The greatest difficulty in the world is not for people to accept new ideas, but to make them forget

old ideas.--Tom Peters

WHAT IS VC FUNDING?
IS IT JUST THE STORY OF THE MAN WITH THE idea AND THE MAN WITH THE MONEY ?

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Indian Institute Of Planning & Management

VC FUNDING IS
IT IS THE BUSINESS OF EMPLOYING CAPITAL PATIENTLY TO MAXIMISE RETURNS WHILE MANAGING RISKS IN A RELATIVELY HIGH-RISK VENTURE

VERSUS
SIMPLY MINIMISING RISKS FOR A SURER FIXED RETURN

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Indian Institute Of Planning & Management

Cont.
Venture capitalists are typically very selective in deciding what to invest in; as a rule of thumb, a fund may invest in one of four hundred opportunities presented to it. Funds are most interested in ventures with exceptionally high growth potential, as only such opportunities are likely capable of providing the financial returns and successful exit event within the required timeframe (typically 3-7 years) that venture capitalists expect.

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Indian Institute Of Planning & Management

Development In India
The concept was introduced in India in 1987 It was operated by Industrial Development Bank of India. In the same year Industrial Credit and Investment Corporation of India was also started venture capital activity.

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Indian Institute Of Planning & Management

VC Mainly Looks at?

Promoters Integrity, Relevant Experience, Drive Level. Uniqueness Of Their IDEA Focus On/ Commitment To Their IDEA High Entry Barriers Competitive Advantages Good Market Size & Growth Rates Acceptable Geographic Location Appropriate Stage Of Investment
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Indian Institute Of Planning & Management

Cont.
Writing a business plan is a process in which the entrepreneur is forced to think about all aspects of the business Write it yourself Focus on The people, the opportunity / business model, Risk and reward Write down the exit options (the investor wants to get money out of it as well) but dont focus too much on the IPO within 3 years
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Indian Institute Of Planning & Management

Types of Venture Capital Firms

Depending on your type business, the venture capital firm you approach will differ. For instance, if you're an internet [start-up company], funding requests from a more manufacturing-focused firm will not be effective. Doing some initial research on which firms to approach will save time and effort. When approaching a VC firm, consider their portfolio: Business Cycle: Do they invest in budding or established businesses? Industry: What is their industry focus? Investment: Is their typical investment sufficient for your needs? Location: Are they regional, national or international? Return: What is their expected return on investment? Involvement: What is their involvement level?
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Indian Institute Of Planning & Management

Cont.
Targeting specific types of firms will yield the best results when seeking VC financing. The National Venture Capital Association segments dozens of VC firms into ways that might assist you in your search. It is important to note that many VC firms have diverse portfolios with a range of clients. If this is the case, finding gaps in their portfolio is one strategy that might succeed.

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Indian Institute Of Planning & Management

The Investment Process

Deal Flow Generation Assessment & Selection Deal making

Monitoring

Exit
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Indian Institute Of Planning & Management

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Revenue Stream For VC

Personal savings -- one can fund the business from personal savings or by raising personal loans
offering ones personal property as collateral security. Bootstrapping One can start the business venture with the limited available funds, and then use the profits to further develop the business. Bank loan Banks may come forward to lend money if the account behaviour is healthy.

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Indian Institute Of Planning & Management

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Cont
All the above three options are meant for wealthy individuals who may not strictly need external sources for business funding. There is a fourth way to raise money to start a business and this is known as venture capital. Venture capital is particularly suited if the intending entrepreneur needs large sums of money to meet big start-up expenses and has a quick business growth plans.

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Indian Institute Of Planning & Management

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Cont.
Venture capital investment firms raise and pool together money from institutional investors and other high net worth individuals. These venture capital funding firms quite often provide managerial and technical expertise apart from funds for the business. The venture capital company will then invest the pooled money in a number of business enterprises and then expect that all of the investments it has made will be paid back over a pre-determined number of years.

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Indian Institute Of Planning & Management

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Trends In VC Funding
There are typically six stages of financing offered in Venture Capital, that roughly correspond to these stages of a
1.
company's development. Seed Money: Low level financing needed to prove a new idea (Often provided by "angel investors") Initial capital for a start-up venture Provided by friends and family, informal investors or by seed venture capital firms Often used to develop a business concept before a company is really started

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Indian Institute Of Planning & Management

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Cont....
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 Capital for a venture that has successfully passed the initial start-up phase. The business plan has been written and the product is under development. Usually provided by informal investors and / or seed venture capital firms Often used to further develop the product or service and in some cases to attract the first customers

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Indian Institute Of Planning & Management

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Cont.
4. Second-Round: Working capital for early stage
companies that are selling product, but not yet turning a profit Usually provided by venture capital firms and (investment) banks Often used for marketing purposes and growth of the company

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Indian Institute Of Planning & Management

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Cont.
5. Third-Round: Also called Mezzanine financing, this is
expansion money for a newly profitable company Sometimes another round of financing is necessary before being profitable. In other cases the money is used by profitable companies to be able to expand more aggressively than they could do otherwise.

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Indian Institute Of Planning & Management

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Cont.
6. Fourth-Round: Also called bridge financing, 4th round is intended
to finance the "going public" process Subsidies Dependent on the laws and regulations in a specific country, (startup) companies can often apply for subsidy by the public sector Loans In some cases banks are willing to provide loans to start-up companies, e.g. for financing working capital

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Indian Institute Of Planning & Management

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Venture Capital Decision Making

Given the complexities of venture financial statement analysis, determining when a trend indicates a problem requiring action can be quite complicated. As a result, VCs rely upon a combination of past experience and pattern matching to determine how best to interpret and respond to different situations. Past Experience. In analyzing any one particular company, VCs rely heavily upon prior experience. One venture investor characterized monitoring portfolio companies in a similar fashion to looking at art. You look at a lot of art, some is good, some is ok and some is bad. At some point, after seeing enough art, something inside clicks and you start to appreciate why certain art is good and more importantly why certain art is bad.
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Indian Institute Of Planning & Management

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Cont.
Pattern Matching. In addition to relying upon past experience and sense, venture investors rely heavily upon pattern matching. Pattern matching has been described by one VC as putting the different tiles together to see the whole picture. Examples of different tiles VCs would consider in forming an opinion would include: Activity within the portfolio can help an investor better understand whether or not an issue, facing one company is affecting other ones of a similar stage or sector. Performance of comparable companies outside of the portfolio can also be an indicator of whether or not a particular issue is unique to the company or affecting an entire segment.

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Indian Institute Of Planning & Management

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Presented By:
B.Vigneshwar V.Prathik A.Jashwanth S. Manoj V.Srinivas T.Raghu Prem A.Kiran Kumar
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