How corporations issue

securities
Venture Capital
 Venture Capital
Venture Capitalists generally:
Finance new and rapidly growing
companies
Purchase equity securities
Assist in the development of new
products or services
Add value to the company through
active participation.
Characteristics of venture capital
Long time horizon

High risk

Equity participation

Participation in management
 Various stages of venture capital
Financial Seed money Start up First stage
stage
7 to 10 years 5 to 9 years 3 to 7 years
Period
Taken
extreme very high high
Risk
Involved
R&D for product Initializing Start commercials
Activity to development operations production and
be financed marketing
 Various stages of venture capital
Financial stage Second stage Third stage Forth stage

Period taken 3 to 5 years 1 to 3 years 1 to 3 years

Risk involved Sufficiently high medium low

Activity to be Expand market Market expansion, Facilitating public

financed and growing acquisition & issue
working capital product
need development for
profit making
company
 Public issue
Offer of securities to the public
1. Initial public offer
Fresh issue of securities or existing securities
First time to the public
Paves way to listing and trading in the
market
 Public issue
2. Follow on offer:
Fresh issue of securities by a listed company
or an offer for sale to the public
 Rights issue
When an issue of shares or convertible
securities is made by an
issuer to its existing shareholders as on a
particular date fixed by the issuer (i.e. record
date), it is called a rights issue.
offered in a particular ratio to the number of
shares or convertible securities held as on
the record date
 Bonus issue
Issue to the existing shareholders without
any consideration
Based on number of shares already held as
on a record date.
From free reserve or share premium account
 Private placement
any offer of securities or invitation to
subscribe securities to a select group of
persons by a company (other than by way of
public offer) through issue of a private
placement offer letter
An offer can be made under a Private
Placement Offer Letter to not more than
200 people.
 Private placement
The value of the Offer per person shall not
be less than INR 20,000 of face value of
securities
1. Preferential allotment
2. Qualified institutional placement
3. Institutional placement program
 Preferential allotment
Preferential allotment, on the other hand.
refers to issue of shares or other
securities by a company to any select person
or group of persons on a preferential basis
 Qualified institutional placement
QIP means allotment of eligible securities by a
listed company to Qualified Institutional Buyers
(QIBs) on private placement basis
The QIP Scheme is open for investment by
Qualified Institutional Buyers (QIBs) who are
institutional investors, ready to invest in the
capital market and these includes, public
financial institutions, scheduled commercial
banks, mutual funds, FIIs, provident funds,
pension funds, venture capital funds, insurance
companies, etc.
 Institutional placement program
IIP is opted by listed companies that have
not complied with minimum public holding
requirements. QIP is meant for listed
companies who are in compliance with
minimum public holding requirements.
 Merchant banker
Advise on the timing of the public issue.
Advise on the size and price of the issue.
Acting as manager to the issue, and helping
in accepting applications and allotment of
securities.
Help in appointing underwriters and brokers
to the issue.
Listing of shares on the stock exchange, etc.
 Underwriter
Buys and resells an issue of securities
Bear the risk of not being able to sell a
security at the established price
Spread
Difference between public-offer price and price
paid by underwriter
 The Initial Public Offering
Prospectus
Provides information on issue of securities

Underpricing
Issuing securities at price set below true value of
security
Figure 15.2 Motives for IPO
Alternative Issue Procedures for IPOs
Book building
Bookbuilder collects orders placed by potential
buyers and uses that as a guide to fix the price.
Open Auction
Securities sold to the highest bidder.
Private Placement
Sale of securities to limited investors with no public
offering
Shelf registration
Allowed only for public sector banks, financial
institutions and scheduled commercial banks.