Venture Capital

Financing
 INTRODUCTION

“VENTURE CAPITAL IS THE INVESTMENT OF LONG

TERM EQUITY FINANCE WHERE VENTURE

CAPITALIST EARN IN FORM OF CAPITAL GAINS.”

 Features of Venture Capital
• Equity Participation.
• Long-term Investments.
• Participation in Management.

Venture capitalist combines the

qualities of bankers, stock market
investors and entrepreneur in one.
 REGULATION

•SEBI GUIDELINES REGULATE VCFs IN INDIA.

•VCFs MAY BE STRUCTURED AS A COMPANY OR A

TRUST TO RAISE FINANCES AS LOANS,

DONATIONS, ISSUE OF SECURITIES.

Stages in Venture Financing
• Early Stage Financing
• Expansion Financing
• Acquisition/Buyout Financing
 WHAT DOES A VC LOOK IN A
VENTURE?
SUPERIOR BUSINESSES

QUALITY AND DEPTH OF MANAGEMENT

CORPORATE GOVERNANCE AND STRUCTURE

APPROPRIATE INVESTMENT STRUCTURE

EXIT PLAN
 Venture Capital Investment
Process
• Deal Origination
• Screening
• Evaluation
• Deal Structuring
• Post-investment activity
• Exit
 DEAL ORIGINATION

REFERRAL SYSTEM

ACTIVE SEARCH

INTERMEDIARIES
 EVALUATION
PRELIMINARY EVALUATION

DETAILED EVALUATION
 EVALUATION (CONTD..)
VCFs IN INDIA EXPECT ENTREPRENEUR TO HAVE:

•INTEGRITY
•LONG TERM VISION
•URGE TO GROW
•MANAGERIAL SKILLS
•COMMERCIAL ORIENTATION
 RISK ANALYSIS
•PRODUCT RISK

•MARKET RISK

•TECHNOLOGY RISK

•ENTREPRENEURIAL RISK
 DEAL STRUCTURING
AMOUNT, FORM AND PRICE.

PROTECTIVE COVENANT AND EARN OUT

ARRANGEMENT.
 EXIT PLAN
•IPO

•ACQUISITION BY ANOTHER CO.

•PURCHASE OF VC’s SHARE BY THE PROMOTER.

•PURCHASE OF VC’s SHARE BY OUTSIDER.

Methods of Venture Financing
• Equity
• Conditional Loan
• Income Note
• Other Financing Methods
1. Participating Debentures
2. Partially Convertible Debentures
3. Cumulative Convertible Preference Shares
4. Deferred Shares
5. Convertible Loan Stock
6. Special Ordinary Shares
7. Preferred Ordinary Shares
 Disinvestment Mechanisms
• Buybacks
• Initial Public Offerings
• Secondary Stock Markets
• Management Buyouts
 Future Prospects of Venture
Financing
• Rehabilitation of sick units.
• Assist small ancillary units to upgrade
their technologies.
• Provide financial assistance to people
coming out of universities etc.
 Success of Venture Capital
• Entrepreneurial Tradition.
• Unregulated Economic Environment.
• Disinvestment Avenues.
• Fiscal Incentives.
• Broad Based Education.
• Venture Capital Managers.
• Promotion Efforts.
• Institute Industry Linkage.
• R&D Activities.