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The greatest difficulty in the world

is not for people to accept new


ideas, but to make them forget old

VENTURE
CAPITAL
WHAT IS VC
FUNDING?
IS IT JUST THE STORY OF THE MAN WITH

THE idea AND THE MAN WITH THE MONEY


?

06/27/09 Indian Institute Of Planning & 2


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
06/27/09 Indian Institute Of Planning & 3
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
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such opportunities are likely
Indian Institute Of Planning & 4
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

06/27/09 Indian Institute Of Planning & 5


Management
VC Mainly
Looks at?
Promoter’s 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 Indian Institute Of Planning &
06/27/09 6
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 don’t
06/27/09 Indian Institute Of Planning & 7
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
Indian Institute Of Planning &
06/27/09 8
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
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portfolios with a range of
Indian Institute Of Planning & 9
Management
The Investment
Process
Deal Flow
Generation
Assessment
& Selection
Deal
making

Monitoring

Exit

06/27/09 Indian Institute Of Planning & 10


Management
Revenue
Stream For VC
Personal savings -- one can
fund the business from personal
savings or by raising personal
loans offering one’s personal
property as collateral security.
Bootstrapping – One can start
the business venture with the
limited available funds, and
then use the profits to further
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develop the business.
Indian Institute Of Planning & 11
Management
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
06/27/09 Indian Institute Of Planning & 12
Management
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
06/27/09 Indian Institute Of Planning & 13
Management
Trends In VC
Funding
There are typically six stages
of financing offered in
Venture Capital, that
roughly correspond to these
stages of a company's
development.
2. Seed Money: Low level
financing needed to prove
a new idea (Often provided
by "angel investors")
06/27/09 Indian Institute Of Planning & 14
Management
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
06/27/09 Indian Institute Of Planning & 15
Management
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
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purposes and growth of the
Indian Institute Of Planning & 16
Management
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
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companies to be able to
Indian Institute Of Planning & 17
Management
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, (start-up) companies
can often apply for subsidy by
the public sector
Loans
06/27/09 Indian Institute Of Planning & 18
Management
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
06/27/09 Indian Institute Of Planning & 19
Management
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
06/27/09 Indian Institute Of Planning & 20
Management
HA N
T Presented
By:
K B.Vigneshw V.Prathik

Y OU ar V.Srinivas S.
A.JashwanthA.Kiran Kumar
Manoj
06/27/09
T.RaghuIndian Institute Of Planning & 21
Management