Investment capital and venture

capital

Dr. P. I. A. Gomes

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 Capital Investment (CI)
• Funds invested in a company by entrepreneurs.

• CI may also refer to firm's acquisition of capital assets or fixed assets such
as land and equipment that can be used for its business in the long run

• Types of CI: can be tangible as well as intangible

– Tangible: land , equipment,
– Intangible: patents, copy rights, goodwill

• Sources of capital investment are manifold, and can include equity

investors, banks, financial institutions, venture capital institutions etc.

• While CI is usually reserved for long-life assets, a portion may also be used
for working capital purposes.

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Venture capital

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 Venture capital (VC)

Risky undertaking
Risky action Amount invested
High risk activity

# VC means funds available for start ups or small businesses with high growth potential.
However, such business may have equal chances of success and failure.

# VC is a good financial support to young, rapidly growing companies that have the
potential to grow in to significant economic forces. Their proposed product or service
needs to be a unique idea

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 Features of VC
• Provided at early stage#, for small and immature
companies, but as venture capitalists see with a high
growth potential
• High risk for the investor (the one who supply capital)
• Liquidity preference
• Long term horizon

# It can be at any stage of business start-up, expansion or improve a product.

Anyway, VC is mostly needed at the start-up

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 Why VC is needed
• Finding capital in the conventional way (i.e. via
a bank loan) could be difficult for start up
businesses
• These businesses/companies may formed by
young technocrats with good knowledge
• Therefore, VC is to bridge the gap between
capital and knowledge

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 Examples of businesses started with VC

Mike Markkula was the VC

provider and became a one-
third owner of Apple and
became employee number 3

Steve Jobs

In 2004, venture
capitalist Peter Thiel
made a $500,000 in
Facebook for 10.2% and
joined Facebook's board,
which he sits up to date

Mark Zuckerberg
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 Sergey Brin

the major investors being rival venture capital

firms Kleiner Perkins Caufield & Byers and
Sequoia Capital…..

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 Some well known providers of venture
capital
• http://www.businessinsider.com/the-19-best-enterprise-
venture-capitalists-2013-5?op=1

Aneel Bhusri
Ben Horowitz Vinod Khosla

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 Advantages of VC
• To the entrepreneur (company/fund taker)
• To venture capitalist (investor/fund provider)
• Society/country/economy

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 Advantages to the
entrepreneur/company

• Essential capital/funds are at their disposal

• As most venture capitalists are well known
their active involvement will add value to the
company

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 Advantages to the Venture capitalist
• Venture capitalist is the person or firm that
makes venture investments. It is expected
these venture capitalists not only bring
money, but also their expertise in technology
and management to the business
• They are the ones that are willing to come
forward and take risks
• Most have a technological background
• Use of sometimes idling funds they have

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• Venture capital fund providers are usually very large institutions
such as pension funds, financial firms, insurance companies, and
university endowments— They have large funds at their disposal.
(e.g. Hong Kong Jockey club)

• What they do is simply allocate a small percentage of their total

funds into high-risk investments.

• They expect a return of between 25% and 35% per year (at least 10
times the amount invested in case of liquidation) over the lifetime
of the investment.

• Because these investments represent such a tiny part of the

institutional investors’ portfolios, venture capitalists have a lot of
autonomy.

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 Advantages to the Economy
• Invention and innovation drives the economy
• More employment opportunities
• Technical advantage over other countries

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Harvard Business Review
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 Funding process
Business plan submission

Meeting(s)

Due Diligence

Terms and funding

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(seed)

http://it4b.icsti.su/1000ventures_e/venture_financing/vfin_main.html

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 References
• Harvard Business Review
https://hbr.org/2013/05/six-myths-about-
venture-capitalists
• (should read the above)

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Thank you

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