venture capital

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  • Presented to Dr.Premraj Alva Group Leader Abhijeet Sankapal *

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    Roll no.Name Topic 91Prathamesh Shirsat92Ketan Sawant93Swapnali More94Ruchita Gurav95Nikhil Kalamkar96Premanand Maharana97Abhijeet Sankapal (Group Leader)98Manisha More99Raghav Gupta 100Priyanka Dabholkar

  • Meaning VC is long term risk capital to finance high technology projects which involve risks but at the same time has strong potential for growth .venture capitalist pool their resources including managerial abilities to assist new entrepreneurs in early years of project.Definition A financing institution which joins an entrepreneur as a co-promoter in a project & share the risks & rewards of enterprise *

  • In the 1920's & 30's, the wealthy families of and individuals investors provided the start up money for companies Eg. Eastern Airlines and Xerox VC funds set up was the one by the Rockfeller Family which started a special fund called VENROCK in 1950General Doriot, a professor at Harvard Business School, in 1946 set up the American Research and Development Corporation (ARD)ARD's approach was a classic VC ARD's investment in Digital Equipment Corporation (DEC) in 1957 was a watershed in the history of VC financing*

  • Form of equity participation High risk & high potential projectsCommercialization of new idea / new technologies Joins entrepreneur as co- promoter Continuous involvement Disinvestment optionVC is not injection of funds Investment in small/medium scale enterprises


  • Advantages to investing public 1.Reuce risk & stop mal practices of management 2.Venture funds equipped with necessary skills will able to study prospects of business 3.Venture fund having representatives on BOD of company.

    Advantages to promoters 1.Success of IPO 10 Underwrites , Brokers & Investors 2.Statutory Formalities sanctions, underwriting , brokers arrangement 3.Cost & expenses IPO of equity shares 10% to 15% of nominal value of issue ,recurring cost & Stock exchange listing fee. *

  • General- 1.Reduce time between technological innovation & commercial exploitation 2.developing new process/ products . 3.Cushion to support business borrowings 4.Channelise investment in new high tech business / exist of sick unit 5.Economy development 6.VC firms serves as intermediary 7.Sharing responsibility *

  • General Business Strategy AdviceDevelop a Financing PlanRefine the Business PlanMarketing Advice and StrategiesDevelop Contingencies


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    Financial StagePeriodRisk PerceptionActivity to be financedSeed Money7-10ExtremeFor supporting a concept or idea or R&D for product developmentStart Up5-9Very HighInitializing operations or developing prototypesFirst Stage3-7HighStart commercials production and marketing

    Second Stage3-5Sufficiently highExpand market and growing working capital need

    Third Stage


    MediumMarket expansion, acquisition & product development for profit making company Fourth Stage1-3Low Facilitating public issue

  • Deal origination-the VC investor creates a pipeline of deals or investment opportunities that he would consider for investing in. Deal may originate in various ways. referral system, active search system, and intermediaries.Screening-VCFs, before going for an in-depth analysis, carry out initial screening of all projects .Due Diligence-Due diligence is the industry jargon for all the activities. The venture capitalists evaluate the quality of entrepreneur before appraising characteristics of the product, market or technology 1. Preliminary evaluation 2. Detailed evaluation


  • Deal Structuring- In this process, the venture capitalist and the venture company negotiate the terms of the deals, that is, the amount, form and price of the investmentPost Investment Activities- 1.direction of the venture operation of the venture 3. install a new management teamExit- 1. Initial Public Offerings (IPOs) 2. Acquisition by another company 3. Purchase of the venture capitalist's shares by the promoter, or 4. Purchase of the venture capitalist's share by an outsider


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  • Introduction - TheIndian Private Equity and Venture Capital Associationwas established in 1993 and is based inNew Delhi , the capital ofIndia IVCA is a member based national organization that representsVenture capitalandPrivate equityfirms, promotes the industry within India and throughout the world and encourages investment in high growth companiesHistory of Venture Capital in India- 1. Venture Capital functions were run by development financial institutions such as the IDBI ICICI Bank, and State Financial corporations. Publicly raised funds were the main source of Venture Capital 2. Year 1988 marked the establishment of the Technology Development and Information Company of India Ltd.promoted by the ICICI and UTI & was immediately followed by the Gujurat Venture Finance Ltd. 3. In the year 1996,Security Exchange Board of Indiaintroduced the Foreign Venture Capital and Private Equity Funds investing in India *

  • The Growth of Venture Capital Funds In IndiaIn the year 2000, SEBI registered 13 more VC funds & their number increases to 32 .The SEBI has permitted VC funds to invite in real estate. This has open the doors for organized debt & equity instrument in real estate sector . VC firm invited $ 117 million over 27 deals in India during 6 months Ending june 2009.*

    YearNo. of VC Funds2001772002782003812004862005105200614620081602013333

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  • The guidelines issued by the Govt. of India were meant to encourage private promoters. their holding could not exceed 20% of the equity of such a joint effortThe guidelines of funding relatively new projects with no proven record in market acceptability.Section 372 of the Companies Act prohibits investment in a single company beyond 10% of the paid up capital of a companyIndian educational system fails to march laboratory research with commercial application.Lack of entrepreneurial tradition*

  • Venture capital funds, as the position stands today mostly operate from metropolitan townThe venture capital has not been given tax incentives Section 372 of the Companies Act places restrictions on inter-corporate investments.Section 369,309 and 387 of the Companies Act place restrictions on the remuneration of managing directors, directors and managers.


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  • Finance-The venture capitalist injects long-term equity finance, which provides a solid capital base for future growBusiness Partner-share the risks and rewards. Mentoring-The venture capitalist is able to provide strategic, operational and financial advice to the company Alliances-The venture capitalist also has a network of contacts in many areas that can add value to the companyFacilitation of Exit-Venture capitalists are experienced in the process of preparing a company for an initial public offering (IPO) of its shares onto the stock exchanges


  • Product Risk:The products concerned may have little or no track record in the markets as they are largely untested and usually have high obsolescence rates.Entrepreneur risk: another of the disadvantages of venture capital funding is that it is difficult to evaluate the new management and new business application without any prior track recordConcentration risk:Focusing on small market, which can relate to either the product or in geographical terms, raises exposure to sectoral downturnTechnology risk:hard to assess new technology on small set of productsDuration risk:Generally a longer long-gestation period for funding is needed.Asset risk:Due to a high percentage of fixed assets with high obsolescence, along with a high fraction of human capital, there is a lack of collateralizable assets, which is one of the drawbacks in venture capital funding


  • Debt-business loans, government-backed Small Business Administration (SBA) loans, and factoring loansFriends and familyAngel investors-like venture capitalists in that they invest in early-stage companies to get a large return on investmentCrowdfunding- Crowdfunding is a great way to pre-sell your product before its ready to ship to customersGrowing organically-When you grow your company organically, you take out only what you need to survive and put the rest of your profits back into the company as an investment.


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  • Introduction A committee on technology innovation & Venture capital headed by former finance secretary Nitin Desai was appointed by Planning Commission in 2006 to suggest measures to rise the flow of VC funds. Suggestions- To set up an Early Stage Venture Fund (ESVF) through public-private partnership (PPP).To provide fiscal incentive by way of set-off against taxable income for those individuals who invest in start up To extend same fiscal incentive to those who invest in domestic venture capital funds with corpus less than Rs.250 cr.To create Limited Liability Corporations(CLCs)*

  • To extend applicability of such LLCs & the proposed Limited Liability Partnership (LLP) structure to VC funds.To grant tax exemption of capital gain for registered VCFs on exitTo remove the restriction on investment of 25% in single VC undertaking by domestic & foreign VCFsTo remove the minimum capitalization requirement of Indian subsidiaries of SEBI registered foreign VC investors. *

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