the venture capital funds in india 11.docx
TRANSCRIPT
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The Venture Capital Funds in India
By
D. Aruna Kumar
Assistant Professor (Finance & Accounting Area)Lokamanya Tilak PG College of Management
Ibrahimpatnam, Hyderabad-501 506
This paper proposes to outline the concept and origin of Venture Capital, trace its growth, and
highlight the venture capital regulations. It has briefly explained about the Chandra SekharCommittee recommendations, various types of Venture Capital Funds and the venture capital proce
in India. A simple case on first Venture Capital Fund in India, Technology Development & InformatioCompany Of India Ltd., has also developed with concluding remarks.
Introduction
The venture capital investment helps for the growth of innovative entrepreneurships in India. Ventucapital has developed as a result of the need to provide non-conventional, risky finance to new
ventures based on innovative entrepreneurship. Venture capital is an investment in the form ofequity, quasi-equity and sometimes debt - straight or conditional, made in new or untried concepts
promoted by a technically or professionally qualified entrepreneur. Venture capital means risk capit
It refers to capital investment, both equity and debt, which carries substantial risk and uncertaintieThe risk envisaged may be very high may be so high as to result in total loss or very less so as toresult in high gains
The concept of Venture Capital
Venture capital means many things to many people. It is in fact nearly impossible to come across osingle definition of the concept.
Jane Koloski Morris, editor of the well known industry publication, Venture Economics, defines
venture capital as 'providing seed, start-up and first stage financing' and also 'funding the expansio
of companies that have already demonstrated their business potential but do not yet have access tothe public securities market or to credit oriented institutional funding sources.
The European Venture Capital Associationdescribes it as risk finance for entrepreneurial growtoriented companies. It is investment for the medium or long term return seeking to maximize
medium or long term for both parties. It is a partnership with the entrepreneur in which the investocan add value to the company because of his knowledge, experience and contact base.
The Origin of Venture Capital
In the 1920's & 30's, the wealthy families of and individuals investors provided the start up money companies that would later become famous. Eastern Airlines and Xerox are the more famous ventuthey financed. Among the early VC funds set up was the one by the Rockfeller Family which started
special fund called VENROCK in 1950, to finance new technology companies. General Doriot, a
professor at Harvard Business School, in 1946 set up the American Research and DevelopmentCorporation (ARD), the first firm, as opposed to a private individuals, at MIT to finance the
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commercial promotion of advanced technology developed in the US Universities. ARD's approach wa
a classic VC in the sense that it used only equity, invested for long term, and was prepared to livewith losers. ARD's investment in Digital Equipment Corporation (DEC) in 1957 was a watershed in t
history of VC financing. While in its early years vc may have been associated with high technology,over the years the concept has undergone a change and as it stands today it implies pooledinvestment in unlisted companies.
Venture Capital in India
In India the Venture Capital plays a vital role in the development and growth of innovativeentrepreneurships. Venture Capital activity in the past was possibly done by the developmentalfinancial institutions like IDBI, ICICI and State Financial Corporations. These institutions promoted
entities in the private sector with debt as an instrument of funding. For a long time funds raised fro
public were used as a source of Venture Capital. This source however depended a lot on the marketvagaries. And with the minimum paid up capital requirements being raised for listing at the stock
exchanges, it became difficult for smaller firms with viable projects to raise funds from public. InIndia, the need for Venture Capital was recognised in the 7th five year plan and long term fiscal pol
of GOI. In 1973 a committee on Development of small and medium enterprises highlighted the nee
to faster VC as a source of funding new entrepreneurs and technology. VC financing really started iIndia in 1988 with the formation of Technology Development and Information Company of India Ltd
(TDICI) - promoted by ICICI and UTI. The first private VC fund was sponsored by Credit CapitalFinance Corporation (CFC) and promoted by Bank of India, Asian Development Bank and the
Commonwealth Development Corporation viz. Credit Capital Venture Fund. At the same time GujaraVenture Finance Ltd. and APIDC Venture Capital Ltd. were started by state level financial institution
Sources of these funds were the financial institutions, foreign institutional investors or pension fundand high net-worth individuals. The venture capital funds in India are listed in Annexure I.
Venture Capital Investments in India
The venture capital investment in India till the year 2001 was continuously increased and thereby
drastically reduced. Chart I shows that there was a tremendous growth by almost 327 percent in
1998-99, 132 percent in 1999-00, and 40 percent in 2000-01 there after venture capital investorsslow down their investment. Surprisingly, there was a negative growth of 4 percent in 2001-02 it wcontinued and a 54 percent drastic reduction was recorded in the year 2002-2003.
Chart I
Venture Capital Investments
Source: The Economic Times
SEBI Venture Capital Funds (VCFs) Regulations, 1996
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A Venture Capital Fund meansa fund established in the form of a trust/company; including a bo
corporate, and registered with SEBI which (i) has a dedicated pool of capital raised in a mannerspecified in the regulations and (ii) invests in venture capital undertakings (VCUs) in accordance witthese regulations.
A Venture Capital Undertakingmeans a domestic company (i) whose shares are not listed on a
recognised stock exchange in India and (ii) which is engaged in the business of providingservices/production/manufacture of articles/things but does not include such activities/sectors as ar
specified in the negative list by SEBI with government approval-namely, real estate, non-bankingfinancial companies (NBFCs), gold financing, activities not permitted under the industrial policy of thGovernment and any other activity which may be specified by SEBI in consultation with theGovernment from time to time.
Registration
All VCFs must be registered with SEBI and pay Rs.25,000 as application fee and Rs. 5,00,000 as
registration fee for grant of certificate.
Recommendations of SEBI (Chandrasekhar) Committee, 2000SEBI appointed theChandrasekhar Committee to identify the impediments in the growth of venture capital industry in tcountry and suggest suitable measures for its rapid growth. Its report was submitted in January,2000. The recommendations pertain to
1. Harmonisation of multiplicity of regulations
2. VCF structures3. Resource raising4. Investments
5. Exit6. SEBI regulations7. Company law related issues and
8. Other related issues.
Types of Venture Capital Funds
Generally there are three types of organised or institutional venture capital funds: venture capital
funds set up by angel investors, that is, high net worth individual investors; venture capital
subsidiaries of corporations and private venture capital firms/ funds. Venture capital subsidiaries arestablished by major corporations, commercial bank holding companies and other financialinstitutions. Venture funds in India can be classified on the basis of the type of promoters.
1. VCFs promoted by the Central govt. controlled development financial institutionssuch TDICI, by ICICI, Risk capital and Technology Finance Corporation Limited (RCTFC) by the Industrial
Finance Corporation of India (IFCI) and Risk Capital Fund by IDBI.2.VCFs promoted by the state government-controlled development finance institutionssu
as Andhra Pradesh Venture Capital Limited (APVCL) by Andhra Pradesh State Finance Corporation
(APSFC) and Gujarat Venture Finance Company Limited (GVCFL) by Gujarat Industrial InvestmentCorporation (GIIC)3.VCFs promoted by Public Sector bankssuch as Canfina by Canara Bank and SBI-Cap by Stat
Bank of India.4.VCFs promoted by the foreign banks or private sector companies and financialinstitutionssuch as Indus Venture Fund, Credit Capital Venture Fund and Grindlay's India
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Development Fund.
The Venture Capital Investment Process:
The venture capital activity is a sequential process involving the following six steps.
1. Deal origination2. Screening3. Due diligence Evaluation)
4. Deal structuring5. Post-investment activity6. Exist
Venture Capital Investment Process
Deal origination:
In generating a deal flow, the VC investor creates a pipeline of deals or investment opportunities th
he would consider for investing in. Deal may originate in various ways. referral system, active searcsystem, and intermediaries. Referral system is an important source of deals. Deals may be referredVCFs by their parent organisaions, trade partners, industry associations, friends etc. Another deal
flow is active search through networks, trade fairs, conferences, seminars, foreign visits etc.
Intermediaries is used by venture capitalists in developed countries like USA, is certain intermediar
who match VCFs and the potential entrepreneurs.
Screening:
VCFs, before going for an in-depth analysis, carry out initial screening of all projects on the basis ofsome broad criteria. For example, the screening process may limit projects to areas in which the
venture capitalist is familiar in terms of technology, or product, or market scope. The size of
investment, geographical location and stage of financing could also be used as the broad screening
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criteria.
Due Diligence:
Due diligence is the industry jargon for all the activities that are associated with evaluating an
investment proposal. The venture capitalists evaluate the quality of entrepreneur before appraising
the characteristics of the product, market or technology. Most venture capitalists ask for a businessplan to make an assessment of the possible risk and return on the venture. Business plan containsdetailed information about the proposed venture. The evaluation of ventures by VCFs in India
includes;
Preliminary evaluation: The applicant required to provide a brief profile of the proposed venture toestablish prima facie eligibility.
Detailed evaluation: Once the preliminary evaluation is over, the proposal is evaluated in greaterdetail. VCFs in India expect the entrepreneur to have:- Integrity, long-term vision, urge to grow,managerial skills, commercial orientation.
VCFs in India also make the risk analysis of the proposed projects which includes: Product risk,Market risk, Technological risk and Entrepreneurial risk. The final decision is taken in terms of the
expected risk-return trade-off as shown in Figure.
Deal Structuring:
In this process, the venture capitalist and the venture company negotiate the terms of the deals, th
is, the amount, form and price of the investment. This process is termed as deal structuring. Theagreement also include the venture capitalist's right to control the venture company and to change management if needed, buyback arrangements, acquisition, making initial public offerings (IPOs), e
Earned out arrangements specify the entrequreneur's equity share and the objectives to be achieve
Post Investment Activities:
Once the deal has been structured and agreement finalised, the venture capitalist generally assumethe role of a partner and collaborator. He also gets involved in shaping of the direction of the ventu
The degree of the venture capitalist's involvement depends on his policy. It may not, however, bedesirable for a venture capitalist to get involved in the day-to-day operation of the venture. If a
financial or managerial crisis occurs, the venture capitalist may intervene, and even install a newmanagement team.
Exit:
Venture capitalists generally want to cash-out their gains in five to ten years after the initial
investment. They play a positive role in directing the company towards particular exit routes. Aventure may exit in one of the following ways:
1. Initial Public Offerings (IPOs)
2. Acquisition by another company
3. Purchase of the venture capitalist's shares by the promoter, or4. Purchase of the venture capitalist's share by an outsider.
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Methods of Venture Financing
Venture capital is typically available in three forms in India, they are:
Equity: All VCFs in India provide equity but generally their contribution does not exceed 49 percen
of the total equity capital. Thus, the effective control and majority ownership of the firm remains w
the entrepreneur. They buy shares of an enterprise with an intention to ultimately sell them off tomake capital gains.
Conditional Loan:It is repayable in the form of a royalty after the venture is able to generate saleNo interest is paid on such loans. In India, VCFs charge royalty ranging between 2 to 15 percent;
actual rate depends on other factors of the venture such as gestation period, cost-flow patterns,riskiness and other factors of the enterprise.
Income Note: It is a hybrid security which combines the features of both conventional loan andconditional loan. The entrepreneur has to pay both interest and royalty on sales, but at substantialllow rates.
Other Financing Methods: A few venture capitalists, particularly in the private sector, have starteintroducing innovative financial securities like participating debentures, introduced by TCFC is an
example.
A Case on Technology Development & Information Company Of India Ltd.
TDICI was incorporated in January 1988 with the support of the ICICI and the UTI. The country's fi
venture fund managed by the TDICI called VECAUS ( Venture Capital Units Scheme) was started wian initial corpus of Rs.20 crore and was completely committed to 37 small and medium enterprisesThe first project of the TDICI was loan and equity to a computer software company called Kale
Consultants.
Present Status: At present the TDICI is administering two UTImobilised funds under VECAUS-I an
II, totaling Rs.120 crore. the Rs.20 crore invested under the first fund, VECAUS-I, has already yieldreturns totaling Rs. 16 crore to its investors.
Some of the projects financed by the TDICI are discussed below.
MASTEK, a Mumbai based software firm, in which the TDICI invested Rs.42 lakh in equity in 1989
went public just three years later, in November 1992. It showed an annual growth of 70-80 percentthe turnover.
TEMPTATION FOODS,located in PUNE, which exports frozen vegetables and fruits, went public inNovember 1992. The TDICI invested Rs.50 lakh in its equity.
RISHABH INSTRUMENTSof Nasik got Rs.40 lakh from the TDICI. It manufactures a range ofmeters used in power stations in collaboration with the ABB Metra Watt of Germany. After making
cash losses totaling Rs.25 lakh in two bad years, it turned around in 1989 and showed an increase oover 70 percent in the turnover.
SYNERGY ART FOUNDATION,which runs art galleries in Mumbai and Chennai and plans to set upin Pune and Delhi too, had received Rs.25 lakh from the TDICI as convertible loans which wereconverted into equity on march 31, 1994. Most of this money has been used for the company's
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innovative art library scheme at least paintings to corporate clients.
Conclusion
In recent years the growth of Venture Capital Business has been drastically decreasing due to many
reasons. The regulator has to liberalize the stringent policies and pave the way to the venture capit
investors to park their funds in most profitable ventures. Though an attempt was also made to raisefunds from the public and fund new ventures, the venture capitalists had hardly any impact on theeconomic scenario for the next few years. At present many investments of venture capitalists in Ind
remain on paper as they do not have any means of exit. Appropriate changes have to be made to texisting systems in order that venture capitalists find it easier to realize their investments afterholding on to them for a certain period of time.
(The author acknowledges Prof. R K Mishra, Director, Institute of Public Enterprise, Osmania
University, Hyderabad, for his immense help and encouragement and Dr. S S S Kumar, Assistant
Professor, Finance and Accounting Area, Indian Institute of Management, Kozhikode, for hismotivation and inspiration)
Annexure I
Some important Venture Capital Funds in India
1. APIDC Venture Capital Limited ,1102, Babukhan Estate, Hyderabad 500 001
2. Canbank Venture Capital Fund Limited, IInd Floor, Kareem Towers, Bangalore
3. Gujarat Venture Capital Fund 1997, Ashram Road, Ahmedabad 380 0094. Industrial Venture Capital Limited, Thyagaraya Road, Chennai 600 0175. Auto Ancillary Fund Opp. Signals Enclave, New Delhi 110 010
6. Gujarat Venture Capital Fund 1995 Ashram Road Ahmedabad 380 0097. Karnataka Information Technology Venture Capital Fund Cunningham Rd Bangalore8. India Auto Ancillary Fund Nariman Point, Mumbai 400 021
9. Information Technology Fund, Nariman Point, Mumbai 400 02110. Tamilnadu Infotech Fund Nariman Point, Mumbai 400 02111. Orissa Venture Capital Fund Nariman Point Mumbai 400 021
12. Uttar Pradesh Venture Capital Fund Nariman Point, Mumbai 400 021
13. SICOM Venture Capital Fund Nariman Point Mumbai 400 02114. Punjab Infotech Venture Fund 18 Himalaya Marg, Chandigarh 160 01715. National Venture Fund for Software and Information Technology Industry, Nariman Point,Mumbai 400 021
References
1. NVCA and Venture Economics - 1999 National Venture Capital Yearbook.
2. I M Pandey Venture Capital Development Process in India, Technovation, Vol.18, 1998
3. I M PandeyVenture Capital: The Indian Experience, New Delhi: Prentice Hall, 1996
4. McKinsey & Company - US Venture Capital Industry Industry Overview and Economics (SummDocument), September, 1998
5. Indian Venture Capital Association - IVCA Venture Activity 1997
6. Steven P. Galante, Editor and Publisher, The Private Equity Analyst newsletter - An Overview of tVenture Capital Industry and Emerging Changes7. The Securities and Exchange Board of India - SEBI (Venture Capital Funds) Regulations, 1996
8. Mr. Sudhir Sethi, Director, Walden-India - Accessing Venture Capital Funds, June 1999
9. The Economic Times daily
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10. www.sebi.gov.in
About the Author:D. Aruna Kumar, MCom, MBA, (Ph.D.)The Author is with Lokamanya Tilak PG College of Management as Assistant Professor in the Department of Business Management inthe area of Finance and Accounting. He is working for his Ph.D. on "New Financing Instruments with reference to Central PublicEnterprises", under the guidance of Prof. R.K. Mishra, Director, Institute of Public Enterprise, Osmania University, Hyderabad -500 00
D. Aruna KumarAssistant Professor (Finance & Accounting Area)
Lokamanya Tilak PG College of ManagementIbrahimpatnam, Hyderabad-501 506
Source: E-mail July 3, 2005
Link:-http://www.indianmba.com/faculty_column/fc159/fc159.html
Venture capital financing process[edit]There are five common stages of venture capital financing:[citation needed]
1. The Seed stage
2. The Start-up stage
3. The Second stage
4. The Third stage
5. The Bridge/Pre-public stage
The number and type of stages may be extended by the VC firm if it deems necessary; this is common. [citation
needed]This may happen if the venture does not perform as expected due to bad management or market
conditions (see:Dot com boom).
The following schematics shown here are called the process data models. All activities that find place in the
venture capital financing process are displayed at the left side of the model. Each box stands for a stage of the
process and each stage has a number of activities. At the right side, there are concepts. Concepts are visible
products/data gathered at each activity. This diagram is according to themodeling techniquefounded by
ProfessorSjaak Brinkkemperof the University of Utrecht in the Netherlands.
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The Seed Stage[edit]
The Seed Stage
This is where theseed fundingtakes place. It is considered as the setup stage where a person or a venture
approaches anangel investoror an investor in a VC firm for funding for their idea/product. During this stage,
the person or venture has to convince the investor why the idea/product is worthwhile. The investor will
investigate into the technical and the economical feasibility (Feasibility Study)of the idea. In some cases, there
is some sort of prototype of the idea/product that is not fully developed or tested.
If the idea is not feasible at this stage, and the investor does not see any potential in the idea/product, the
investor will not consider financing the idea. However if the idea/product is not directly feasible, but part of the
idea is worthy of further investigation, the investor may invest some time and money in it for further
investigation.
Example[edit]
A Dutch venture named High 5 Business Solution V.O.F. wants to develop a portal which allows companies to
order lunch. To open this portal, the venture needs some financial resources, they also need marketeers and
market researchers to investigate whether there is a market for their idea. To attract these financial and non-
financial resources, the executives of the venture decide to approach ABN AMRO Bank to see if the bank is
interested in their idea.
After a few meetings, the executives are successful in convincing the bank to take a look in the feasibility of the
idea. ABN AMRO decides to put a few experts for investigation. After two weeks, the bank decides to invest.
They come to an agreement of invest a small amount of money into the venture. The bank also decides to
provide a small team of marketeers and market researchers and a supervisor. This is done to help the venture
with the realization of their idea and to monitor the activities in the venture.
Risk[edit]
At this stage, the risk of losing the investment is tremendously high, because there are so many uncertain
factors. Research by J.C. Ruhnka and J.E. Young shows that the risk of losing the investment for the VC firm is
around 66.2% and the causation of major risk by stage of development is 72% .[citation needed]The Harvard
report[1]by William R. Kerr, Josh Lerner, and Antoinette Schoar, however, shows evidence that angel-
fundedstartup companiesare less likely to fail than companies that rely on other forms of initial financing.
The Start-up Stage[edit]
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The Start-up Stage
If the idea/product/process is qualified for further investigation and/or investment, the process will go to the
second stage; this is also called the start-up stage. Abusiness planis presented by the attendant of the
venture to the VC firm. A management team is being formed to run the venture. If the company has a board of
directors, a person from the VC firms will take seats at the board of directors.
While the organisation is being set up, the idea/product gets its form. The prototype is being developed and
fully tested. In some cases, clients are being attracted for initial sales. The management-team establishes a
feasible production line to produce the product. The VC firm monitors the feasibility of the product and the
capability of the management-team from theboard of directors.
To prove that the assumptions of the investors are correct about the investment, the VC firm wants to see
result ofmarket researchto see whether the market size is big enough, if there are enough consumers to buy
their product. They also want to create a realistic forecast of the investment needed to push the venture into the
next stage. If at this stage, the VC firm is not satisfied about the progress or result from market research, the
VC firm may stop their funding and the venture will have to search for another investor(s). When the cause
relies on handling of the management in charge, they will recommend replacing (parts of) the management
team.
Example[edit]
Now the venture has attracted an investor, the venture needs to satisfy the investor for further investment. To
do that, the venture needs to provide the investor a clear business plan how to realise their idea and how the
venture is planning to earn back the investment that is put into the venture, of course with a lucrative return.
Together with the market researchers, provided by the investor, the venture has to determine how big the
market is in their region. They have to find out who are the potential clients and if the market is big enough to
realise the idea.
From market research, the venture comes to know that there are enough potential clients for their portal site.
But there are no providers of lunches yet. To convince these providers, the venture decided to do interviews
with providers and try to convince them to join.
With this knowledge, the venture can finish their business plan and determine a pretty good forecast of the
revenue, the cost of developing and maintaining the site and the profit the venture will earn in the following five
years.
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After reading the business plan and consulting the person who monitors the venture activities, the investor
decides that the idea is worth for further development.
Risk[edit]
At this stage, the risk of losing the investment is shrinking because the nature of any uncertainty is becoming
clearer. The VC firm's risk of losing the investment has dropped to 53.0%. However, the causation of major risk
becomes higher (75.8%), because the prototype was not fully developed and tested at the seed stage. The VC
firm could have underestimated the risk involved, or the product and the purpose of the product could have
changed during development.[2]
The Second Stage[edit]
The Second Stage
At this stage, we presume that the idea has been transformed into a product and is being produced and sold.
This is the first encounter with the rest of the market, the competitors. The venture is trying to squeeze between
the rest and it tries to get some market share from the competitors. This is one of the main goals at this stage.
Another important point is thecost.The venture is trying to minimize their losses in order to reach thebreak-
even.
The management team has to handle very decisively. The VC firm monitors the management capability of the
team. This consists of how the management team manages the development process of the product and how
they react to competition.
If at this stage the management team is proven their capability of standing hold against the competition, the VC
firm will probably give a go for the next stage. However, if the management team lacks in managing the
company or does not succeed in competing with the competitors, the VC firm may suggest for restructuring of
the management team and extend the stage by redoing the stage again. In case the venture is doing
tremendously bad whether it is caused by the management team or from competition, the investor will cut the
funding.
Example[edit]
The portal site needs to be developed. (If possible, the development should be taken place in house. If not, the
venture needs to find a reliable designer to develop the site.) Developing the site in house is not possible; the
venture does not have this knowledge in house. The venture decides to consult this with the investor. After a
few meetings, the investor decides to provide the venture a small team of web-designers. The investor also has
given the venture a deadline when the portal should be operational. The deadline is in three months.
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In the meantime, the venture needs to produce a client portfolio, who will provide their menu at the launch of
the portal site. The venture also needs to come to an agreement on how these providers are being promoted at
the portal site and against what price.
After three months, the investor requests the status of development. Unfortunately for the venture, the
development did not go as planned. The venture did not make the deadline. According to the one who ismonitoring the activities, this is caused by the lack of decisiveness by the venture and the lack of skills of the
designers.
The investor decides to cut back their financial investment after a long meeting. The venture is given another
three months to come up with an operational portal site. Three designers are being replaced by a new designer
and a consultant is attracted to support the executives decisions. If the venture does not make this deadline in
time, they have to find another investor.
Luckily for the venture, with the come of the new designer and the consultant, the venture succeeds in making
the deadline. They even have two weeks left before the second deadline ends.
Risk[edit]
At this stage, the risk decreases because the start-up is no longer developing its product, but is now
concentrating on promoting and selling it. These risks can be estimated. The risk to the VC firm of losing the
investment drops from 53.0% to 33.7%, and the causation of major risk by stage of development also drops at
this stage, from 75.8% to 53.0%.[3]
The Third Stage[edit]
The Third Stage
This stage is seen as the expansion/maturity phase of the previous stage. The venture tries to expand the
market share they gained in the previous stage. This can be done by selling more amount of the product andhaving a good marketing campaign. Also, the venture will have to see whether it is possible to cut down their
production cost or restructure the internal process. This can become more visible by doing aSWOT analysis.It
is used to figure out the strength, weakness, opportunity and the threat the venture is facing and how to deal
with it.
Apart from expanding, the venture also starts to investigate follow-up products and services. In some cases,
the venture also investigates how to expand thelife-cycleof the existing product/service.
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Mergerwith other companies
Keeping new competitors away from the market
Eliminate competitors
Internally, the venture has to examine where the product's market position and, if possible,repositionit to
attract newMarket segmentation.This is also the phase to introduce the follow-up product/services to attractnew clients and markets.
Ventures have occasionally made a very successful initial market impact and been able to move from the third
stage directly to the exit stage. In these cases, however, it is unlikely that they will achieve the benchmarks set
by the VC firm.
Example[edit]
Faced with the dilemma of whether to continuously invest or not. The causation of major risk by this stage of
development is 33%. This is caused by the follow-up product that is introduced.[5]
At Last[edit]As mentioned in the first paragraph, a VC firm is not only about funding and lucrative returns, but it also offers
knowledge support. Also, as can be seen below, the amount of risk (of losing investment value) decreases with
each additional funding stage
Stage at which investment made Risk of loss Causation of major risk by stage of development
The Seed-stage 66.2% 72.0%
The Start-up Stage 53.0% 75.8%
The Second Stage 33.7% 53.0%
The Third Stage 20.1% 37.0%
The Bridge/Pre-public Stage 20.9% 33.0%
Link:-http://en.wikipedia.org/wiki/Venture_capital_financing#Venture_capital_financing_process
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