Beruflich Dokumente
Kultur Dokumente
By Team -7
Team members
Praveen Kumar H Pavan M K Arun Kumar MC Ramesh Patil Sharan Kumar Praveen Pujari Lokesh Shivraj Shreekanth Shakti Prasad
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Agenda
An overview Debt or Equity Financing Internal or External Funds Funding from Banks and Financial institutions, Governmental and Developmental Sources, Private Placement, Types of Investors, Private Offerings, Bootstrap Financing, Venture Capital , Nature of Venture Capital, Approaching, presenting and obtaining the funds, FDI
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An overview
Three Core principles of entrepreneurial finance
CASH
FINANCE
RISK
TIME
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Finance strategy Degree of strategic freedom Time to OOC Time to close Future alternatives Risk/reward Personal concern
Financial Requirements
Driven by: Burn rate Operation needs Working capital Asset requirement And sales
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Debt Financing
Interest bearing instrument Indirectly related to sales & profits Some assets to be used as collateral Pay back the amount with interest Two types of debt financing
- Long term
- Purchase assets such as Machinery, land ,building etc. .
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Equity Financing
No collateral required & offers ownership position to investor Investor Shares profit & loss on Pro rata basis Depending on availability of funds, the assets & interest rate- investor will decide. Amount of equity depend on nature & size of venture Equity provides basis for Debt financing.
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Internal funds
Most frequently employed funds Sources: profits, sale of assets, reduction in WC, receivables, selling little used assets. Extended payment terms from suppliers. Collecting bills quickly Avoid this policy for mass merchandisers
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External funds
External source are evaluated on 3 basis
- Length of time the funds are available - The costs involved - Amount of company control lost
Sources :
- Self , family & friends, banks, small business administrative loans, R&D limited partnership, Govt grants etc. . . . . .
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PERSONAL FUNDS
Not only these are the least expensive funds in terms of cost & control, but they are absolutely essential in attracting outside funding. The outside providers of capital feel that the entrepreneur may not be sufficiently committed to the venture, if he/she doesnt have money invested. The invested amount by the entrepreneur may be negligible but valuable here to outside providers. It is the money which makes outside investors feel comfortable with here commitment level.
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Type of Loan
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Types of investors
An investor usually takes an equity position in the company, can influence the nature of the business to some extent , and even may be involved to some degree of the business operation. The investors may be classified into three types 1.The investors who want to be actively involved in the business operations 2.Those who desire at least an advisory role in the direction and operation of the venture and want to share its profits. 3.Others are more passive in nature , desiring no active involvement in the venture at all.
Regulation D
Regulation D contains 1.Broad provisions designed to simplify the private offerings, 2.General definitions of what constitutes a private offering, 3.Specific operating rules Rule504,Rule505,and Rule506..
Money given to a firm for developing a technology that involves a tax shelter.
When the entrepreneur is unable to secure a regular commercial bank loan, an alternative is a SBA Guaranty Loan. In this loan, SBA guarantees 80% of the amount loaned to the entrepreneurs business will be repaid by the SBA if the company cannot make payment.
Both long and short term loans can be guaranteed by the SBA.
State Bank of India has been playing a vital role in the development of small scale industries since 1956. The Bank has financed over 8 lakhs SSI units in the country. It has 55 specialised SSI branches, 99 branches in industrial estates and more than 400 branches with SIB divisions. The Bank finances for Small Business activities which are of special significance to a large number of people.
Various schemes of SBI for small and medium enterprises SMEs are as follows:
Traders Easy Loan Scheme SSI Loans Business Current Accounts Open Term Loan Retail Trade Doctor Plus Dental Doctor Plus SBI Shoppe Cyber Plus SME Credit Plus
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Small Business Credit Card SME Petro Credit Dal Mill Plus Paryatan Plus Transport Plus Transport Operations Auto Clean Eicher Motor Limited (EML) Auto Loan Charter for SSI Artisan Credit Card Rice Mills Plus School Plus Swarojgar Credit Card Flexi Loan
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BOOTSTRAP FINANCING
Definition: To finance your company's startup and growth with the assistance of or input from others. Bootstrapping is one of most effective and inexpensive ways to ensure a business' positive cash flow. Bootstrapping means less money has to be borrowed and interest costs are reduced. This becomes important when capital from debt & equity financing is more expensive.
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Venture Capital
Is a type of private equity capital typically provided for early-stage, highpotential, growth companies in the interest of generating a return . A venture capitalist is a person or investment firm that makes venture investments, and these venture capitalists are expected to bring managerial and technical expertise as well as capital to their investments. A venture capital fund refers to a pooled investment vehicle that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital market or bank loans. George Doriot, is the "father of venture capitalism.
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Over view of VC
Before World War II, venture capital investments (originally known as "development capital") were primarily the domain of wealthy individuals and families. ARDC is credited with the first major venture capital success story when its 1957 investment of $70,000 in Digital Equipment Corporation (DEC) would be valued at over $355 million after the company's initial public offering in 1968. The public successes of the venture capital industry in the 1970s and early 1980s. The growth of the industry was hampered by sharply declining returns and certain venture firms began posting losses for the first time.
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Cont
Professor Andrew Metrick refers to first 15 years of the modern venture capital industry beginning in 1980 as the "pre-boom period" in anticipation of the boom that would begin in 1995 and last through the bursting of the Internet Bubble in 2000. As a percentage of GDP, venture investment was 0.058% percent in 1994, peaked at 1.087% (nearly 19x the 1994 level) in 2000 and ranged from 0.164% to 0.182 % in 2003 and 2004.
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Developmen t Financing
40% ROI
Late Stage in Investments:- lower risks, faster returns, less managerial assistance and fewer deals to be evaluated.
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backgrounds, a strong commitment to the co., capabilities in their specific areas of expertise the ability to meet challenges and the flexibility to scramble wherever necessary.
THE PRODUCT/MKT OPPORTUNITY MUST BE UNIQUE,
having a differential
advantage in a growing market. Securing a unique niche is essential since the product or service must be able to compete & grow during the investment period.
BUSINESS OPPORTUNITY MUST HAVE A SIGNIFICANT CAPITAL APPRECIATION
The venture capitalist typically expects a 40 to 60 percent return on investment in most investment situations.
Four Stages
PRELIMINARY SCREENING
Starts with the receipt of Business Plan by the venture capitalist. Determines if
the deal or similar deals have been seen previously. Then, determines if the proposal fits his or her long-term needs in developing a portfolio balance.
Investigates the economy of the industry and evaluates weather he or she has
the appropriate knowledge and ability to invest in that industry. Reviews weather the deal can deliver the ROI required. The credentials and capability of the mgt team are evaluated to determine if they can carry out the plan presented.
AGREEMENT ON PRINCIPAL TERMS
The venture capitalist wants a basic understanding of the process before making the major commitment of the time and effort involved in the formal due diligence process.
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Stages Con
DETAILED REVIEW AND DUE DILIGENCE
It is the longest stage, involving anywhere from one to three months. There is a detailed review of the companys history, the business plan, the resumes of the
individuals, their financial history, and target customers. The upside potential
and downside risk are assessed; and there is a thorough evaluation of the markets, industry, finances, suppliers, customers and mgt.
FINAL APPROVAL
downright ugly!
Venture capitalists deal with hundreds of potential clients, and reject the majority of them
Instructions
Make professional contact with the venture capital firm. Know your product inside and out. Develop an airtight business plan. Find the right kind of venture capital firm. After making initial contact with the right firm, send an executive summary
Do your homework.
Be Concise.
Trade shows
Summary
FDI
FDI or Foreign Direct Investment is any form of investment that earns interest in enterprises which function outside of the domestic territory of the investor. FDIs require a business relationship between a parent company and its foreign subsidiary. The foreign direct investor may acquire 10% or more of the voting power of an enterprise in an economy through any of the following methods Foreign Direct Investment (FDI) equity inflows in the country have increased from US $ 5.5 billion in 2005-06 to US $ 27.31 billion in the year 2008-09. despite the economic slowdown, showing a percentage growth of 11% over the previous financial year.
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Methods of Foreign Direct Investments by incorporating a wholly owned subsidiary or company by acquiring shares in an associated enterprise through a merger or an acquisition of an unrelated enterprise participating in an equity joint venture with another investor or enterprise Policy Initiatives To strengthen higher overseas investment into cash-broke micro and small enterprises (MSEs), the government has liberalized the FDI norms for the sector replacing the current 24 per cent ceiling on foreign holding with the sectoral caps. These industries will now be guided like other large enterprises as far as FDI is concerned.
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THANK YOU
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