VENTURE CAPITAL

Prepared By: Prof. Chhaya Patel

SMT.K.K.PATEL MBA/MCA COLLEGE, MEHSANA(818)

INTRODUCTION
CAPITAL

Fund employed in any business activity. Most important factor for production. No economic entity can function without capital. Venture capital

Venture capital is significant innovation of 20th century. It is generally consider as synonym of risky capital Venture capital is a new financial service, the emergence of which wants towards developing strategies to help a new class of new entrepreneurs to translate their business ideas into realities.

What is Venture Capiatl?

V enture Capital is equity support to fund a new concepts that involve a higher risk and at the same time, have a high growth and profit.

V enture Capital is broadly implies an investment of long term, equity finance in high risk projects with high rewards possibilities.

'renture Capital Fir1n

(Gener al Partner)

Limited Partners (Investors)

(public pens ion funds, corporate pens ion funds, insurance companies, high net-worth individuals, family offices, endowments, foundations, fund-of-funds, sovereign wealth funds, etc.)

I Investment

Ownership of the Fund

Fund Management

, . . . - - - - - - - - .......- - - - - - -

The Fund's ownership of the portfolio investments

Stages in venture capital

1. Seed Money: Low level financing needed to prove a new idea. 2. Start-up: Early stage firms that need funding for expenses associated with marketing and product development. 3. First-Round: Early sales and manufacturing funds. 4. Second-Round: Working capital for early stage companies that are selling product, but not yet turning a profit. 5. Third-Round: Also called Mezzanine financing, this is expansion money for a newly profitable company 6. Fourth-Round: Also called bridge financing, it is intended to finance the "going public process

ROLES WITHIN A VENTURE CAPITAL FIRM

1. V enture capital general partners: Also known in this case as "venture capitalists" or "VCs" are the executives in the firm. 2. Limited partners: Investors in venture capital funds are known as limited partners. 3. V enture partners: V enture partners "bring in deals" and receive income only on deals they work on. 4. Entrepreneur in residence: EIRs are experts in a particular domain and perform due diligence on potential deals. EIRs are engaged by VC firms Some EIR's move on to roles such as Chief Technology Officer (CTO) at a portfolio company

FEA TURES OF VENTURE CAPITAL

The main features of venture capital are: Long-time horizon: In general, venture capital undertakings take a longer time say, 5-10 years at a minimum to come out commercially successful; one should, thus, be able to wait patiently for the outcome of the venture. Lack of liquidity: Since the project is expected to run at start-up stage for several years, liquidity may be a greater problem. High risk: The risk of the project is associated with management, product and operations. High-tech: However, a venture capitalist looks not only for high-technology but the innovativeness through which the project can succeed. Equity participation and capital gains: A venture capitalist invests his money in terms of equity. He does not look for any dividend or other benefits, but when the project commercially succeeds, then he can enjoy the capital gain which is his main benefit. Participation in management: Unlike the traditional financier or banker, the venture capitalist can provide managerial expertise to entrepreneurs besides money.

Advantages of Venture Capital

Economy oriented

Investor Oriented

Entrepreneur oriented

ADV ANTAGES OF VENTURE CAPITAL

Economy Oriented Helps in industrialization of the country Helps in the technological development of the country Generates employment Helps in developing entrepreneurial skills Investor oriented Benefit to the investor is that they are invited to invest only after company starts earning profit, so the risk is less and healthy growth of capital market is entrusted. Profit to venture capital companies. Helps them to employ their idle funds into productive avenues.

Entrepreneur oriented Finance - The venture capitalist injects long-term equity finance, which provides a solid capital base for future growth. Business Partner - The venture capitalist is a business partner, sharing the risks and rewards. Mentoring Alliances - The venture capitalist also has a network of contacts in many areas that can add value to the company Facilitation of Exit - The venture capitalist is experienced in the process of preparing a company for an initial public offering (IPO) and facilitating in trade sales.

Methods of venture capital

equity Conditional loan Income note Other financing method

Process of venture capital

Deal origination Screening evaluation(due diligence) Deal structuring Post investment activity Exist plan

1 2 3

Thank you