore have separate
persons to look at investment and others to look at post investment, monitoring as the skill sets can be different
Others have the same fund manager looking at project from day one of receiving proposal thru exit from investment
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Mature markets
Different VCs may target different industries such as:– IT further split into niche areas– Agri related – Bioinformatics– Manufacturing - new materials – Service
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Future of VC in India Industry has not grown to meet needs
of a variety of entrepreneurs Too much money chasing too few
projects, in select industries, not in the majority
Move towards consortium financing, risks spread for a smaller piece of pie
Many have dropped out and many coming in - churn is there, as players are to get established
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Future of VC in India Potential is there, needs to be tapped Lack of appropriately trained persons to
manage funds General public, including others like
bank staff, CAs, legal advisors etc. not completely aware of finer points of such funding
The entrepreneurial ecosystem is yet to develop, of course some cities like Bangalore are slowly having a variety of experts in this space
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Future VCs in India There are limited takers for smaller
projects Real early stage, high growth, high
risk projects, finding it difficult to raise funding
There are issues of exit and other related issues
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Future VCs in India In the recent times some groups have
showed interest in getting together those who need funds on the one hand and those who want to invest on the other, including high net worth individuals etc.
This includes industry groups, academic institutions and other groups
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Evolving scenario
Review of projects includes going back to cash flow
Gap between PAT and free cash flow analysed
Detailed due diligence review Business perspective and not audit
perspective Looking at the India + global story
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Evolving scenario
Are we going to see more global Indian brands in the future?
Will VCs help us create these brands?
Time will tell
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